FEDERAL AGRICULTURAL MORTGAGE CORP 10-K

Item 8. Financial Statements Management's Report on Internal Control over Financial Reporting The management of Farmer Mac is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision of Farmer Mac's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Farmer Mac's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Farmer Mac's internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Farmer Mac; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Farmer Mac are being made only in accordance with authorizations of management and directors of Farmer Mac; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Farmer Mac's assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of Farmer Mac's Chief Executive Officer and Chief Financial Officer, Farmer Mac's management assessed the effectiveness of Farmer Mac's internal control over financial reporting as of December 31, 2023. In making this assessment, Farmer Mac's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) . Based on its evaluation under the COSO criteria, management concluded that Farmer Mac's internal control over financial reporting as of December 31, 2023 was effective. Farmer Mac's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of Farmer Mac's internal control over financial reporting as of December 31, 2023, as stated in their report appearing below. 114 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of the Federal Agricultural Mortgage Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of the Federal Agricultural Mortgage Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, 115 assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of AgVantage Farmer Mac Guaranteed Securities As disclosed by management, the Company guarantees and purchases general obligations of lenders and other financial institutions that are secured by pools of the types of loans eligible for purchase under Farmer Mac's Agricultural Finance or Rural Infrastructure Finance lines of business, which are referred to as AgVantage securities. As described in Notes 5 and 13 to the consolidated financial statements, the total unpaid principal balance of AgVantage securities as of December 31, 2023 was $10.0 billion, and the fair value of the AgVantage securities of December 31, 2023 was $9.6 billion. The fair value of AgVantage securities is estimated using a discounted cash flow model. The significant unobservable input used is the discount rate commensurate with the risks involved. The principal considerations for our determination that performing procedures relating to the valuation of AgVantage securities is a critical audit matter are (i) the high degree of audit effort in performing procedures and evaluating audit evidence related to the discount rate assumption used by management in 116 the valuation of the AgVantage securities, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of AgVantage securities, including controls over the model, data and assumption. These procedures also included, among others, (i) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of prices for a sample of AgVantage securities, and (ii) comparing management’s estimate to the independently developed range to evaluate the reasonableness of management’s estimate. Developing the independent range of prices involved testing the completeness and accuracy of data provided by management and independently developing the discount rate assumption. /s/ PricewaterhouseCoopers LLP Washington, District of Columbia February 23, 2024 We have served as the Company’s auditor since 2010. 117 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2023 December 31, 2022 (in thousands) Assets: Cash and cash equivalents $ 888,707 $ 861,002 Investment securities: Available-for-sale, at fair value (amortized cost of $ 5,060,135 and $ 4,769,426 , respectively) 4,918,931 4,579,564 Held-to-maturity, at amortized cost 53,756 45,032 Other investments 6,817 3,672 Total Investment Securities 4,979,504 4,628,268 Farmer Mac Guaranteed Securities: Available-for-sale, at fair value (amortized cost of $ 5,825,433 and $ 8,019,495 , respectively) 5,532,479 7,607,226 Held-to-maturity, at amortized cost 4,213,069 1,021,154 Total Farmer Mac Guaranteed Securities 9,745,548 8,628,380 USDA Securities: Trading, at fair value 1,241 1,767 Held-to-maturity, at amortized cost 2,354,171 2,409,834 Total USDA Securities 2,355,412 2,411,601 Loans: Loans held for investment, at amortized cost 9,623,119 9,008,979 Loans held for investment in consolidated trusts, at amortized cost 1,432,261 1,211,576 Allowance for losses ( 16,031 ) ( 15,089 ) Total loans, net of allowance 11,039,349 10,205,466 Financial derivatives, at fair value 37,478 37,409 Accrued interest receivable (includes $ 16,764 and $ 12,514 , respectively, related to consolidated trusts) 287,128 229,061 Guarantee and commitment fees receivable 49,832 47,151 Deferred tax asset, net 8,470 18,004 Prepaid expenses and other assets 132,954 266,768 Total Assets $ 29,524,382 $ 27,333,110 Liabilities and Equity: Liabilities: Notes payable $ 26,336,542 $ 24,469,113 Debt securities of consolidated trusts held by third parties 1,351,069 1,181,948 Financial derivatives, at fair value 117,131 175,326 Accrued interest payable (includes $ 9,407 and $ 8,081 , respectively, related to consolidated trusts) 181,841 117,887 Guarantee and commitment obligation 47,563 46,582 Accounts payable and accrued expenses 76,662 68,863 Reserve for losses 1,711 1,433 Total Liabilities 28,112,519 26,061,152 Commitments and Contingencies (Note 12) Equity: Preferred stock: Series C, par value $ 25 per share, 3,000,000 shares authorized, issued and outstanding 73,382 73,382 Series D, par value $ 25 per share, 4,000,000 shares authorized, issued and outstanding 96,659 96,659 Series E, par value $ 25 per share, 3,180,000 shares authorized, issued and outstanding 77,003 77,003 Series F, par value $ 25 per share, 4,800,000 shares authorized, issued and outstanding 116,160 116,160 Series G, par value $ 25 per share, 5,000,000 shares authorized, issued and outstanding 121,327 121,327 Common stock: Class A Voting, $ 1 par value, no maximum authorization, 1,030,780 shares outstanding 1,031 1,031 Class B Voting, $ 1 par value, no maximum authorization, 500,301 shares outstanding 500 500 Class C Non-Voting, $ 1 par value, no maximum authorization, 9,310,872 shares and 9,270,265 shares outstanding, respectively 9,311 9,270 Additional paid-in capital 132,919 128,939 Accumulated other comprehensive loss, net of tax ( 40,145 ) ( 50,843 ) Retained earnings 823,716 698,530 Total Equity 1,411,863 1,271,958 Total Liabilities and Equity $ 29,524,382 $ 27,333,110 The accompanying notes are an integral part of these consolidated financial statements. 118 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2023 2022 2021 (in thousands, except per share amounts) Interest income: Investments and cash equivalents $ 287,144 $ 82,659 $ 18,660 Farmer Mac Guaranteed Securities and USDA Securities 590,250 283,769 164,723 Loans 514,894 350,420 242,582 Total interest income 1,392,288 716,848 425,965 Total interest expense 1,064,741 445,908 204,014 Net interest income 327,547 270,940 221,951 (Provision for)/release of losses ( 858 ) ( 1,323 ) 860 Net interest income after (provision for)/release of losses 326,689 269,617 222,811 Non-interest income/(expense): Guarantee and commitment fees 16,712 13,040 12,669 Gains on financial derivatives 2,882 22,631 324 Gains on sale of mortgage loans — — 6,539 Gains/(losses) on trading securities 24 ( 51 ) ( 115 ) Gains on sale of available-for-sale investment securities — — 253 (Provision for)/release of reserve for losses ( 278 ) 517 1,327 Other income 4,171 2,551 2,069 Non-interest income 23,511 38,688 23,066 Operating expenses: 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 Real estate owned operating costs, net — 819 — Operating expenses 97,099 82,626 73,416 Income before income taxes 253,101 225,679 172,461 Income tax expense 53,098 47,535 36,372 Net income 200,003 178,144 136,089 Preferred stock dividends ( 27,165 ) ( 27,165 ) ( 24,677 ) Net income attributable to common stockholders $ 172,838 $ 150,979 $ 111,412 Earnings per common share: Basic earnings per common share $ 15.97 $ 14.00 $ 10.36 Diluted earnings per common share $ 15.81 $ 13.87 $ 10.27 The accompanying notes are an integral part of these consolidated financial statements. 119 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2023 2022 2021 (in thousands) Net income $ 200,003 $ 178,144 $ 136,089 Other comprehensive income/(loss): Net unrealized gains/(losses) on available-for-sale securities 59,640 ( 137,506 ) 8,867 Net changes in held-to-maturity securities ( 31,750 ) 259 ( 8,451 ) Net unrealized (losses)/gains on cash flow hedges ( 14,348 ) 68,012 22,084 Other comprehensive income/(loss) before tax 13,542 ( 69,235 ) 22,500 Income tax (expense)/benefit related to other comprehensive income/(loss) ( 2,844 ) 14,539 ( 4,724 ) Other comprehensive income/(loss) net of tax 10,698 ( 54,696 ) 17,776 Comprehensive income $ 210,701 $ 123,448 $ 153,865 The accompanying notes are an integral part of these consolidated financial statements. 120 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Accumulated Additional Other Preferred Stock Common Stock Paid-In Comprehensive Retained Total Shares Amount Shares Amount Capital Income/(Loss) Earnings Equity (in thousands) Balance as of December 31, 2020 14,980 $ 363,204 10,737 $ 10,737 $ 122,899 $ ( 13,923 ) $ 515,018 $ 997,935 Net Income — — — — — — 136,089 136,089 Other comprehensive income, net of tax — — — — — 17,776 — 17,776 Cash dividends: Preferred stock — — — — — — ( 24,677 ) ( 24,677 ) Common stock (cash dividend of $ 0.88 per share) — — — — — — ( 37,873 ) ( 37,873 ) Issuance of Series G Preferred Stock 5,000 121,327 — — — — — 121,327 Issuance of Class C Common Stock — — 29 29 116 — — 145 Stock-based compensation cost — — — — 4,310 — — 4,310 Other stock-based award activity — — — — ( 1,332 ) — — ( 1,332 ) Balance as of December 31, 2021 19,980 $ 484,531 10,766 $ 10,766 $ 125,993 $ 3,853 $ 588,557 $ 1,213,700 Net Income — — — — — — 178,144 178,144 Other comprehensive loss, net of tax — — — — — ( 54,696 ) — ( 54,696 ) Cash dividends: Preferred stock — — — — — — ( 27,165 ) ( 27,165 ) Common stock (cash dividend of $ 0.95 per share) — — — — — — ( 41,006 ) ( 41,006 ) Issuance of Class C Common Stock — — 35 35 190 — — 225 Stock-based compensation cost — — — — 4,625 — — 4,625 Other stock-based award activity — — — — ( 1,869 ) — — ( 1,869 ) Balance as of December 31, 2022 19,980 $ 484,531 10,801 $ 10,801 $ 128,939 $ ( 50,843 ) $ 698,530 $ 1,271,958 Net Income — — — — — — 200,003 200,003 Other comprehensive income, net of tax — — — — — 10,698 — 10,698 Cash dividends: Preferred stock — — — — — — ( 27,165 ) ( 27,165 ) Common stock (cash dividend of $ 1.10 per share) — — — — — — ( 47,652 ) ( 47,652 ) Issuance of Class C Common Stock — — 41 41 233 — — 274 Stock-based compensation cost — — — — 6,801 — — 6,801 Other stock-based award activity — — — — ( 3,054 ) — — ( 3,054 ) Balance as of December 31, 2023 19,980 $ 484,531 10,842 $ 10,842 $ 132,919 $ ( 40,145 ) $ 823,716 $ 1,411,863 The accompanying notes are an integral part of these consolidated financial statements. 121 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended 2023 2022 2021 (in thousands) Cash flows from operating activities: Net income $ 200,003 $ 178,144 $ 136,089 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities ( 17,025 ) 720 17,314 Amortization of debt premiums, discounts, and issuance costs 31,421 19,656 6,780 Net change in fair value of trading securities, hedged items, and financial derivatives 78,249 689,998 205,701 Gain on the sale of available-for-sale investment securities — — ( 253 ) Gain on the sale of mortgage loans — — ( 6,539 ) Total provision for/(release of) allowance for losses 1,136 806 ( 2,187 ) Excess tax benefits related to stock-based awards 523 101 292 Deferred income taxes 6,690 12,406 ( 1,630 ) Stock-based compensation expense 6,801 4,624 4,311 Proceeds from repayment of loans purchased as held for sale 24,378 33,311 46,968 Net change in: Interest receivable ( 63,944 ) ( 63,777 ) 4,446 Guarantee and commitment fees receivable ( 1,700 ) 1,043 ( 34 ) Other assets 54,369 ( 126,054 ) ( 9,830 ) Accrued interest payable 63,954 58,884 ( 9,526 ) Custodial deposit liability ( 10,778 ) ( 7,666 ) 44,955 Other liabilities 1,721 7,075 ( 445 ) Net cash provided by operating activities 375,798 809,271 436,412 Cash flows from investing activities: Purchases of available-for-sale and held-to-maturity investment securities ( 1,573,707 ) ( 2,472,056 ) ( 2,004,911 ) Purchases of other investment securities ( 3,145 ) ( 2,443 ) ( 1,229 ) Purchases of Farmer Mac Guaranteed Securities and USDA Securities ( 4,453,284 ) ( 5,275,733 ) ( 4,380,901 ) Purchases of loans held for investment ( 2,164,053 ) ( 2,592,924 ) ( 2,916,493 ) Purchases of defaulted loans — — ( 8,713 ) Proceeds from repayment of available-for-sale and held-to-maturity investment securities 1,397,096 1,440,201 1,740,000 Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 3,478,124 4,429,364 4,027,726 Proceeds from repayment of loans purchased as held for investment 1,363,588 1,321,989 1,889,408 Proceeds from sale of loans previously classified as held for investment — 9,000 301,393 Proceeds from sale of available-for-sale investment securities — — 257,524 Proceeds from sale of Farmer Mac Guaranteed Securities — 99,643 — Net cash used in investing activities ( 1,955,381 ) ( 3,042,959 ) ( 1,096,196 ) Cash flows from financing activities: Proceeds from issuance of discount notes 49,291,165 52,470,273 61,112,365 Proceeds from issuance of medium-term notes 8,274,618 9,031,116 11,173,147 Proceeds from third parties from issuance of debt securities of consolidated trusts 222,188 258,198 — Payments to redeem discount notes ( 48,138,591 ) ( 54,085,418 ) ( 60,743,066 ) Payments to redeem medium-term notes ( 7,862,450 ) ( 5,192,159 ) ( 10,586,370 ) Payments to third parties on debt securities of consolidated trusts ( 102,045 ) ( 226,291 ) ( 480,272 ) Proceeds from common stock issuance 233 192 117 Proceeds from preferred stock issuance, net of stock issuance costs — — 121,327 Tax payments related to share-based awards ( 3,013 ) ( 1,835 ) ( 1,305 ) Dividends paid on common and preferred stock ( 74,817 ) ( 68,171 ) ( 61,315 ) Net cash provided by financing activities 1,607,288 2,185,905 534,628 Net change in cash and cash equivalents 27,705 ( 47,783 ) ( 125,156 ) Cash and cash equivalents at beginning of period 861,002 908,785 1,033,941 Cash and cash equivalents at end of period $ 888,707 $ 861,002 $ 908,785 Cash paid during the period for: Interest 582,960 269,327 198,593 Income taxes 48,000 33,800 36,300 Non-cash activity: Loans securitized as Farmer Mac Guaranteed Securities 36,497 162,875 113,175 Loans held for investment transferred to consolidated trusts 281,027 297,713 — Reclassification of loans held for investment to loans held for sale — — 301,551 The accompanying notes are an integral part of these consolidated financial statements. 122 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION The Federal Agricultural Mortgage Corporation ("Farmer Mac") is a stockholder-owned, federally chartered instrumentality of the United States established under Title VIII of the Farm Credit Act of 1971, as amended (12 U.S.C. §§ 2279aa et seq.), which is sometimes referred to as Farmer Mac's charter. Farmer Mac was originally created by the United States Congress to provide a secondary market for a variety of loans made to borrowers in rural America. This secondary market is designed to increase the availability of long-term credit at stable interest rates to America's rural communities and to provide rural borrowers with the benefits of capital markets pricing and product innovation. Farmer Mac's secondary market activities include: • purchasing eligible loans directly from lenders (including participation interests, syndicated notes, revolving and non-revolving credit facilities, and unfunded commitments to make advances on loans); • guaranteeing and purchasing securities issued by lenders and other financial institutions that are secured by pools of eligible loans (Farmer Mac refers to these securities as "AgVantage," a registered trademark of Farmer Mac); • issuing and guaranteeing securities that represent interests in, or obligations secured by, pools of eligible loans (together with AgVantage, Farmer Mac refers to these securities as "Farmer Mac Guaranteed Securities"); • servicing (including as master servicer) eligible loans purchased or securitized by Farmer Mac; and • providing long-term standby purchase commitments ("LTSPCs") for eligible loans. Farmer Mac conducts its secondary market activities through two lines of business — Agricultural Finance and Rural Infrastructure Finance. For more information about those lines of business and the segments within them, see Note 14 - Business Segments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Farmer Mac conform with accounting principles generally accepted in the United States of America ("generally accepted accounting principles" or "GAAP"). The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following are the significant accounting policies that Farmer Mac follows in preparing and presenting its consolidated financial statements: (a) Principles of Consolidation The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation, whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Securities included in the 123 Agricultural Finance line of business. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary. (b) Cash and Cash Equivalents Farmer Mac considers cash on hand and highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents . (c) Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities Securities for which Farmer Mac has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. Securities for which Farmer Mac does not have the positive intent and ability to hold to maturity are classified as available-for-sale or trading and are carried at estimated fair value. Unrealized gains and losses on available-for-sale securities are reported as a component of accumulated other comprehensive income in stockholders' equity. For securities classified as trading, unrealized gains and losses are included in earnings. Gains and losses on the sale of available-for-sale and trading securities are determined using the specific identification cost method. Farmer Mac determines the fair value of investment securities using quoted market prices, when available. Farmer Mac determines the fair values of certain investment securities for which quoted market prices are not available, Farmer Mac Guaranteed Securities, and USDA Securities based on the present value of the associated expected future cash flows. In estimating the present value of the expected future cash flows, management is required to make estimates and assumptions. The key estimates and assumptions include discount rates and collateral repayment rates. Premiums, discounts, and other deferred costs are amortized to interest income using the effective interest method. Farmer Mac generally receives compensation when loans with yield maintenance provisions underlying Farmer Mac Guaranteed Securities prepay. These yield maintenance payments mitigate Farmer Mac's exposure to reinvestment risk and are calculated such that, when reinvested with the prepaid principal, they should generate substantially the same cash flows that would have been generated had the loans not prepaid. Yield maintenance payments are recognized as interest income in the consolidated statements of operations upon receipt. Interest Income Recognition on Interest-Only Farmer Mac Guaranteed Securities ("IO-FMGS") Farmer Mac recognizes interest income for its IO-FMGS by applying the effective yield methodology required by GAAP for financial assets that are either not of high credit quality at the time of acquisition or can be contractually prepaid or otherwise settled in such a way that Farmer Mac would not recover substantially all of its recorded investment. The amount of periodic interest income recognized is determined by applying the IO-FMGS effective interest rate to its amortized cost basis (or “reference amount”). At the time of acquisition, the effective interest rate is calculated by solving for the single discount rate that equates the present value of Farmer Mac's best estimate of the amount and timing of the cash flows expected to be collected from the IO-FMGS to its purchase cost. To prepare its best estimate of cash flows expected to be collected, Farmer Mac develops a number of assumptions about the future performance of the pool of mortgage loans that serve as collateral, including assumptions about the timing and amount of prepayments and credit losses. In each subsequent quarterly reporting period, the amount and timing of cash flows expected to be collected from the IO-FMGS are re-estimated based upon current information and events. 124 (d) Loans Loans for which Farmer Mac has the positive intent and ability to hold for the foreseeable future are classified as held for investment and reported at their unpaid principal balance, net of unamortized purchase discounts or premiums. Loans for which Farmer Mac does not have the positive intent and ability to hold for the foreseeable future are classified as held for sale and reported at the lower of cost or fair value determined on a pooled basis. Farmer Mac de-recognizes sold loans, and recognizes any associated gain or loss, when they have been legally isolated from Farmer Mac, the buyer has the right to pledge or exchange them, and Farmer Mac does not maintain effective control over them. When Farmer Mac consolidates a trust, it recognizes the loans underlying the trust in the consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost." See Note 2(o) for more information on the accounting policy related to consolidation. Non-accrual Loans Non-accrual loans are loans for which it is probable that Farmer Mac will be unable to collect all amounts due according to the contractual terms of the loan agreement and include all loans 90 days or more past due. When a loan becomes 90 days past due, interest accrual on the loan is discontinued and interest previously accrued is reversed against interest income in the current period. The interest on such loans is accounted for on the cash basis until a loan qualifies for return to accrual status. Loans are returned to accrual status when all the principal and interest payments contractually due are collected and certain performance criteria are met. (e) Securitization Securitization involves the transfer of financial assets to another entity in exchange for cash and/or beneficial interests in the assets transferred. Farmer Mac or third parties transfer agricultural mortgage loans, Rural Infrastructure loans, or USDA securities into trusts that are used as vehicles for the securitization of the transferred financial assets. The trusts issue Farmer Mac Guaranteed Securities that are beneficial interests in the assets of the trusts, to either Farmer Mac or third-party investors. Farmer Mac guarantees principal and interest payments on the securities issued by the trusts and receives guarantee fees as compensation for its guarantee. Farmer Mac recognizes guarantee fees on the accrual basis over the terms of the Farmer Mac Guaranteed Securities, which generally coincide with the terms of the underlying loans. As such, no guarantee fees are unearned at the end of any reporting period. Farmer Mac is required to perform under its guarantee obligation when the underlying loans for the off-balance sheet Farmer Mac Guaranteed Securities do not make their scheduled installment payments. When a loan underlying a Farmer Mac Guaranteed Security (other than Farmer Mac Guaranteed Securities structured as real estate mortgage investment conduits under 26 U.S.C. §§ 860A-860G) becomes 90 days or more past due, Farmer Mac may, in its sole discretion, repurchase the loan from the trust and generally does repurchase such loans, thereby reducing the principal balance of the outstanding Farm & Ranch Guaranteed Security. When Farmer Mac purchases a delinquent loan underlying a Farmer Mac Guaranteed Security, Farmer Mac stops accruing the guarantee fee upon loan purchase. If Farmer Mac repurchases a loan that is collateral for a Farmer Mac Guaranteed Security, Farmer Mac would have the right to enforce the terms of the loan, and in the event of a default, would have access to the underlying collateral. Farmer Mac typically recovers its investment in the defaulted loans purchased 125 either through borrower payments, loan payoffs, payments by third parties, or foreclosure and sale of the collateral securing the loans. Farmer Mac has recourse to the USDA for any amounts advanced for the timely payment of principal and interest on Farmer Mac Guaranteed USDA Securities. That recourse is the USDA guarantee, a full-faith-and-credit obligation of the United States that becomes enforceable if a lender fails to repurchase the USDA-guaranteed portion from its owner within 30 days after written demand from the owner when (a) the borrower under the guaranteed loan is in default not less than 60 days in the payment of any principal or interest due on the USDA-guaranteed portion, or (b) the lender has failed to remit to the owner the payment made by the borrower on the USDA-guaranteed portion or any related loan subsidy within 30 days after the lender's receipt of the payment. Transfers of Financial Assets Farmer Mac accounts for transfers of financial assets as sales when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of Farmer Mac's continuing involvement with the assets transferred. Gains and losses stemming from transfers reported as sales are included in “Gain on sale of mortgage loans” in the accompanying consolidated statements of operations. Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the consolidated balance sheets at fair value. In fourth quarter 2021, Farmer Mac executed a structured securitization of a $ 299.4 million pool of Farm & Ranch loans. The securitization consisted of two classes of securities, Class A and Class B. The Class A securities are backed by 92.5 % of the pool and is guaranteed by Farmer Mac. The Class B Tranche is backed by the remaining 7.5 % of the pool. Credit losses on the entire pool are first allocated to the Class B securities. As a result of the transaction, Farmer Mac recognized the following: 1. A guarantee asset and liability related to the guarantee fees and the obligation to stand ready to perform on the guarantee to the Class A security holders. 2. A servicing asset related to Farmer Mac’s role as Master and Central Servicer. Farmer Mac will earn a related servicing fee. 3. A retained interest-only strip of a Farmer Mac Guaranteed Security (IO-FMGS) security. The above assets and liabilities were initially recorded on the consolidated balance sheets at fair value. For more information on fair value measurement see Footnote 13. The securitization trust used to effect this transaction was a variable interest entity that Farmer Mac does not consolidate. See Table 2.4 below for more information about these trusts. Gains or losses arising from securitization are recorded as the difference between the transferred loans’ carrying values and the sum of (a) the initial fair value of the assets or liabilities received and (b) net cash proceeds. For the year ended December 31, 2021, Farmer Mac recorded $ 6.5 million in gains attributable to securitization activity. These gains were reported in “Gains on sale of mortgage loans” in the consolidated statements of operations. Farmer Mac recorded no gains attributable to securitization activity for both the years ended December 31, 2023 and 2022. 126 (f) Financial Derivatives Farmer Mac enters into financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets, future cash flows or debt issuance, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk and, often times, deriving an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market. Accounting for financial derivatives differs depending on whether a derivative is designated in a hedge accounting relationship. Derivative instruments designated in fair value hedge accounting relationships mitigate exposure to changes in the fair value of assets or liabilities. Derivative instruments designated in cash flow hedge accounting relationships mitigate exposure to the variability in expected future cash flows or other forecasted transactions. In order to qualify for fair value or cash flow hedge accounting treatment, documentation must indicate the intention to designate the derivative as a hedge of a specific asset, or liability, or a future cash flow. Effectiveness of the hedge is assessed before the end of the quarter of inception and monitored over the life of the hedging relationship. Changes in the fair values of financial derivatives not designated as cash flow or fair value hedges were 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 hedged items related to the risk being hedged are reported in the same interest income or expense line item as income or expense from the hedged financial asset or liability in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge relationships are also recorded in "Net interest income" in the consolidated statements of operations. For financial derivatives designated in cash flow hedge 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 variable 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. Collateralized Agreements and Offsetting Arrangements Over-the-Counter Derivatives Farmer Mac uses master netting and collateral agreements to reduce our credit risk exposure to our over-the-counter derivative ("OTC") counterparties for interest-rate swap derivatives. Master netting agreements provide for the netting of amounts receivable and payable from an individual counterparty, as well as posting of collateral in the form of cash depending on which party is in a liability position. 127 Farmer Mac has master netting agreements in place with most of our OTC derivative counterparties. The market value of each counterparty's derivatives outstanding is calculated to determine the amount of our net credit exposure, which is equal to the market value of derivatives in net gain position by counterparty after giving consideration to collateral posted. In the event a counterparty defaults on its obligation under the derivatives agreement and the default is not remedied in the manner prescribed by the agreement, Farmer Mac has a right under the agreement to sell the collateral. As a result, Farmer Mac's use of master netting and collateral agreements reduce our exposure to our counterparties in the event of default. Cleared Derivatives The majority of Farmer Mac's interest-rate swaps are subject to the central clearing requirement. Changes in the value of cleared derivatives are settled daily via payments made through the clearinghouse. Farmer Mac nets the exposure by clearinghouse and clearing member. See Notes 6 and 13 for more information on financial derivatives. (g) Notes Payable Debt issuance costs and premiums and discounts are deferred and amortized to interest expense using the effective interest method over the contractual life of the related debt. (h) Allowance for Losses and Reserve for Losses Farmer Mac's allowance for credit losses represents the difference between the carrying amount of the related financial instruments and the present value of their expected cash flows discounted at their effective interest rates, as of the respective balance sheet date. Farmer Mac's reserve for credit losses represents the difference between the outstanding amount of off-balance sheet credit exposures and the present value of their expected cash flows discounted at their effective interest rates. Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac Guaranteed Securities (collectively referred to as "allowance for losses"). Farmer Mac also maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (collectively referred to as "reserve for losses"). Both the allowance for losses and reserve for losses are based on historical information and reasonable and supportable forecasts. Farmer Mac has never experienced a credit loss in its Rural Infrastructure Finance line of business. Farmer Mac measures its expected credit losses for the expected life of all financial instruments, including its Rural Infrastructure Finance loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities and renewable industries. The allowance for losses increases through periodic provisions for loan losses that are charged against net interest income and the reserve for losses increases through provisions for losses that are charged to non-interest expense. Both the allowance for losses and reserve for losses are decreased by charge-offs for realized losses, net of recoveries. Releases from the allowance for losses or reserve for losses occur when 128 the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of the period. The total allowance for losses consists of the allowance for losses and the reserve for losses. Charge-offs Farmer Mac records a charge-off from the allowance for losses when either a) a loan, or a portion of a loan, is deemed uncollectible; or b) a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan. The charge-off equals the excess of the recorded investment in the loan over the fair value of the collateral less estimated selling costs. Estimation Methodology Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical model, which incorporates credit loss history and reasonable and supportable forecasts. Farmer Mac's estimation methodology includes the following key components: • An economic model for each portfolio, including Agricultural Finance loans (Corporate AgFinance and Farm & Ranch), Rural Infrastructure Finance loans (Rural Utilities and Renewable Energy), and AgVantage Securities; • A migration matrix for each portfolio that reasonably predicts the movement of each financial asset among various risk categories over the course of each asset's expected life (the migration matrix forms the basis for our estimate of the probability of default of each financial asset); • A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac would incur upon the default of each financial asset; • An economic factor forecast that updates the migration matrix model and the LGD model with current assumptions for the economic indicators that Farmer Mac has determined are most correlated with or relevant to the performance of each portfolio of assets (including Gross Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity prices); and • A discounted cash flow analysis, which relies upon each of the above model outputs, plus the contractual terms of each financial asset, and the effective interest rate of each financial asset. Management evaluates these assumptions by considering many relevant factors, including: • economic conditions; • geographic and agricultural commodity/product concentrations in the portfolio; • the credit profile of the portfolio, including risk ratings and financial metrics; • delinquency trends of the portfolio; • historical charge-off and recovery activities of the portfolio; and • other factors to capture current portfolio trends and characteristics that differ from historical experience. Management believes that its methodology produces a reasonable estimate of expected credit losses, as of the balance sheet date, for the expected life of all of its financial assets. 129 Allowance for Loss on Available-for-Sale (AFS) Securities To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those impaired securities that: 1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that Farmer Mac will be required to sell before recovering its amortized cost basis. In assessing whether a credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss. However, the amount of that allowance is limited by the amount that the security’s fair value is less than its amortized cost basis. Accrued interest receivable is recorded separately on the Consolidated Balance Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable. Collateral Dependent Assets ("CDAs") CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral by Farmer Mac. Farmer Mac estimates the current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it, and any applicable credit protection such as a guarantee. (i) Earnings Per Common Share Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock unit awards. The following schedule reconciles basic and diluted EPS for the years ended December 31, 2023, 2022 and 2021: Table 2.1 For the Years Ended December 31, 2023 2022 2021 Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share Net Income Weighted-Average Shares $ per Share (in thousands, except per share amounts) Basic EPS Net income attributable to common stockholders $ 172,838 10,829 $ 15.97 $ 150,979 10,791 $ 14.00 $ 111,412 10,758 $ 10.36 Effect of dilutive securities (1) SARs and restricted stock units — 108 ( 0.16 ) — 92 ( 0.13 ) — 88 ( 0.09 ) Diluted EPS $ 172,838 10,937 $ 15.81 $ 150,979 10,883 $ 13.87 $ 111,412 10,846 $ 10.27 (1) For years ended December 31, 2023, 2022 and 2021, SARs and restricted stock units of 32,683 , 32,448 , and 39,326 respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the years ended December 31, 2023, 2022 and 2021, contingent shares of unvested restricted stock units of 30,648 , 18,535 , and 18,183 respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met. 130 (j) Income Taxes Deferred federal income tax assets and liabilities are established for temporary differences between financial and taxable income and are measured using the current enacted statutory tax rate. Income tax expense is equal to the income taxes payable in the current year plus the net change in the deferred tax asset or liability balance. Deferred tax assets are measured at rates enacted for the periods in which they are expected to be realized. To the extent rates change, the deferred tax asset will be adjusted to reflect the new rate. A increase in corporate tax rates would result in an increase in the value of the deferred tax asset. Farmer Mac evaluates its tax positions quarterly to identify and recognize any liabilities related to uncertain tax positions in its federal income tax returns. Farmer Mac uses a two-step approach in which income tax benefits are recognized if, based on the technical merits of a tax position, it is more likely than not (a probability of greater than 50%) that the tax position would be sustained upon examination by the taxing authority, which includes all related appeals and litigation process. The amount of tax benefit recognized is then measured at the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with the taxing authority, considering all information available at the reporting date. Farmer Mac's policy for recording interest and penalties associated with uncertain tax positions is to record them as a component of income tax expense. Farmer Mac establishes a valuation allowance for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining its deferred tax asset valuation allowance, Farmer Mac considered its taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback and carryforward periods available under the tax law and the impact of possible tax planning strategies. (k) Stock-Based Compensation Farmer Mac accounts for its stock-based employee compensation plans using the grant date fair value method of accounting. Farmer Mac measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award determined using the Black-Scholes option pricing model. The cost is recognized over the period during which an employee is required to provide service in exchange for the award. For performance-based grants, Farmer Mac recognizes the grant-date fair value over the vesting period as long as it remains probable that the performance conditions will be met. If the service or performance conditions are not met, Farmer Mac reverses previously recognized compensation expense upon forfeiture. Farmer Mac recognized $ 6.8 million, $ 4.6 million, and $ 4.3 million of compensation expense related to SARs and non-vested restricted stock unit awards for 2023, 2022, and 2021, respectively. (l) Comprehensive Income Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes. 131 The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the years ended December 31, 2023, 2022, and 2021. Table 2.2 Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total (in thousands) Balance as of January 1, 2021 $ ( 13,937 ) $ 22,829 $ ( 22,815 ) ( 13,923 ) Other comprehensive income before reclassifications 9,114 — 11,602 20,716 Amounts reclassified from AOCI ( 2,109 ) ( 6,676 ) 5,845 ( 2,940 ) Net comprehensive income/(loss) 7,005 ( 6,676 ) 17,447 17,776 Balance as of December 31, 2021 $ ( 6,932 ) $ 16,153 $ ( 5,368 ) $ 3,853 Other comprehensive (loss)/income before reclassifications ( 108,624 ) — 54,688 ( 53,936 ) Amounts reclassified from AOCI ( 5 ) 204 ( 959 ) ( 760 ) Net comprehensive (loss)/income ( 108,629 ) 204 53,729 ( 54,696 ) Balance as of December 31, 2022 $ ( 115,561 ) $ 16,357 $ 48,361 $ ( 50,843 ) Other comprehensive income/(loss) before reclassifications 47,114 ( 25,199 ) 4,973 26,888 Amounts reclassified from AOCI — 118 ( 16,308 ) ( 16,190 ) Net comprehensive income/(loss) 47,114 ( 25,081 ) ( 11,335 ) 10,698 Balance as of December 31, 2023 $ ( 68,447 ) $ ( 8,724 ) $ 37,026 $ ( 40,145 ) 132 The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the years ended December 31, 2023, 2022, and 2021: Table 2.3 For the Years Ended December 31, 2023 2022 2021 Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax (in thousands) Other comprehensive income: Available-for-sale-securities: Unrealized holding gains/(losses) on available-for-sale securities $ 59,640 $ 12,526 $ 47,114 $ ( 137,500 ) $ ( 28,876 ) $ ( 108,624 ) $ 11,537 $ 2,423 $ 9,114 Less reclassification adjustments included in: Net interest income (1) — — — — — — ( 2,333 ) ( 490 ) ( 1,843 ) Gains on sale of available-for-sale investment securities (2) — — — — — — ( 253 ) ( 53 ) ( 200 ) Other income (2) — — — ( 6 ) ( 1 ) ( 5 ) ( 84 ) ( 18 ) ( 66 ) Total $ 59,640 $ 12,526 $ 47,114 $ ( 137,506 ) $ ( 28,877 ) $ ( 108,629 ) $ 8,867 $ 1,862 $ 7,005 Held-to-maturity securities: Change in fair value (3) $ ( 31,898 ) $ ( 6,699 ) $ ( 25,199 ) $ — $ — $ — $ — $ — $ — Less reclassification adjustments included in: Net interest income (4) 148 30 118 259 55 204 ( 8,451 ) ( 1,775 ) ( 6,676 ) Total $ ( 31,750 ) $ ( 6,669 ) $ ( 25,081 ) $ 259 $ 55 $ 204 $ ( 8,451 ) $ ( 1,775 ) $ ( 6,676 ) Cash flow hedges Unrealized gains on cash flow hedges $ 6,295 $ 1,322 $ 4,973 $ 69,225 $ 14,537 $ 54,688 $ 14,685 $ 3,083 $ 11,602 Less reclassification adjustments included in: Net interest income (5) ( 20,643 ) ( 4,335 ) ( 16,308 ) ( 1,213 ) ( 254 ) ( 959 ) 7,399 1,554 5,845 Total $ ( 14,348 ) $ ( 3,013 ) $ ( 11,335 ) $ 68,012 $ 14,283 $ 53,729 $ 22,084 $ 4,637 $ 17,447 Other comprehensive income/(loss) $ 13,542 $ 2,844 $ 10,698 $ ( 69,235 ) $ ( 14,539 ) $ ( 54,696 ) $ 22,500 $ 4,724 $ 17,776 (1) Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting. (2) Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. (3) Represents the accumulated unrealized loss on the AgVantage Securities transferred from available-for-sale to held-to-maturity. (4) Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income. (5) Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI. (m) Guarantees Farmer Mac accounts for its LTSPCs as guarantees. LTSPCs and securitization trusts where Farmer Mac is not the primary beneficiary result in the creation of guarantee obligations for Farmer Mac. Farmer Mac records, at the inception of a guarantee or LTSPC, a liability for the fair value of its obligation to stand ready to perform under the terms of each guarantee or LTSPC and an asset that is equal to the fair value of 133 the fees that will be received over the life of each guarantee or LTSPC. The fair values of the guarantee obligation and asset at inception are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Because the cash flows of these instruments may be interest rate path dependent, these values and projected discount rates are derived using a Monte Carlo simulation model. The guarantee obligation and corresponding asset are later amortized into guarantee and commitment fee income in relation to the decrease in the unpaid principal balance on the underlying Agricultural Finance real estate mortgage loans and Rural Infrastructure Finance loans. See Note 2(h) for Farmer Mac's policy for estimating probable losses for LTSPCs. (n) Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, Farmer Mac uses various valuation approaches, including market and income based approaches. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness before use in the consolidated financial statements. Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements. Fair Value Classification and Transfers The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The following three levels are used to classify fair value measurements: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly. Level 3 Prices or valuations that require unobservable inputs that are significant to the fair value measurement. Farmer Mac performs a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Farmer Mac's assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors 134 specific to the instrument. While Farmer Mac believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to determine fair value could result in a materially different estimate of fair value for some financial instruments. The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of those instruments under the valuation hierarchy described above. Recurring Fair Value Measurements and Classification Available-for-Sale and Trading Investment Securities The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices for identical securities in active markets. Farmer Mac classifies these fair value measurements as "Level 1." For a significant portion of Farmer Mac's investment portfolio, including most asset-backed securities, senior agency debt securities, and Government/GSE guaranteed mortgage-backed securities, fair value is primarily determined using a reputable and nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades on similar securities. The fair value of certain asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations from brokers or dealers. Farmer Mac corroborates its primary valuation source by obtaining a secondary price from another independent third-party pricing service. Farmer Mac classifies these fair value measurements as "Level 2." For certain investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach. Farmer Mac maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility, and prepayment rates. Farmer Mac generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is limited availability of public market information. Farmer Mac classifies these fair value measurements as "Level 3." Available-for-Sale and Trading Farmer Mac Guaranteed Securities and USDA Securities Farmer Mac estimates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by discounting the projected cash flows of these instruments at discount rates commensurate with the risks involved. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Farmer Mac classifies these fair value measurements as Level 3 because there is limited market activity and therefore require the use of significant unobservable inputs in estimating the fair value. Financial Derivatives The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical financial instruments. Farmer Mac classifies these fair value measurements as Level 1. 135 Farmer Mac's derivative portfolio consists primarily of interest rate swaps and forward sales contracts on the debt of other GSEs. Farmer Mac estimates the fair value of these financial instruments primarily based upon a third-party accounting and valuation system. The third-party accounting and valuation system determines the fair value of the interest rate swaps using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). Farmer Mac also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. The credit valuation adjustments associated with Farmer Mac’s derivatives utilize model-derived credit spreads, which are Level 3 inputs. As of December 31, 2023, Farmer Mac has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these interest rate contracts and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivative portfolio. As a result, Farmer Mac classifies these derivative instruments as Level 2 due to the observable nature of the significant inputs utilized. Farmer Mac also internally values its derivative portfolio using a discounted cash flow valuation technique and obtains counterparty valuations to corroborate management's estimate of fair value, which is based upon a third-party accounting and valuation system. See Note 13 for more information about fair value measurement. (o) Consolidation of Variable Interest Entities Farmer Mac has interests in various entities that are considered to be VIEs. These interests include investments in securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed securities created pursuant to Farmer Mac's securitization transactions and mortgage- and asset-backed trusts that Farmer Mac did not create. The consolidation model uses a qualitative evaluation that requires consolidation of an entity when the reporting enterprise both: (1) has the power to direct matters which significantly impact the activities and success of the entity, and (2) has exposure to benefits and/or losses that could potentially be significant to the entity. The reporting enterprise that meets both these conditions is deemed the primary beneficiary of the VIE. Upon consolidation of a VIE, Farmer Mac accounts for the incremental assets and liabilities initially at their carrying amounts. The VIEs in which Farmer Mac has a variable interest are limited to securitization trusts. Given the interests Farmer Mac holds, the major factor in determining if Farmer Mac is the primary beneficiary is whether Farmer Mac has the power to direct the activities of the trust that potentially have the most significant impact on the economic performance of the trust. Generally, the ability to make decisions regarding default mitigation is evidence of that power. Farmer Mac determined that it is the primary beneficiary for the securitization trusts related to most Agricultural Finance securitization transactions because of its rights as guarantor under both programs to control the default mitigation activities of the trusts. For certain securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac Guaranteed Securities, Farmer Mac determined that it was not the primary beneficiary since the power to make decisions regarding default mitigation was shared among unrelated parties. For these trusts, the shared power provisions are substantive with respect to decision-making power and relate to the same activity (i.e., default mitigation). For similar securitization transactions where the power to make decisions regarding default mitigation was shared with a related party, Farmer Mac determined that it was the primary beneficiary because the applicable accounting guidance does not permit parties within a related 136 party group to conclude that the power is shared. In the event that a related party status changes, consolidation or deconsolidation of these securitization trusts could occur. For those trusts that Farmer Mac is the primary beneficiary, the assets and liabilities are presented on the consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost" and "Debt securities of consolidated trusts held by third parties," respectively. These assets can only be used to satisfy the obligations of the related trust. For those trusts in which Farmer Mac has a variable interest but is not the primary beneficiary, Farmer Mac's interests are presented as either "Farmer Mac Guaranteed Securities," "USDA Securities," or "Investment securities" on the consolidated balance sheets. Farmer Mac's involvement in VIEs classified as Farmer Mac Guaranteed Securities or USDA Securities include securitization trusts under the Agricultural Finance line of business. In the case of USDA guaranteed trusts, Farmer Mac is not determined to be the primary beneficiary because it does not have the decision-making power over default mitigation activities. Based on the USDA's program authority over the servicing and default mitigation activities of the USDA guaranteed portions of loans, Farmer Mac believes that the USDA has the power to direct the activities that most significantly impact the trust's economic performance. Farmer Mac does not have exposure to losses that could be significant to the trust and there are no triggers that would result in Farmer Mac superseding the USDA's authority with regard to directing the activities of the trust. For VIEs classified as investment securities, which include auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE") guaranteed mortgage-backed securities, Farmer Mac is determined not to be the primary beneficiary because of the lack of voting rights or other powers to direct the activities of the trust. In 2021, Farmer Mac executed a structured securitization of a $ 299.4 million pool of Farm & Ranch loans. For more information about this securitization, see Note 2(e) - Securitization. The securitization trust used to effect this transaction was a variable interest entity that Farmer Mac has not consolidated. Farmer Mac determined that it was not the primary beneficiary of the securitization trust because the subordinate class majority holder has the unilateral right to remove Farmer Mac as Master Servicer with or without cause. 137 The following tables present, by segment, details about the consolidation of VIEs: Table 2.4 Consolidation of Variable Interest Entities As of December 31, 2023 Agricultural Finance Treasury Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,432,261 $ — $ 1,432,261 Debt securities of consolidated trusts held by third parties (1)(2) 1,351,069 — 1,351,069 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value 46,343 — 46,343 Maximum exposure to loss (3) 45,952 — 45,952 Investment securities: Carrying value (4) — 3,676,555 3,676,555 Maximum exposure to loss (3) (4) — 3,862,006 3,862,006 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 452,602 — 452,602 (1) Includes borrower remittances of $ 6.0 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2023. (2) Includes $ 87.1 million in unamortized discount related to structured securitization transactions. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments. (5) The amount under the Agricultural Finance line of business relates to unconsolidated trusts where it was determined that Farmer Mac was either not the primary beneficiary due to shared power with an unrelated party or a subordinate class majority holder has the unilateral right to remove Farmer Mac as Master Servicer without cause. 138 Consolidation of Variable Interest Entities As of December 31, 2022 Agricultural Finance Treasury Total (in thousands) On-Balance Sheet: Consolidated VIEs: Loans held for investment in consolidated trusts, at amortized cost $ 1,211,576 $ — $ 1,211,576 Debt securities of consolidated trusts held by third parties (1)(2) 1,181,948 — 1,181,948 Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Carrying value 28,466 — 28,466 Maximum exposure to loss (3) 31,208 — 31,208 Investment securities: Carrying value (4) — 3,138,619 3,138,619 Maximum exposure to loss (3) (4) — 3,341,427 3,341,427 Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities: Maximum exposure to loss (3) (5) 500,953 — 500,953 (1) Includes borrower remittances of $ 8.1 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2022. (2) Includes $ 37.7 million in unamortized discount related to a structured securitization transaction. (3) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss. (4) Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments. (5) The amount under the Agricultural Finance line of business relates to unconsolidated trusts where it was determined that Farmer Mac was either not the primary beneficiary due to shared power with an unrelated party or a subordinate class majority holder has the unilateral right to remove Farmer Mac as Master Servicer without cause. (p) Custodial Deposit Liability Farmer Mac, as a servicer, collects cash from borrowers in advance of the borrower's contractual payment date. Farmer Mac's policy is to include the cash in the consolidated balance sheet as "Cash and cash equivalents" with an offsetting liability to "Accounts payable and accrued expenses" until the payment is contractually due, at which point the payment is applied to the loan. The net change in the amount of this custodial cash will also be disclosed in the consolidated statements of cash flows as "Custodial deposit liability." (q) Business Segments Farmer Mac's Chief Operating Decision Maker ("CODM") – its President and Chief Executive Officer – reviews financial information of seven operating segments, which are reportable segments. The CODM reviews the financial information of the seven segments to make decisions about allocating resources and to assess the financial performance of those segments. The seven reportable segments are: Farm & Ranch, Corporate AgFinance, Rural Utilities, Renewable Energy, Funding, Investments, and Corporate. The purpose of the alignment of the company's segments is for the CODM to review and analyze financial performance according to the type of customer and market rather than according to the type of product offerings. The financial information for the Funding and Investments segments allow the CODM to review the results of the company's Treasury activities. All operating expenses are managed at the 139 enterprise level and are reported within the Corporate segment rather than allocated to any of the other segments. The operations and financial results of the Farm & Ranch and Corporate AgFinance segments are within our Agricultural Finance line of business. The Farm & Ranch segment includes the financial results of the USDA Securities portfolio and Farm & Ranch loans. The Corporate AgFinance segment includes loans and AgVantage securities to larger and more complex farming operations, agribusinesses focused on food and fiber processing, and other supply chain production. The Rural Utilities and Renewable Energy segments are within our Rural Infrastructure Finance line of business. The Rural Utilities segment includes loans to rural electric generation and transmission cooperatives, distribution cooperatives, and telecommunications providers, as well as AgVantage securities secured by those types of loans. The Renewable Energy segment includes loans to rural electric solar and wind energy projects. The Funding segment includes the financial results of the company's debt issuance, hedging, asset/liability management, and capital allocation strategies. The company allocates interest expense to each of the other segments (except Corporate) using a funds transfer pricing process. That process also allocates the benefits and costs from the company's funding and hedging strategies to the Funding segment. The Investments segment includes the financial results of the company's investment portfolio, which is held for liquidity purposes. Interest expense is allocated to the Investments segment using the same funds transfer pricing process that is used to allocate interest expense to the other segments. The Corporate segment includes all of the company's operating expenses, including compensation, general and administrative expenses, and regulatory fees. The Corporate segment also includes items of other income and preferred stock dividend expense. Farmer Mac uses the non-GAAP financial measure "core earnings" to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. The main difference between core earnings and net income attributable to common stockholders is that core earnings excludes the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with generally accepted accounting principles if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. This corporate economic performance measure may not be comparable to similarly labeled measures disclosed by other companies. 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. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties (single-class), which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated 140 trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship. (r) New Accounting Standards Recently Adopted Accounting Guidance Standard Description Date of Adoption Effect on Consolidated Financial Statements ASU 2020-04 and 2021-01 , Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. January 1, 2020 During the second quarter 2023, Farmer Mac adopted optional expedients including those relating to qualifying hedging relationships and contract modification relief and, since September 30, 2023, has no further exposure to LIBOR. To date, these elections did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. Farmer Mac does not expect to elect further expedients through the ending date of December 31, 2024. ASU 2022-06 , Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 The amendments in this Update deferred the sunset date in Topic 848 from December 31, 2022 to December 31, 2024. December 21, 2022 Farmer Mac does not expect to elect further expedients through the ending date of December 31, 2024. ASU 2022-02 , Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures The Update addresses and amends areas identified by the Financial Accounting Standards Board as part of its post-implementation review of the accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. January 1, 2023 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. ASU 2022-01 , Fair Value Hedging - Portfolio Layer Method The Update introduces the portfolio layer method, which expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method (previously named, last-of-layer method). It also expands the scope of the portfolio layer method to include non-prepayable assets, specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio, and provides that an entity may reclassify HTM debt securities identified within 30 days of the date of adoption to AFS if the entity applies portfolio layer method hedging to those debt securities. January 1, 2023 Farmer Mac adopted this guidance as of January 1, 2023. Farmer Mac does not currently hedge interest rate risk for single closed portfolios of financial assets, so adoption of this guidance had no effect on Farmer Mac's financial condition, results of operations, cash flows, or disclosures given current strategies. 141 Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements Standard Description Effect on Consolidated Financial Statements ASU 2023-07 , Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures The amendments in this Update require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. This Update also requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this Update and existing disclosures in Topic 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively. Early adoption is permitted. Farmer Mac is still assessing the effect on our annual consolidated financial statement disclosures, however, adoption will not have a material impact on Farmer Mac's financial position, results of operations, or cash flows. ASU 2023-09 , Income Taxes (Topic 740): Improvements to Income Tax Disclosures The Update provides guidance on improvements to annual income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. Additionally, public entities must provide a separate disclosure for any reconciling item that meets a quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. Early adoption is permitted. Farmer Mac is still assessing the impact of the new accounting standard but does not expect that adoption of the new guidance will have a material impact on Farmer Mac's financial position, results of operations, or cash flows. (s) Reclassifications Certain reclassifications of prior period information were made to conform to the current period presentation. The reclassifications of prior period information were not material to the consolidated financial statements. 3. RELATED PARTY TRANSACTIONS Farmer Mac considers an entity to be a related party if (1) the entity holds at least 5 % of a class of Farmer Mac voting common stock or (2) the institution has an affiliation with a Farmer Mac director and conducts material business with Farmer Mac. 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 Farm Credit System may hold Farmer Mac's Class B voting common stock. Farmer Mac's statutory charter also provides that Class A stockholders elect 5 members of Farmer Mac's 15 -member board of directors and that Class B stockholders elect 5 members of the board of directors. Farmer Mac generally requires financial institutions to own a requisite amount of common stock, based on the size and type of institution, to participate in the Agricultural Finance line of business. As a result of these requirements, Farmer Mac conducts business with related parties in the normal course of Farmer Mac's business. All related party transactions were conducted with terms and conditions comparable to those available to any other participant in Farmer Mac's lines of business not related to Farmer Mac. 142 Zions Bancorporation, National Association : Farmer Mac considers Zions Bancorporation, National Association and its affiliates ("Zions") a related party because Zions owns approximately 31.2 % of Farmer Mac's Class A voting common stock. The following transactions occurred between Farmer Mac and Zions during 2023, 2022, and 2021: Table 3.1 For the Years Ended December 31, 2023 2022 2021 (in thousands) Unpaid Principal Balance: Purchases: Loans $ 160,079 $ 274,517 $ 214,319 USDA Securities 231 4,171 9,565 Sales of Farmer Mac Guaranteed Securities — 99,643 — The purchases of loans from Zions under the Agricultural Finance line of business represented approximately 9.5 %, 12.9 %, and 8.0 % of Agricultural Finance mortgage loan purchases for the years ended December 31, 2023, 2022, and 2021, respectively, and 6.9 %, 9.6 % and 5.6 %, respectively, of total Agricultural Finance mortgage loan business volume (excluding AgVantage and USDA Securities). The purchases of USDA Securities from Zions represented approximately 0.1 %, 1.5 %, and 2.1 % of total purchases of USDA Securities for the years ended December 31, 2023, 2022, and 2021, respectively. Outstanding Agricultural Finance mortgage loans purchased and USDA Securities purchased from Zions represented 3.1 % and 3.5 %, respectively, of Farmer Mac's outstanding business volume (excluding loans serviced for others) as of December 31, 2023 and 2022. Zions retained servicing fees of $ 11.2 million, $ 10.4 million, and $ 11.0 million in 2023, 2022, and 2021, respectively, for its work as a Farmer Mac servicer. National Rural Utilities Cooperative Financial Corporation : Farmer Mac considers the National Rural Utilities Cooperative Financial Corporation ("CFC") a related party because CFC owns approximately 7.91 % of Farmer Mac's Class A voting common stock and because a member of Farmer Mac's board of directors had an affiliation with CFC through June 2021. The following transactions occurred between Farmer Mac and CFC during 2023, 2022, and 2021: Table 3.2 Farmer Mac Loan Purchases and Guarantees For the Years Ended December 31, 2023 2022 2021 (in thousands) Unpaid Principal Balance: Loans $ 298,254 $ 386,998 $ 127,117 LTSPCs — 30,421 — AgVantage Securities 1,450,000 670,000 1,450,000 Total purchases and guarantees $ 1,748,254 $ 1,087,419 $ 1,577,117 143 The transactions with CFC represented 37.1 % of Farmer Mac's loan purchase volume under the Rural Infrastructure Finance line of business for 2023, compared to 46.7 % of Rural Infrastructure Finance loan purchase volume for 2022 and 36.9 % for 2021. These transactions represented 33.8 %, 13.4 %, and 37.0 % of AgVantage securities volume for 2023, 2022, and 2021, respectively, and represented 22.6 %, 12.0 %, and 18.4 % of new business volume for 2023, 2022, and 2021, respectively. Of Farmer Mac's total outstanding business volume (excluding loans serviced for others) as of December 31, 2023 and 2022, Rural Utilities loans, loans under LTSPCs, and AgVantage securities issued by CFC represented 20.4 % and 18.7 %, respectively. Farmer Mac had interest receivable of $ 27.0 million and $ 18.2 million as of December 31, 2023 and 2022, respectively, and earned interest income of $ 143.5 million, $ 79.4 million, and $ 50.0 million during 2023, 2022, and 2021, respectively, related to its AgVantage transactions with CFC. As of both December 31, 2023 and 2022, Farmer Mac had $ 0.1 million of commitment fees receivable from CFC and earned commitment fees of $ 1.0 million , $ 1.1 million, and $ 1.2 million, respectively for 2023, 2022, and 2021. CFC retained servicing fees of $ 3.7 million, $ 3.4 million, and $ 3.3 million in 2023, 2022, and 2021, respectively, for its work as a Farmer Mac central servicer. CoBank : Farmer Mac considers CoBank a related party because CoBank owns approximately 32.6 % of Farmer Mac's Class B voting common stock. Farmer Mac purchased $ 438.8 million, $ 376.0 million, and $ 207.5 million of loans and participations from CoBank, under the Rural Infrastructure Finance and Agricultural Finance lines of business in 2023, 2022, and 2021, respectively. Of Farmer Mac's total outstanding business volume as of December 31, 2023 and 2022, CoBank's loans, participations, and unfunded commitments represented 6.7 % and 6.3 %, respectively, of total outstanding volume (excluding loans serviced for others). CoBank retained servicing fees of $ 3.6 million, $ 3.5 million, and $ 3.2 million in 2023, 2022, and 2021, respectively, for its work as a Farmer Mac central servicer. AgFirst Farm Credit Bank : Farmer Mac considers AgFirst Farm Credit Bank ("AgFirst") a related party because AgFirst owns approximately 16.8 % of Farmer Mac's Class B voting common stock. AgFirst entered into no Agricultural Finance LTSPC transactions in either 2023 or 2022, and entered into $ 11.0 million of Agricultural Finance LTSPC transactions in 2021. The aggregate balance of Agricultural Finance LTSPCs outstanding as of December 31, 2023 and 2022 was $ 447.3 million and $ 387.1 million, respectively. In 2023, 2022, and 2021, Farmer Mac received $ 1.4 million, $ 1.2 million, and $ 1.2 million, respectively, in commitment fees from AgFirst, and had $ 0.1 million of commitment fees receivable as of both December 31, 2023 and 2022. AgFirst owns certain securities backed by rural housing loans. Farmer Mac guarantees the last ten percent of losses (based on the original principal balance at the time of pooling) from each loan in the pool 144 backing those securities. As of December 31, 2023 and 2022, the outstanding balance of those securities owned by AgFirst was $ 1.8 million and $ 2.2 million, respectively. Farmer Mac received guarantee fees of $ 12,000 , $ 15,000 , and $ 19,000 in 2023, 2022, and 2021, respectively, on those securities. Farm Credit Bank of Texas : Farmer Mac considers Farm Credit Bank of Texas a related party because the bank owns approximately 7.7 % of Farmer Mac's Class B voting common stock. Farmer Mac received from Farm Credit Bank of Texas commitment fees of $ 3.4 million, $ 2.9 million, and $ 1.9 million in 2023, 2022, and 2021, respectively. The aggregate amount of Agricultural Finance LTSPCs outstanding with Farm Credit Bank of Texas as of December 31, 2023 and 2022 was $ 923.9 million and $ 881.6 million, respectively. In each of 2023, 2022, and 2021, Farm Credit Bank of Texas retained $ 0.1 million in servicing fees for its work as a Farmer Mac central servicer. 4. INVESTMENT SECURITIES The following tables set forth information about Farmer Mac's available-for-sale and held-to-maturity investment securities as of December 31, 2023 and 2022: Table 4.1 As of December 31, 2023 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 27 ) $ — $ ( 591 ) $ 19,082 Floating rate Government/GSE guaranteed mortgage-backed securities 2,454,009 ( 1,138 ) 2,452,871 — 1,212 ( 29,649 ) 2,424,434 Fixed rate GSE guaranteed mortgage-backed securities 1,727,669 ( 46,788 ) 1,680,881 — 6,558 ( 117,824 ) 1,569,615 Floating rate U.S. Treasuries 50,000 ( 17 ) 49,983 — — ( 15 ) 49,968 Fixed rate U.S. Treasuries 869,585 ( 12,885 ) 856,700 — 2,074 ( 2,942 ) 855,832 Total available-for-sale 5,120,963 ( 60,828 ) 5,060,135 ( 27 ) 9,844 ( 151,021 ) 4,918,931 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 53,756 — 53,756 — 1,745 — 55,501 Total held-to-maturity $ 53,756 $ — $ 53,756 $ — $ 1,745 $ — $ 55,501 (1) Amounts presented exclude $ 15.9 million of accrued interest receivable on investment securities as of December 31, 2023. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 6.7 % as of December 31, 2023. 145 As of December 31, 2022 Amount Outstanding Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,700 $ — $ 19,700 $ ( 33 ) $ — $ ( 640 ) $ 19,027 Floating rate Government/GSE guaranteed mortgage-backed securities 2,433,696 ( 200 ) 2,433,496 — 1,954 ( 42,910 ) 2,392,540 Fixed rate GSE guaranteed mortgage-backed securities 1,207,416 ( 30,321 ) 1,177,095 — 2,128 ( 130,837 ) 1,048,386 Fixed rate U.S. Treasuries 1,145,915 ( 6,780 ) 1,139,135 — 621 ( 20,145 ) 1,119,611 Total available-for-sale 4,806,727 ( 37,301 ) 4,769,426 ( 33 ) 4,703 ( 194,532 ) 4,579,564 Held-to-maturity: Floating rate Government/GSE guaranteed mortgage-backed securities (3) 45,032 — 45,032 — 2,433 — 47,465 Total held-to-maturity $ 45,032 $ — $ 45,032 $ — $ 2,433 $ — $ 47,465 (1) Amounts presented exclude $ 10.6 million of accrued interest receivable on investment securities as of December 31, 2022. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) The held-to-maturity investment securities had a weighted average yield of 4.5 % as of December 31, 2022. Farmer Mac did no t sell any securities from its available-for-sale investment portfolio during the years ended December 31, 2023 and 2022. During the year ended December 31, 2021, Farmer Mac received proceeds of $ 257.5 million, from the sale of securities from its available-for-sale investment portfolio, resulting in gains of $ 0.3 million. As of December 31, 2023 and 2022, unrealized losses on available-for-sale investment securities were as follows: Table 4.2 As of December 31, 2023 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,082 $ ( 591 ) Floating rate Government/GSE guaranteed mortgage-backed securities 568,759 ( 4,395 ) 1,449,122 ( 25,254 ) Fixed rate Government/GSE guaranteed mortgage-backed securities 384,305 ( 4,262 ) 905,759 ( 113,562 ) Floating rate U.S. Treasuries 49,969 ( 15 ) — — Fixed rate U.S. Treasuries 140,435 ( 606 ) 237,192 ( 2,336 ) Total $ 1,143,468 $ ( 9,278 ) $ 2,611,155 $ ( 141,743 ) Number of securities in loss position 91 162 146 As of December 31, 2022 Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (dollars in thousands) Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,027 $ ( 640 ) Floating rate Government/GSE guaranteed mortgage-backed securities 1,884,146 ( 36,976 ) 193,964 ( 5,934 ) Fixed rate Government/GSE guaranteed mortgage-backed securities 621,215 ( 56,434 ) 336,782 ( 74,403 ) Fixed rate U.S. Treasuries 314,524 ( 2,842 ) 704,780 ( 17,303 ) Total $ 2,819,885 $ ( 96,252 ) $ 1,254,553 $ ( 98,280 ) Number of securities in loss position 174 51 The unrealized losses presented above are principally due to a general widening of market spreads and changes in the levels of interest rates from the dates of acquisition to December 31, 2023 and December 31, 2022, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of both December 31, 2023 and 2022, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government, a U.S. government sponsored enterprise, or had credit ratings of at least "AA+." Securities in unrealized loss positions for 12 months or longer have a fair value as of December 31, 2023 that is, on average, approximately 94.9 % of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity, changes in credit spread, and changes in levels of interest rates. The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of December 31, 2023 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 4.3 As of December 31, 2023 Available-for-Sale Securities Amortized Cost Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 567,615 $ 565,976 1.75 % Due after one year through five years 1,191,428 1,173,923 4.25 % Due after five years through ten years 2,489,410 2,386,411 4.39 % Due after ten years 811,682 792,621 5.72 % Total $ 5,060,135 $ 4,918,931 4.27 % 147 5. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of December 31, 2023 and 2022: Table 5.1 As of December 31, 2023 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 4,206,324 $ ( 29,622 ) $ 4,176,702 $ ( 209 ) $ 4,676 $ ( 39,451 ) $ 4,141,718 Farmer Mac Guaranteed USDA Securities 36,543 33 36,576 — 107 ( 806 ) 35,877 Total Farmer Mac Guaranteed Securities 4,242,867 ( 29,589 ) 4,213,278 ( 209 ) 4,783 ( 40,257 ) 4,177,595 USDA Securities 2,331,093 23,078 2,354,171 — 417 ( 319,783 ) 2,034,805 Total held-to-maturity $ 6,573,960 $ ( 6,511 ) $ 6,567,449 $ ( 209 ) $ 5,200 $ ( 360,040 ) $ 6,212,400 Available-for-sale: AgVantage $ 5,816,024 $ — $ 5,816,024 $ ( 317 ) $ 16,416 $ ( 309,411 ) $ 5,522,712 Farmer Mac Guaranteed Securities (3) — 9,409 9,409 — 358 — 9,767 Total available-for-sale $ 5,816,024 $ 9,409 $ 5,825,433 $ ( 317 ) $ 16,774 $ ( 309,411 ) $ 5,532,479 Trading: USDA Securities (4) $ 1,236 $ 64 $ 1,300 $ — $ — $ ( 59 ) $ 1,241 (1) Amounts presented exclude $ 47.2 million, $ 67.4 million, and $ 42,000 of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 2023. (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) Fair value includes $ 9.8 million of an interest-only security with a notional amount of $ 238.4 million. (4) The trading USDA securities had a weighted average yield of 5.46 % as of December 31, 2023. As of December 31, 2022 Unpaid Principal Balance Unamortized Premium/(Discount) Amortized Cost (1) Allowance for losses (2) Unrealized Gains Unrealized Losses Fair Value (in thousands) Held-to-maturity: AgVantage $ 1,000,689 $ ( 95 ) $ 1,000,594 $ ( 59 ) $ 353 $ ( 54,098 ) $ 946,790 Farmer Mac Guaranteed USDA Securities 20,586 33 20,619 — 2 ( 856 ) 19,765 Total Farmer Mac Guaranteed Securities 1,021,275 ( 62 ) 1,021,213 ( 59 ) 355 ( 54,954 ) 966,555 USDA Securities 2,384,946 24,888 2,409,834 — 668 ( 312,824 ) 2,097,678 Total held-to-maturity $ 3,406,221 $ 24,826 $ 3,431,047 $ ( 59 ) $ 1,023 $ ( 367,778 ) $ 3,064,233 Available-for-sale: AgVantage $ 8,008,067 $ 806 $ 8,008,873 $ ( 546 ) $ 2,061 $ ( 411,009 ) $ 7,599,379 Farmer Mac Guaranteed Securities (3) — 10,622 10,622 — — ( 2,775 ) 7,847 Total available-for-sale $ 8,008,067 $ 11,428 $ 8,019,495 $ ( 546 ) $ 2,061 $ ( 413,784 ) $ 7,607,226 Trading: USDA Securities (4) $ 1,770 $ 80 $ 1,850 $ — $ — $ ( 83 ) $ 1,767 (1) Amounts presented exclude $ 51.5 million, $ 44.4 million, and $ 47,000 of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 2022. 148 (2) Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors. (3) Fair value includes $ 7.8 million of an interest-only security with a notional amount of $ 250.1 million. (4) The trading USDA securities had a weighted average yield of 4.84 % as of December 31, 2022. On July 1, 2023, Farmer Mac transferred $ 2.7 billion of AgVantage Securities from available-for-sale to held-to-maturity to reflect Farmer Mac's positive intent and ability to hold these securities until maturity or payoff. Farmer Mac transferred these securities at fair value as of the date of the transfer, which included a cost basis adjustment of unrealized losses of $ 31.9 million. The accumulated unrealized losses were retained in accumulated other comprehensive income in the amount of $ 31.9 million. Both the cost basis adjustment and accumulated unrealized depreciation will be amortized as an adjustment to the yield on the held-to-maturity AgVantage Securities over the remaining term of the transferred securities. As of December 31, 2023 and 2022, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows: Table 5.2 As of December 31, 2023 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 2,070,770 $ ( 6,705 ) $ 725,347 $ ( 32,746 ) Farmer Mac Guaranteed USDA Securities — — 8,393 ( 806 ) USDA Securities — — 2,023,801 ( 319,783 ) Total held-to-maturity $ 2,070,770 $ ( 6,705 ) $ 2,757,541 $ ( 353,335 ) Available-for-sale: AgVantage $ 508,182 $ ( 5,716 ) $ 4,043,431 $ ( 303,695 ) Farmer Mac Guaranteed Securities — — — — Total available-for-sale $ 508,182 $ ( 5,716 ) $ 4,043,431 $ ( 303,695 ) 149 As of December 31, 2022 Held-to-Maturity and Available-for-Sale Securities Unrealized loss position for less than 12 months Unrealized loss position for more than 12 months Fair Value Unrealized Loss Fair Value Unrealized Loss (in thousands) Held-to-maturity: AgVantage $ 548,634 $ ( 11,455 ) $ 382,358 $ ( 42,643 ) Farmer Mac Guaranteed USDA Securities 19,790 ( 856 ) — — USDA Securities 2,086,108 ( 312,824 ) — — Total held-to-maturity $ 2,654,532 $ ( 325,135 ) $ 382,358 $ ( 42,643 ) Available-for-sale: AgVantage $ 4,642,096 $ ( 267,886 ) $ 1,548,551 $ ( 143,123 ) Farmer Mac Guaranteed Securities 7,847 ( 2,775 ) — — Total available-for-sale $ 4,649,943 $ ( 270,661 ) $ 1,548,551 $ ( 143,123 ) The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to December 31, 2023 and 2022, as applicable. The credit exposure related to Farmer Mac's USDA Securities in the Agricultural Finance line of business is covered by the full faith and credit guarantee of the United States of America. The unrealized losses from AgVantage securities were on 68 and 95 available-for-sale securities as of December 31, 2023 and 2022, respectively. There were 53 and 37 held-to-maturity AgVantage securities with an unrealized loss as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, 62 and 13 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months. As of December 31, 2023 and 2022, there were 22 and 4 held-to-maturity AgVantage securities, respectively, in a loss position for more than 12 months. During the three years ended December 31, 2023, 2022, and 2021 Farmer Mac had no sales of AgVantage Farmer Mac Guaranteed Securities, USDA Farmer Mac Guaranteed Securities or USDA Trading Securities and, therefore, Farmer Mac realized no gains or losses. 150 The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of December 31, 2023 are set forth below. The balances presented are based on their contractual maturities, although the actual maturities may differ due to prepayments of the underlying assets. Table 5.3 As of December 31, 2023 Available-for-Sale Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 643,100 $ 636,408 3.31 % Due after one year through five years 2,801,674 2,706,830 3.54 % Due after five years through ten years 1,425,000 1,343,146 3.75 % Due after ten years 955,659 846,095 3.55 % Total $ 5,825,433 $ 5,532,479 3.56 % (1) Amounts presented exclude $ 47.2 million of accrued interest receivable. As of December 31, 2023 Held-to-Maturity Securities Amortized Cost (1) Fair Value Weighted- Average Yield (dollars in thousands) Due within one year $ 1,862,524 $ 1,860,072 5.69 % Due after one year through five years 1,755,763 1,716,466 4.62 % Due after five years through ten years 279,166 244,568 3.57 % Due after ten years 2,669,996 2,391,294 4.27 % Total $ 6,567,449 $ 6,212,400 4.76 % (1) Amounts presented exclude $ 67.4 million of accrued interest receivable. 6. FINANCIAL DERIVATIVES Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes. Certain financial derivatives are designated as fair value hedges of fixed rate assets, classified as available-for-sale, to protect against fair value changes in the assets related to changes in a benchmark interest rate (e.g., SOFR). Certain other financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt. Certain financial derivatives are not designated in hedge accounting relationships. Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet permanently funded, primarily through the use of futures contracts involving U.S. Treasury securities. Farmer Mac aims to achieve a duration-matched hedge ratio between the hedged item and the hedge instrument. Gains or losses generated by these hedge transactions are expected to offset changes in funding costs. All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability. 151 The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements. The table below includes accrued interest on cleared swaps, but excludes $ 16.4 million and $ 6.1 million of accrued interest receivable and $ 6.5 million and $ 3.6 million of accrued interest payable on uncleared swaps as of December 31, 2023 and 2022, respectively. The aforementioned accrued interest on uncleared swaps is included within Accrued Interest Receivable and Accrued Interest Payable on the consolidated balance sheets. Table 6.1 As of December 31, 2023 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Receive fixed non-callable $ 9,776,685 $ 2,350 $ ( 20,390 ) 5.57 % 2.94 % 1.78 Pay fixed non-callable 9,174,253 7,767 ( 1,081 ) 2.50 % 5.47 % 9.57 Receive fixed callable 3,879,827 7,374 ( 95,984 ) 5.40 % 3.40 % 2.48 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 558,000 20,234 ( 43 ) 1.94 % 5.82 % 4.30 No hedge designation: Interest rate swaps: Pay fixed non-callable 160,623 676 ( 29 ) 2.92 % 5.64 % 4.34 Receive fixed non-callable 1,358,396 263 ( 3 ) 5.44 % 4.87 % 0.64 Basis swaps 850,384 39 ( 746 ) 5.52 % 5.48 % 3.83 Treasury futures 21,300 11 ( 91 ) 112.51 Netting adjustments (1) ( 1,236 ) 1,236 Total financial derivatives $ 25,779,468 $ 37,478 $ ( 117,131 ) (1) Amounts represent the application of the netting requirements that allow Farmer Mac to settle positive and negative positions, including accrued interest, held or placed with the same clearing agent. 152 As of December 31, 2022 Fair Value Weighted- Average Pay Rate Weighted- Average Receive Rate Weighted- Average Forward Price Weighted- Average Remaining Term (in years) Notional Amount Asset (Liability) (dollars in thousands) Fair value hedges: Interest rate swaps: Receive fixed non-callable $ 10,033,750 $ 19 $ ( 4,686 ) 4.31 % 2.03 % 1.64 Pay fixed non-callable 8,149,871 13,689 ( 366 ) 2.23 % 4.33 % 10.76 Receive fixed callable 2,764,577 461 ( 174,757 ) 4.21 % 1.98 % 3.18 Cash flow hedges: Interest rate swaps: Pay fixed non-callable 588,000 27,275 — 1.93 % 4.72 % 5.05 No hedge designation: Interest rate swaps: Pay fixed non-callable 187,479 1,065 ( 1 ) 3.05 % 4.09 % 4.52 Receive fixed non-callable 287,750 — ( 130 ) 4.31 % 1.16 % 1.76 Basis swaps 1,860,384 112 ( 456 ) 4.40 % 4.42 % 2.46 Treasury futures 6,800 — ( 142 ) 114.38 Netting adjustments (1) ( 5,212 ) 5,212 Total financial derivatives $ 23,878,611 $ 37,409 $ ( 175,326 ) (1) Amounts represent the application of the netting requirements that allow Farmer Mac to settle positive and negative positions, including accrued interest, held or placed with the same clearing agent. As of December 31, 2023, Farmer Mac expects to reclassify $ 13.6 million after-tax from accumulated other comprehensive income to earnings over the next twelve months related to cash flow hedges. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after December 31, 2023. During the years ended December 31, 2023, 2022, and 2021, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it was probable that the originally forecasted transactions would occur. 153 The following tables summarize the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the years ended December 31, 2023, 2022, and 2021: Table 6.2 For the Year Ended December 31, 2023 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations $ 287,144 $ 590,250 $ 514,894 $ ( 1,064,741 ) $ 2,882 $ 330,429 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives 35,377 146,027 64,648 ( 345,852 ) — ( 99,800 ) Recognized on hedged items 33,488 183,396 63,133 ( 341,523 ) — ( 61,506 ) Premium/discount amortization recognized on hedged items 1,860 — — ( 2,865 ) — ( 1,005 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 70,725 $ 329,423 $ 127,781 $ ( 690,240 ) $ — $ ( 162,311 ) (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ ( 19,445 ) $ ( 91,151 ) $ ( 23,528 ) $ 279,803 $ — $ 145,679 Recognized on hedged items 18,472 89,437 21,686 ( 280,668 ) — ( 151,073 ) (Losses)/gains on fair value hedging relationships $ ( 973 ) $ ( 1,714 ) $ ( 1,842 ) $ ( 865 ) $ — $ ( 5,394 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ 20,643 $ — $ 20,643 Recognized on hedged items — — — ( 31,610 ) — ( 31,610 ) Discount amortization recognized on hedged items — — — ( 55 ) — ( 55 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 11,022 ) $ — $ ( 11,022 ) Gains on financial derivatives not designated in hedging relationships: Gains on interest rate swaps $ — $ — $ — $ — $ 4,395 $ 4,395 Interest expense on interest rate swaps — — — — ( 4,845 ) ( 4,845 ) Treasury futures — — — — 3,332 3,332 Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ 2,882 $ 2,882 154 For the Year Ended December 31, 2022 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 82,659 $ 283,769 $ 350,420 $ ( 445,908 ) $ 22,631 $ 293,571 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives 2,727 ( 19,486 ) ( 501 ) ( 61,941 ) — ( 79,201 ) Recognized on hedged items 16,199 142,809 56,141 ( 132,406 ) — 82,743 Discount amortization recognized on hedged items ( 754 ) — — ( 2,116 ) — ( 2,870 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 18,172 $ 123,323 $ 55,640 $ ( 196,463 ) $ — $ 672 (Losses)/gains on fair value hedging relationships: Recognized on derivatives $ 104,722 $ 553,530 $ 351,116 $ ( 489,445 ) $ — $ 519,923 Recognized on hedged items ( 105,889 ) ( 553,393 ) ( 341,162 ) 486,323 — ( 514,121 ) (Losses)/gains on fair value hedging relationships $ ( 1,167 ) $ 137 $ 9,954 $ ( 3,122 ) $ — $ 5,802 Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ 1,213 $ — $ 1,213 Recognized on hedged items — — — ( 12,847 ) — ( 12,847 ) Discount amortization recognized on hedged items — — — ( 57 ) — ( 57 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 11,691 ) $ — $ ( 11,691 ) Gains on financial derivatives not designated in hedge relationships: Gains on interest rate swaps $ — $ — $ — $ — $ 13,012 $ 13,012 Interest expense on interest rate swaps — — — — ( 7,619 ) ( 7,619 ) Treasury futures — — — — 17,238 17,238 Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ 22,631 $ 22,631 155 For the Year Ended December 31, 2021 Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives Net Interest Income Non-Interest Income Total Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Gains on financial derivatives (in thousands) Total amounts presented in the consolidated statement of operations: $ 18,660 $ 164,723 $ 242,582 $ ( 204,014 ) $ 324 $ 222,275 Income/(expense) related to interest settlements on fair value hedging relationships: Recognized on derivatives ( 1,002 ) ( 85,302 ) ( 27,167 ) 42,591 — ( 70,880 ) Recognized on hedged items 1,792 119,896 46,842 ( 51,484 ) — 117,046 Discount amortization recognized on hedged items — — — ( 1,118 ) — ( 1,118 ) Income/(expense) related to interest settlements on fair value hedging relationships $ 790 $ 34,594 $ 19,675 $ ( 10,011 ) $ — $ 45,048 Gains/(losses) on fair value hedging relationships: Recognized on derivatives $ 1,688 $ 178,252 $ 97,459 $ ( 98,332 ) $ — $ 179,067 Recognized on hedged items ( 1,218 ) ( 176,304 ) ( 97,502 ) 95,617 — ( 179,407 ) Gains/(losses) on fair value hedging relationships $ 470 $ 1,948 $ ( 43 ) $ ( 2,715 ) $ — $ ( 340 ) Expense related to interest settlements on cash flow hedging relationships: Interest settlements reclassified from AOCI into net income on derivatives $ — $ — $ — $ ( 7,399 ) $ — $ ( 7,399 ) Recognized on hedged items — — — ( 2,657 ) — ( 2,657 ) Discount amortization recognized on hedged items — — — ( 37 ) — ( 37 ) Expense recognized on cash flow hedges $ — $ — $ — $ ( 10,093 ) $ — $ ( 10,093 ) Gains on financial derivatives not designated in hedge relationships: Losses on interest rate swaps $ — $ — $ — $ — $ ( 2,144 ) $ ( 2,144 ) Interest expense on interest rate swaps — — — — 3,259 3,259 Treasury futures — — — — ( 791 ) ( 791 ) Gains on financial derivatives not designated in hedge relationships $ — $ — $ — $ — $ 324 $ 324 The following table shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships as of December 31, 2023 and 2022: 156 Table 6.3 Hedged Items in Fair Value Relationship Carrying Amount of Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustments included in the Carrying Amount of the Hedged Assets/(Liabilities) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 (in thousands) Investment securities, Available-for-Sale, at fair value $ 1,251,386 $ 876,063 $ ( 88,635 ) $ ( 107,107 ) Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value 5,497,948 4,814,784 ( 257,436 ) ( 346,873 ) Loans held for investment, at amortized cost 1,699,361 1,623,301 ( 305,592 ) ( 327,278 ) Notes Payable (1) ( 13,350,111 ) ( 12,151,382 ) 250,418 531,086 (1) Carrying amount represents amortized cost. The following tables present the fair value of financial assets and liabilities, based on the terms of Farmer Mac's master netting arrangements as of December 31, 2023 and 2022: Table 6.4 December 31, 2023 Gross Amounts Not Offset in the Consolidated Balance Sheet Gross Amount Recognized Gross Amounts offset in the Consolidated Balance Sheet Net Amount Presented in the Consolidated Balance Sheet (1) Netting Adjustments Financial instruments pledged Cash Collateral (2) Net Amount (3) (in thousands) Assets: Uncleared derivatives $ 25,751 $ — $ 25,751 $ ( 25,727 ) $ — $ — $ 24 Cleared derivatives 10,388 ( 1,236 ) 9,152 — — — 9,152 Total $ 36,139 $ ( 1,236 ) $ 34,903 $ ( 25,727 ) $ — $ — $ 9,176 Liabilities: Uncleared derivatives $ ( 100,114 ) $ — $ ( 100,114 ) $ 25,727 $ — $ 69,360 $ ( 5,027 ) Cleared derivatives ( 1,236 ) 1,236 — — — — — Total $ ( 101,350 ) $ 1,236 $ ( 100,114 ) $ 25,727 $ — $ 69,360 $ ( 5,027 ) (1) Amounts presented may not agree to the consolidated balance sheet related to counterparties not subject to master netting agreements. (2) Cash collateral excludes $ 15.2 million of collateral posted and $ 2.0 million of collateral received related to counterparties not subject to master netting agreements. (3) Any over-collateralization at an individual clearing agent and/or counterparty level is not included in the determination of the net amount. As of December 31, 2023, Farmer Mac had additional net exposure of $ 207.2 million due to instances where Farmer Mac's collateral to a counterparty exceeded the net derivative position. 157 December 31, 2022 Gross Amounts Not Offset in the Consolidated Balance Sheet Gross Amount Recognized Gross Amounts offset in the Consolidated Balance Sheet Net Amount Presented in the Consolidated Balance Sheet (1) Netting Adjustments Financial instruments pledged Cash Collateral (2) Net Amount (3) (in thousands) Assets: Uncleared derivatives $ 27,132 $ — $ 27,132 $ ( 27,132 ) $ — $ — $ — Cleared derivatives 14,450 ( 5,212 ) 9,238 — — — 9,238 Total $ 41,582 $ ( 5,212 ) $ 36,370 $ ( 27,132 ) $ — $ — $ 9,238 Liabilities: Uncleared derivatives $ ( 149,864 ) $ — $ ( 149,864 ) $ 27,132 $ — $ 121,065 $ ( 1,667 ) Cleared derivatives ( 5,212 ) 5,212 — — — — — Total $ ( 155,076 ) $ 5,212 $ ( 149,864 ) $ 27,132 $ — $ 121,065 $ ( 1,667 ) (1) Amounts presented may not agree to the consolidated balance sheet related to counterparties not subject to master netting agreements. (2) Cash collateral excludes $ 23.7 million of collateral posted related to counterparties not subject to master netting agreements. (3) Any over-collateralization at an individual clearing agent and/or counterparty level is not included in the determination of the net amount. As of December 31, 2022, Farmer Mac had additional net exposure of $ 204.0 million due to instances where Farmer Mac's collateral to a counterparty exceeded the net derivative position. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of December 31, 2023 or 2022, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of December 31, 2023 and 2022, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge. Of Farmer Mac's $ 25.8 billion notional amount of interest rate swaps outstanding as of December 31, 2023, $ 20.5 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $ 23.9 billion notional amount of interest rate swaps outstanding as of December 31, 2022, $ 19.5 billion were cleared through the CME. During 2023 and throughout 2022, Farmer Mac continued the use of non-cleared basis swaps to prepare for the transition away from the use of LIBOR as a reference rate, which was completed as of the end of the second quarter of 2023. 7. NOTES PAYABLE Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured general obligations of Farmer Mac. Discount notes generally have original maturities of 1 year or less, whereas medium-term notes generally have maturities of 0.5 years to 25.0 years. The following tables set forth information related to Farmer Mac's borrowings as of December 31, 2023 and 2022: 158 Table 7.1 December 31, 2023 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 1,734,387 5.32 % $ 1,097,300 5.08 % Medium-term notes 384,970 5.07 % 1,731,308 4.09 % Current portion of medium-term notes 5,967,811 2.90 % Total due within one year $ 8,087,168 3.52 % Due after one year: Medium-term notes due in: Two years $ 5,523,671 3.27 % Three years 3,825,702 2.27 % Four years 3,038,229 3.44 % Five years 2,623,202 4.37 % Thereafter 3,488,987 2.80 % Total due after one year $ 18,499,791 3.16 % Total principal net of discounts $ 26,586,959 3.27 % Hedging adjustments ( 250,417 ) Total $ 26,336,542 December 31, 2022 Outstanding as of December 31 Average Outstanding During the Year Amount Weighted- Average Rate Amount Weighted- Average Rate (dollars in thousands) Due within one year: Discount notes $ 565,578 3.91 % $ 1,325,026 0.96 % Medium-term notes 2,547,733 3.54 % 1,442,932 2.11 % Current portion of medium-term notes 4,920,864 1.49 % Total due within one year $ 8,034,175 2.31 % Due after one year: Medium-term notes due in: Two years $ 4,072,740 1.71 % Three years 3,506,480 2.10 % Four years 2,967,625 1.44 % Five years 2,361,197 3.12 % Thereafter 4,057,982 2.60 % Total due after one year $ 16,966,024 2.15 % Total principal net of discounts $ 25,000,199 2.20 % Hedging adjustments ( 531,086 ) Total $ 24,469,113 The maximum amount of Farmer Mac's discount notes outstanding at any month end during the years ended December 31, 2023 and 2022 was $ 1.8 billion and $ 2.2 billion, respectively. 159 Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified call date or at any time on or after a specified call date. The following table summarizes by maturity date the amounts and costs for Farmer Mac debt callable in 2024 as of December 31, 2023: Table 7.2 Debt Callable in 2024 as of December 31, 2023, by Maturity Amount Weighted-Average Rate (dollars in thousands) Maturity: 2025 $ 970,468 2.88 % 2026 1,398,727 2.05 % 2027 883,962 2.80 % 2028 582,892 4.27 % Thereafter 1,805,423 2.54 % Total $ 5,641,472 2.70 % The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of December 31, 2023, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date: Table 7.3 Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding Amount Weighted-Average Rate (dollars in thousands) Debt with interest rate resets, or debt maturities in: 2024 $ 10,125,494 3.95 % 2025 4,568,438 2.79 % 2026 3,622,798 2.07 % 2027 2,747,407 3.20 % 2028 2,380,412 4.24 % Thereafter 3,142,410 2.47 % Total principal net of discounts $ 26,586,959 3.27 % During the years ended December 31, 2023 and 2022, Farmer Mac called $ 233.0 million and $ 26.0 million of callable medium-term notes, respectively. Authority to Borrow from the U.S. Treasury Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $ 1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill Farmer Mac's guarantee obligations. Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the United States as of the last day of the last calendar month ending before the date of the purchase of the obligations from Farmer Mac. The charter requires Farmer Mac to repurchase any of its debt obligations held by the U.S. Treasury within a reasonable time. As of December 31, 2023, Farmer Mac had not used this borrowing authority. 160 Gains on Repurchases of Outstanding Debt No outstanding debt repurchases were made in the year ended December 31, 2023. During the years ended December 31, 2022 and 2021, Farmer Mac repurchased $ 27.0 million and $ 23.0 million of outstanding debt at a gain of $ 0.2 million and $ 0.0 million, respectively. 8. LOANS Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. As of both December 31, 2023 and 2022, Farmer Mac had no loans held for sale. Under the Agricultural Finance line of business, Farmer Mac has two segments – Farm & Ranch and Corporate AgFinance. The segments are characterized by similarities in risk attributes and the manner in which Farmer Mac monitors and assesses credit risk. The following table includes loans held for investment and displays the composition of the loan balances as of December 31, 2023 and 2022: Table 8.1 As of December 31, 2023 As of December 31, 2022 Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total (in thousands) Agricultural Finance loans Farm & Ranch $ 5,133,450 $ 1,432,261 $ 6,565,711 $ 5,150,750 $ 1,211,576 $ 6,362,326 Corporate AgFinance 1,259,723 — 1,259,723 1,166,253 — 1,166,253 Total Agricultural Finance loans 6,393,173 1,432,261 7,825,434 6,317,003 1,211,576 7,528,579 Rural Infrastructure Finance loans 3,534,763 — 3,534,763 3,021,266 — 3,021,266 Total unpaid principal balance (1) 9,927,936 1,432,261 11,360,197 9,338,269 1,211,576 10,549,845 Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments ( 304,817 ) — ( 304,817 ) ( 329,290 ) — ( 329,290 ) Total loans 9,623,119 1,432,261 11,055,380 9,008,979 1,211,576 10,220,555 Allowance for losses ( 15,588 ) ( 443 ) ( 16,031 ) ( 14,629 ) ( 460 ) ( 15,089 ) Total loans, net of allowance $ 9,607,531 $ 1,431,818 $ 11,039,349 $ 8,994,350 $ 1,211,116 $ 10,205,466 (1) Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. 161 Allowance for Losses The following table is a summary, by asset type, of the allowance for losses as of December 31, 2023 and 2022: Table 8.2 December 31, 2023 December 31, 2022 Allowance for Losses Allowance for Losses (in thousands) Loans: Agricultural Finance loans Farm & Ranch $ 3,936 $ 4,044 Corporate AgFinance 2,948 2,731 Total Agricultural Finance Loans 6,884 6,775 Rural Infrastructure Finance loans 9,147 8,314 Total $ 16,031 $ 15,089 The following is a summary of the changes in the allowance for losses for each year in the three-year period ended December 31, 2023: Table 8.3 Agricultural Finance loans Rural Infrastructure Finance loans (3) Farm & Ranch (1) Corporate AgFinance (2) Total (in thousands) Balance as of December 31, 2020 $ 3,404 $ 341 $ 3,745 $ 10,087 (Release of)/provision for losses ( 1,576 ) 219 ( 1,357 ) 512 Recovery 1,054 — 1,054 — Balance as of December 31, 2021 $ 2,882 $ 560 $ 3,442 $ 10,599 Provision for/(release of) losses 1,246 2,171 3,417 ( 2,285 ) Charge-offs ( 84 ) — ( 84 ) — Balance as of December 31, 2022 $ 4,044 $ 2,731 $ 6,775 $ 8,314 (Release of)/provision for losses ( 108 ) 217 109 833 Charge-offs — — — — Balance as of December 31, 2023 $ 3,936 $ 2,948 $ 6,884 $ 9,147 (1) As of December 31, 2023 and 2022, the allowance for losses for Agricultural Finance Farm & Ranch loans includes $ 1.0 million and $ 1.9 million allowance for collateral dependent assets secured by agricultural real estate, respectively. (2) As of December 31, 2023 and 2022, the allowance for losses for Agricultural Finance Corporate AgFinance loans includes $ 0.0 million and $ 2.4 million allowance for collateral dependent assets secured by agricultural real estate, respectively. (3) As of December 31, 2023 and 2022, the allowance for losses for Rural Infrastructure Finance loans includes no allowance for collateral dependent assets. The $ 0.8 million net provision to the allowance for the Rural Infrastructure Finance portfolio during the year ended December 31, 2023 was primarily attributable to a single telecommunications loan that was downgraded to substandard during the year. The $ 0.1 million net provision to the allowance for the Agricultural Finance mortgage loan portfolio during the year ended December 31, 2023 was primarily attributable to increased loan volume. The $ 2.3 million net release from the allowance for the Rural Infrastructure Finance portfolio during the year ended December 31, 2022 was primarily attributable to a risk rating upgrade on a single loan and improvements in forecasts of future economic conditions. The risk rating upgrade on that loan reflected 162 that borrower's successful securitization of its large payable that arose during the arctic freeze that struck Texas in February 2021. The $ 3.4 million net provision to the allowance for the Agricultural Finance mortgage loan portfolio during the year ended December 31, 2022 was primarily attributable to a risk rating downgrade on a single agricultural storage and processing loan, due to its ongoing bankruptcy proceedings. The provision to the allowance for Rural Infrastructure Finance loan losses of $ 0.5 million recorded during the year ended 2021 was primarily attributable to the impact of the Texas Arctic Freeze, partially offset by the impact of improving economic factor forecasts. The $ 1.4 million release from the allowance for the Agricultural Finance mortgage loan portfolio during the year ended 2021 was primarily attributable to a recovery on the payoff of the agricultural storage and processing loan secured by a specialized poultry facility that had been partially charged off in 2020 and improving economic factor forecasts. The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of December 31, 2023 and 2022: Table 8.4 As of December 31, 2023 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Agricultural Finance loans Farm & Ranch $ 6,470,205 $ 15,326 $ 3,953 $ 10,991 $ 30,270 $ 65,236 $ 6,565,711 Corporate AgFinance 1,259,723 — — — — — 1,259,723 Total Agricultural Finance loans 7,729,928 15,326 3,953 10,991 30,270 65,236 7,825,434 Rural Infrastructure Finance loans 3,534,763 — — — — — 3,534,763 Total $ 11,264,691 $ 15,326 $ 3,953 $ 10,991 $ 30,270 $ 65,236 $ 11,360,197 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned by third parties (single-class) that are 90 days or more past due. (3) Includes loans 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. (4) Includes $ 25.7 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2023, Farmer Mac received $ 2.6 million in interest on nonaccrual loans. 163 As of December 31, 2022 Accruing Current 30-59 Days 60-89 Days 90 Days and Greater (2) Total Past Due Nonaccrual loans (3)(4) Total Loans (in thousands) Loans (1) : Agricultural Finance loans Farm & Ranch $ 6,287,326 $ 10,066 $ 392 $ 1,140 $ 11,598 $ 63,402 $ 6,362,326 Corporate AgFinance 1,150,690 — — — — 15,563 1,166,253 Total Agricultural Finance loans 7,438,016 10,066 392 1,140 11,598 78,965 7,528,579 Rural Infrastructure Finance loans 3,021,266 — — — — — 3,021,266 Total $ 10,459,282 $ 10,066 $ 392 $ 1,140 $ 11,598 $ 78,965 $ 10,549,845 (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Includes loans in consolidated trusts with beneficial interests owned (single-class) by third parties that are 90 days or more past due. (3) Includes loans 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. (4) Includes $ 22.0 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2022, Farmer Mac received $ 5.6 million in interest on nonaccrual loans. Credit Quality Indicators The following tables present credit quality indicators related to Agricultural Finance mortgage loans and Rural Infrastructure Finance loans held as of December 31, 2023 and 2022, by year of origination: Table 8.5 As of December 31, 2023 Year of Origination: 2023 2022 2021 2020 2019 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance - Farm & Ranch loans (1) : Internally Assigned Risk Rating: Acceptable $ 530,956 $ 1,137,226 $ 1,653,780 $ 1,120,917 $ 323,922 $ 1,068,862 $ 385,766 $ 6,221,429 Special mention (2) 70,524 46,529 27,957 11,591 4,782 21,257 8,777 191,417 Substandard (3) 3,357 23,987 10,164 17,395 28,942 58,606 10,414 152,865 Total $ 604,837 $ 1,207,742 $ 1,691,901 $ 1,149,903 $ 357,646 $ 1,148,725 $ 404,957 $ 6,565,711 For the Year Ended December 31, 2023: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 164 As of December 31, 2023 Year of Origination: 2023 2022 2021 2020 2019 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance - Corporate AgFinance (1) : Internally Assigned Risk Rating: Acceptable $ 207,279 $ 97,922 $ 261,992 $ 123,158 $ 99,352 $ 112,947 $ 254,325 $ 1,156,975 Special mention (2) — 14,522 15,408 50,822 20,333 — 1,663 102,748 Substandard (3) — — — — — — — — Total $ 207,279 $ 112,444 $ 277,400 $ 173,980 $ 119,685 $ 112,947 $ 255,988 $ 1,259,723 For the Year Ended December 31, 2023: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets 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 Year of Origination: 2023 2022 2021 2020 2019 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Infrastructure Finance loans (1) : Internally Assigned Risk Rating: Acceptable $ 618,946 $ 681,272 $ 187,746 $ 593,841 $ 701,937 $ 611,548 $ 100,223 $ 3,495,513 Special mention (2) — 9,850 — — — — — 9,850 Substandard (3) — 29,400 — — — — — 29,400 Total $ 618,946 $ 720,522 $ 187,746 $ 593,841 $ 701,937 $ 611,548 $ 100,223 $ 3,534,763 For the Year Ended December 31, 2023: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 165 As of December 31, 2022 Year of Origination: 2022 2021 2020 2019 2018 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance - Farm & Ranch loans (1) : Internally Assigned Risk Rating: Acceptable $ 1,157,829 $ 1,704,547 $ 1,187,474 $ 360,704 $ 242,491 $ 947,535 $ 385,503 $ 5,986,083 Special mention (2) 91,099 68,260 25,629 11,254 5,325 17,797 2,452 221,816 Substandard (3) 3,094 8,814 22,976 23,937 17,845 67,654 10,107 154,427 Total $ 1,252,022 $ 1,781,621 $ 1,236,079 $ 395,895 $ 265,661 $ 1,032,986 $ 398,062 $ 6,362,326 For the Year Ended December 31, 2022: Current period charge-offs $ — $ — $ — $ — $ — $ ( 84 ) $ — $ ( 84 ) (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets 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, 2022 Year of Origination: 2022 2021 2020 2019 2018 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance - Corporate AgFinance loans (1) : Internally Assigned Risk Rating: Acceptable $ 145,263 $ 299,729 $ 221,560 $ 108,230 $ 76,454 $ 44,827 $ 232,107 $ 1,128,170 Special mention (2) — — — 20,698 — — 2,145 22,843 Substandard (3) — — 4,598 — — — 10,642 15,240 Total $ 145,263 $ 299,729 $ 226,158 $ 128,928 $ 76,454 $ 44,827 $ 244,894 $ 1,166,253 For the Year Ended December 31, 2022: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 166 As of December 31, 2022 Year of Origination: 2022 2021 2020 2019 2018 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Infrastructure Finance loans (1) : Internally Assigned Risk Rating: Acceptable $ 741,021 $ 220,420 $ 629,223 $ 739,270 $ 7,932 $ 649,830 $ 33,570 $ 3,021,266 Special mention (2) — — — — — — — — Substandard (3) — — — — — — — — Total $ 741,021 $ 220,420 $ 629,223 $ 739,270 $ 7,932 $ 649,830 $ 33,570 $ 3,021,266 For the Year Ended December 31, 2022: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. (2) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (3) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 9. EQUITY Common Stock Farmer Mac has three classes of common stock outstanding: • Class A voting common stock, which may be held only by banks, insurance companies, and other financial institutions or similar entities that are not institutions of the Farm Credit System. By federal statute, no holder of Class A voting common stock may directly or indirectly be a beneficial owner of more than 33% of the outstanding shares of Class A voting common stock. • Class B voting common stock, which may be held only by institutions of the Farm Credit System. There are no restrictions on the maximum holdings of Class B voting common stock. • Class C non-voting common stock, which has no ownership restrictions. During 2023, 2022, and 2021, Farmer Mac paid a quarterly dividend of $ 1.10 , $ 0.95 , and $ 0.88 per share on all classes of its common stock. Farmer Mac's ability to declare and pay dividends on its common stock could be restricted if it fails to comply with applicable capital requirements. Except for the period from March 16, 2020 to March 10, 2021, Farmer Mac has had a common stock repurchase program in place since third quarter 2015. On March 10, 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous terms (with a remaining authorization of up to $ 9.8 million in stock repurchases) and extended the expiration date of the program to March 2023. Farmer Mac did no t repurchase any shares of its Class C non-voting common stock during that two-year period. In March 2023, Farmer Mac's board of directors renewed the share repurchase program on its 167 previous terms (with a remaining authorization of up to $ 9.8 million in stock repurchases) and extended the expiration date of the program to March 2025. Farmer Mac did no t repurchase any shares of its Class C non-voting common stock during 2023. As of December 31, 2023, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $ 19.8 million under the share repurchase program since 2015. Preferred Stock The following table presents the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock, and the Series G Preferred Stock (collectively referred to as the "Outstanding Preferred Stock") as of December 31, 2023: Table 9.1 Name Issuance Date Issuance Cost Shares Issued Annual Dividend Rate (2) Liquidation Value Per Share First Possible Redemption Date (3) Series C (1) June 20, 2014 $ 1,618,583 3,000,000 6.000 % $ 25.00 July 18, 2024 Series D May 13, 2019 $ 3,340,456 4,000,000 5.700 % $ 25.00 July 17, 2024 Series E May 20, 2020 $ 2,496,750 3,180,000 5.750 % $ 25.00 July 17, 2025 Series F August 20, 2020 $ 3,839,902 4,800,000 5.250 % $ 25.00 October 17, 2025 Series G May 27, 2021 $ 3,661,677 5,000,000 4.875 % $ 25.00 July 17, 2026 (1) The Series C Preferred Stock pays an annual dividend rate of 6.00 % from the date of issuance to and including the quarterly payment date occurring on July 17, 2024, and thereafter, at a floating rate equal to three-month LIBOR plus 3.26 %, which Farmer Mac expects will be converted to the Term Loan Secured Overnight Financing Rate published by CME Group Benchmark Administration, Ltd., plus a spread adjustment based on the tenor of the securities, if not redeemed prior to that payment date. (2) Dividends on all series of Outstanding Preferred Stock are non-cumulative, which means that if Farmer Mac's board of directors has not declared a dividend before the applicable dividend payment date for any dividend period, such dividend will not be paid or cumulate, and Farmer Mac will have no obligation to pay dividends for such dividend period, whether or not dividends on any series of Outstanding Preferred Stock are declared for any future dividend period. (3) Farmer Mac has the right but not the obligation to redeem. The following tables present the quarterly dividends paid by Farmer Mac on its outstanding preferred during 2023, 2022, and 2021: Table 9.2 2023 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 6.000 % Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C $ 0.3750 $ 0.3750 $ 0.3750 $ 0.3750 5.700 % Non-Cumulative Preferred Stock, Series D 0.3563 0.3563 0.3563 0.3563 5.750 % Non-Cumulative Preferred Stock, Series E 0.3594 0.3594 0.3594 0.3594 5.250 % Non-Cumulative Preferred Stock, Series F 0.3281 0.3281 0.3281 0.3281 4.875 % Non-Cumulative Preferred Stock, Series G 0.3047 0.3047 0.3047 0.3047 168 2022 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 6.000 % Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C $ 0.3750 $ 0.3750 $ 0.3750 $ 0.3750 5.700 % Non-Cumulative Preferred Stock, Series D 0.3563 0.3563 0.3563 0.3563 5.750 % Non-Cumulative Preferred Stock, Series E 0.3594 0.3594 0.3594 0.3594 5.250 % Non-Cumulative Preferred Stock, Series F 0.3281 0.3281 0.3281 0.3281 4.875 % Non-Cumulative Preferred Stock, Series G 0.3047 0.3047 0.3047 0.3047 2021 1st Quarter 2nd Quarter (1) 3rd Quarter 4th Quarter 6.000 % Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C $ 0.3750 $ 0.3750 $ 0.3750 $ 0.3750 5.700 % Non-Cumulative Preferred Stock, Series D 0.3563 0.3563 0.3563 0.3563 5.750 % Non-Cumulative Preferred Stock, Series E 0.3594 0.3594 0.3594 0.3594 5.250 % Non-Cumulative Preferred Stock, Series F 0.3281 0.3281 0.3281 0.3281 4.875 % Non-Cumulative Preferred Stock, Series G — 0.1693 0.3047 0.3047 (1) For second quarter 2021, dividend payment includes $ 0.1693 per share on the Series G Preferred Stock for the period from but not including May 27, 2021 (issuance date) to and including July 17, 2021. Equity-Based Incentive Compensation Plans Farmer Mac's Amended and Restated 2008 Omnibus Incentive Compensation Plan authorizes the grant of restricted stock units and SARs, among other alternative forms of equity-based compensation, to Farmer Mac's directors, officers, and employees. SARs awarded to officers and employees vest annually in thirds. Farmer Mac has not granted SARs to directors since 2008. If not exercised or cancelled earlier due to the termination of employment, SARs granted to officers or employees expire after 10 years from the grant date. For all SARs granted, the exercise price is equal to the closing price of Farmer Mac's Class C non-voting common stock on the date of grant. SARs granted during 2023, 2022, and 2021 have a weighted average exercise price per share of $ 135.12 , $ 120.38 and $ 88.68 , respectively. During 2023, 2022, and 2021, restricted stock unit awards were granted to employees, officers, and directors with vesting periods of one to three years . 169 The following tables summarize SARs and non-vested restricted stock unit activity for the years ended December 31, 2023, 2022, and 2021: Table 9.3 For the Years Ended December 31, 2023 2022 2021 SARs Weighted- Average Exercise Price SARs Weighted- Average Exercise Price SARs Weighted- Average Exercise Price Outstanding, beginning of year 132,163 $ 75.82 130,409 $ 66.10 116,417 $ 57.16 Granted 16,761 135.12 18,432 120.38 28,575 88.68 Exercised ( 22,972 ) 56.82 ( 16,678 ) 49.04 ( 14,583 ) 38.99 Canceled — — — — — — Outstanding, end of year 125,952 87.18 132,163 75.82 130,409 66.10 Exercisable at end of year 87,378 73.15 83,054 63.12 72,106 52.85 For the Years Ended December 31, 2023 2022 2021 Non-vested Restricted Stock Units Weighted- Average Grant Date Fair Value Non-vested Restricted Stock Units Weighted- Average Grant Date Fair Value Non-vested Restricted Stock Units Weighted- Average Grant Date Fair Value Outstanding, beginning of year 100,025 $ 91.84 103,891 $ 78.55 83,956 $ 71.76 Granted 59,745 135.56 38,668 120.14 53,358 88.92 Canceled ( 62 ) 88.68 ( 2,711 ) 97.44 ( 1,184 ) 79.82 Vested and issued ( 45,355 ) 78.12 ( 39,823 ) 84.25 ( 32,239 ) 77.98 Outstanding, end of year 114,353 120.13 100,025 91.84 103,891 78.55 The cancellations of SARs and non-vested restricted stock units during 2023, 2022, and 2021 were due to unvested awards terminating in accordance with the provisions of the applicable equity compensation plans or award agreements upon directors' or employees' departures from Farmer Mac. Cash is not received from exercises of SARs or the vesting and issuance of restricted stock units. During 2023, 2022, and 2021, the reduction of income taxes payable as a result of the deduction for the exercise of SARs and the vesting of restricted stock units was $ 1.7 million, $ 1.2 million, and $ 0.9 million, respectively. During 2023, 2022, and 2021 , Farmer Mac recorded a net decrease to additional paid-in capital of $ 3.1 million, $ 1.9 million, and $ 1.3 million, respectively, related to stock-based compensation awards. 170 As of December 31, 2023, Farmer Mac had no stock options outstanding. The following tables summarize information about SARs and non-vested restricted stock units outstanding as of December 31, 2023: Table 9.4 SARs: Outstanding Exercisable Vested or Expected to Vest Range of Exercise Prices SARs Weighted- Average Remaining Contractual Life SARs Weighted- Average Remaining Contractual Life SARs Weighted- Average Remaining Contractual Life $ 25.00 - $ 39.99 18,735 1.6 years 18,735 1.6 years 18,735 1.6 years 40.00 - 54.99 — 0.0 years — 0.0 years — 0.0 years 55.00 - 69.99 3,381 3.3 years 3,381 3.3 years 3,381 3.3 years 70.00 - 84.99 39,642 5.8 years 39,642 5.8 years 39,642 5.8 years 85.00 - 99.99 29,001 6.6 years 19,476 6.3 years 29,001 6.6 years 100.00 - 114.99 — 0.0 years — 0.0 years — 0.0 years 115.00 - 129.99 18,432 8.2 years 6,144 8.2 years 18,432 8.2 years 130.00 - 144.99 16,761 9.3 years — 0.0 years 16,761 9.3 years 125,952 87,378 125,952 Non-vested Restricted Stock Units: Outstanding Expected to Vest Weighted- Average Grant-Date Fair Value Non-vested Restricted Stock Units Weighted-Average Remaining Contractual Life Non-vested Restricted Stock Units Weighted-Average Remaining Contractual Life $ 80.00 - $ 94.99 30,182 0.3 years 30,450 0.1 years 95.00 - 109.99 219 0.3 years 219 0.3 years 110.00 - 124.99 24,779 1.3 years 24,779 1.3 years 125.00 - 139.99 56,194 2.3 years 56,194 2.3 years 140.00 - 154.99 2,979 2.3 years 2,979 2.3 years 114,353 114,621 As of December 31, 2023 and 2022, the intrinsic value of SARs, and non-vested restricted stock units outstanding, exercisable, and vested or expected to vest was $ 35.0 million and $ 16.3 million, respectively. During 2023, 2022, and 2021, the total intrinsic value of SARs exercised was $ 2.4 million, $ 1.1 million, and $ 0.9 million, respectively. As of December 31, 2023, there was $ 7.7 million of total unrecognized compensation cost related to non-vested SARs and restricted stock unit awards. This cost is expected to be recognized over a weighted-average period of 1.9 years. The weighted-average grant date fair values of SARs and restricted stock unit awards granted in 2023, 2022, and 2021 were $ 114.68 , $ 91.94 , and $ 65.48 per share, respectively. Under the fair value-based method of accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $ 6.8 million, $ 4.6 million, and $ 4.3 million during 2023, 2022, and 2021, respectively. 171 The fair value of SARs was estimated using the Black-Scholes option pricing model based on the following assumptions: Table 9.5 For the Year Ended December 31, 2023 2022 2021 Risk-free interest rate 4.1 % 1.9 % 0.9 % Expected years until exercise 6 years 6 years 6 years Expected stock volatility 36.6 % 37.4 % 39.1 % Dividend yield 3.3 % 3.2 % 4.0 % The risk-free interest rates used in the model were based on the U.S. Treasury yield curve in effect at the grant date. Farmer Mac used historical data to estimate the timing of option exercises and stock option cancellation rates used in the model. Expected volatilities were based on historical volatility of Farmer Mac's Class C non-voting common stock. The dividend yields were based on the expected dividends as a percentage of the value of Farmer Mac's Class C non-voting common stock on the grant date. Because stock will be issued upon the vesting of restricted stock units regardless of the stock price, expected stock volatility is not considered in determining grant date fair value. Restricted stock unit awards also accrue dividends which are paid at vesting. The weighted-average grant date fair value of the restricted stock units awarded in 2023, 2022, and 2021 was $ 135.56 , $ 120.14 , and $ 88.92 per unit, respectively, which is based on the closing price of Farmer Mac's Class C non-voting stock on the date granted. Capital Requirements Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both December 31, 2023 and 2022, the minimum capital requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements. As of December 31, 2023, Farmer Mac's minimum capital requirement was $ 862.6 million and its core capital level was $ 1.5 billion, which was $ 589.4 million above the minimum capital requirement as of that date. As of December 31, 2022, Farmer Mac's minimum capital requirement was $ 805.9 million and its core capital level was $ 1.3 billion, which was $ 516.9 million above the minimum capital requirement as of that date. In accordance with a rule of the Farm Credit Administration ("FCA") on Farmer Mac's capital planning, and as part of Farmer Mac's capital plan, Farmer Mac 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) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds. 172 10. INCOME TAXES Farmer Mac is subject to federal corporate income taxes but is exempt from state and local corporate income taxes. The components of the federal corporate income tax expense for the years ended December 31, 2023, 2022, and 2021 were as follows: Table 10.1 For the Year Ended December 31, 2023 2022 2021 (in thousands) Current income tax expense $ 46,712 $ 35,609 $ 38,645 Deferred income tax expense 6,386 11,926 ( 2,273 ) Income tax expense $ 53,098 $ 47,535 $ 36,372 A reconciliation of income tax at the statutory federal corporate income tax rate to the income tax expense for the years ended December 31, 2023, 2022, and 2021 is as follows: Table 10.2 For the Year Ended December 31, 2023 2022 2021 (dollars in thousands) Tax expense at statutory rate $ 53,151 $ 47,393 $ 36,217 Excess tax benefits related to stock-based awards ( 924 ) ( 401 ) ( 300 ) Other 871 543 455 Income tax expense $ 53,098 $ 47,535 $ 36,372 Statutory tax rate 21.0 % 21.0 % 21.0 % 173 The components of the deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows: Table 10.3 As of December 31, 2023 2022 (in thousands) Deferred tax assets: Basis difference related to hedge items $ 84,922 $ 53,360 Unrealized losses on available-for-sale securities 20,514 26,371 Allowance for losses 3,842 3,603 Compensation and Benefits 2,127 1,639 Stock-based compensation 2,481 1,755 Capital loss carryforwards 35 32 Valuation allowance ( 35 ) ( 32 ) Other 2,051 1,444 Total deferred tax assets $ 115,937 $ 88,172 Deferred tax liability: Basis differences related to financial derivatives $ 80,887 $ 49,526 Unrealized gains on cash flow hedges 9,843 12,855 Basis difference related to structured securitizations 16,647 7,782 Other 90 5 Total deferred tax liability $ 107,467 $ 70,168 Net deferred tax asset $ 8,470 $ 18,004 After the evaluation of both positive and negative objective evidence regarding the likelihood that its deferred tax assets will be realized, Farmer Mac established a valuation allowance of $ 35,000 and $ 32,000 , as of December 31, 2023 and 2022, respectively, which was attributable to capital loss carryforwards on investment securities. Farmer Mac did not establish a valuation allowance for the remainder of its deferred tax assets because it believes it is more likely than not that those deferred tax assets will be realized. As of December 31, 2023, no capital loss carryforwards expired. As of December 31, 2023, the amount of capital loss carryforwards was $ 0.2 million. These capital loss carryforwards will expire beginning in 2024 . As of December 31, 2023 and 2022, Farmer Mac did not identify any uncertain tax positions. Farmer Mac did no t have any unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021. Tax years 2020 through 2023 remain subject to examination. 174 11. EMPLOYEE BENEFITS Farmer Mac makes contributions to a defined contribution retirement plan for all of its employees. Farmer Mac contributed 13.2 % of the lesser of an employee's gross salary and the maximum compensation permitted under the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") ($ 330,000 for 2023, $ 305,000 for 2022, and $ 290,000 for 2021), plus 5.7 % of the difference between: (1) the lesser of the gross salary and the amount established under EGTRRA and (2) the Social Security Taxable Wage Base. Employees are fully vested after having been employed for approximately 3 years. Expenses for this plan for the years ended December 31, 2023, 2022, and 2021 were $ 3.6 million, $ 3.1 million, and $ 2.7 million, respectively. Farmer Mac established a Nonqualified Deferred Compensation Plan ("NQDC Plan") for its executive officers effective May 1, 2017. Under the NQDC Plan, Farmer Mac credits the account of each participant each calendar year with an amount equal to 18.9 % of the difference between: (1) the amount established under EGTRRA and (2) a participant’s gross annual base salary, which for purposes of calculating employer credits under the NQDC Plan is capped at $ 750,000 for all other participants. This fixed contribution percentage is the same formula used for determining employer contributions to Farmer Mac’s defined contribution retirement plan based on an employee’s gross annual base salary that is above the amount established under EGTRRA for that year. Expenses for the NQDC Plan were $ 0.1 million, $ 0.2 million, and $ 0.2 million, respectively, for the years ended December 31, 2023, 2022, and 2021. 12. GUARANTEES AND COMMITMENTS Farmer Mac offers two credit enhancement alternatives to direct loan purchases that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending capacity: (1) Farmer Mac Guaranteed Securities and (2) LTSPCs, both of which are available through each of the Agricultural Finance and Rural Infrastructure Finance lines of business. The contractual terms of Farmer Mac's off-balance sheet guarantees and LTSPCs range from less than 1 year to 30 years. However, the actual term of each guarantee or LTSPC may be significantly less than the contractual term based on the prepayment characteristics of the related loans. Farmer Mac's maximum potential exposure under these off-balance sheet guarantees and LTSPCs is the unpaid principal balance of the underlying loans. Farmer Mac's maximum potential exposure was $ 4.1 billion and $ 3.9 billion as of December 31, 2023 and 2022, respectively. The maximum exposure from these guarantees and LTSPCs is not representative of the actual loss Farmer Mac is likely to incur, based on historical loss experience. In the event Farmer Mac was required to make payments under its guarantees or LTSPCs, Farmer Mac would have the right to enforce the terms of the loans, and in the event of default, would have access to the underlying collateral. For information on Farmer Mac's methodology for determining the reserve for losses for its financial guarantees, see Note 2(h). The following table presents changes in Farmer Mac's guarantee and commitment obligations in the consolidated balance sheets for the years ended December 31, 2023, 2022, and 2021: 175 Table 12.1 For the Years Ended December 31, 2023 2022 2021 (in thousands) Beginning balance, January 1 $ 46,582 $ 43,926 $ 35,535 Additions to the guarantee and commitment obligation (1) 5,312 8,569 15,648 Amortization of the guarantee and commitment obligation ( 4,331 ) ( 5,913 ) ( 7,257 ) Ending balance, December 31 $ 47,563 $ 46,582 $ 43,926 (1) Represents the fair value of the guarantee and commitment obligation at inception. Off-Balance Sheet Farmer Mac Guaranteed Securities The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2023 and 2022, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans: Table 12.2 Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities As of December 31, 2023 As of December 31, 2022 (in thousands) Agricultural Finance Farmer Mac Guaranteed Securities $ 452,602 $ 500,953 Rural Infrastructure Finance Farmer Mac Guaranteed Securities — 1,169 Total off-balance sheet Farmer Mac Guaranteed Securities $ 452,602 $ 502,122 Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations: Table 12.3 For the Year Ended December 31, 2023 2022 2021 (in thousands) Proceeds from new securitizations $ 222,188 $ 357,841 $ 291,393 Guarantee fees received 1,620 1,852 1,029 Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities: 176 Table 12.4 As of December 31, 2023 As of December 31, 2022 (dollars in thousands) Guarantee and commitment obligation $ 5,969 $ 6,461 Weighted average remaining maturity: Farmer Mac Guaranteed Securities 21.9 years 21.4 years AgVantage Securities 0.0 years 2.0 years Long-Term Standby Purchase Commitments Farmer Mac has recorded a liability for its obligation to stand ready under the commitment in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs: Table 12.5 As of December 31, 2023 As of December 31, 2022 (dollars in thousands) Guarantee and commitment obligation (1) $ 41,594 $ 40,121 Maximum principal amount 3,680,333 3,423,155 Weighted-average remaining maturity 14.5 years 15.3 years (1) Relates to LTSPCs issued or modified on or after January 1, 2003. Commitments Farmer Mac enters into mandatory and optional delivery commitments to purchase loans. Most loan purchase commitments entered into by Farmer Mac are mandatory commitments, in which Farmer Mac charges a fee to extend or cancel the commitment. As of December 31, 2023 and 2022, commitments to purchase Agricultural Finance loans and USDA Guarantees totaled $ 31.0 million and $ 9.9 million, respectively, all of which were mandatory commitments. Farmer Mac also has unfunded commitments and letters of credit under which Farmer Mac earns a nominal fee for the obligation to provide funding at a future date. As of December 31, 2023 and 2022, Farmer Mac had $ 261.2 million and $ 130.2 million of these unfunded commitments and letters of credit under the Agricultural Finance and Rural Infrastructure lines of business. Any optional loan purchase commitments are sold forward under optional commitments to deliver Farmer Mac Guaranteed Securities that may be canceled by Farmer Mac without penalty. 177 Reserve for Losses - LTSPCs and Farmer Mac Guaranteed Securities The following table is a summary, by asset type, of the reserve for losses as of December 31, 2023 and 2022: Table 12.6 December 31, 2023 December 31, 2022 Reserve for Losses Reserve for Losses (in thousands) Agricultural Finance $ 1,471 $ 819 Rural Infrastructure Finance 240 614 Total $ 1,711 $ 1,433 The following is a summary of the changes in the reserve for losses for the three-year period ended December 31, 2023: Table 12.7 Agricultural Finance loans Rural Infrastructure Finance loans Reserve for Losses Reserve for Losses (in thousands) Balance as of December 31, 2020 (1) $ 2,097 $ 1,180 Release of losses ( 1,029 ) ( 298 ) Balance as of December 31, 2021 $ 1,068 $ 882 Release of losses ( 249 ) ( 268 ) Balance as of December 31, 2022 $ 819 $ 614 Release of losses 652 ( 374 ) Balance as of December 31, 2023 $ 1,471 $ 240 (1) Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020. The provision for the reserve for losses in the Agricultural Finance LTSPC portfolio recorded during the year ended December 31, 2023 was primarily due to an updated estimate of expected losses based on additional available industry data. The release from the reserve for losses in the Rural Infrastructure Finance LTSPC portfolio recorded during the year ended December 31, 2023 was primarily due to an updated estimate of expected losses based on additional available loss-given-default industry data. The release from the reserve for losses in the Rural Infrastructure Finance LTSPC portfolio recorded during the year ended December 31, 2022 was primarily due to decreased volume and ratings upgrades. The release from the reserve for losses in the Agricultural Finance LTSPC portfolio was primarily due to ratings upgrades. The release from the reserve for losses in both the Agricultural Finance and Rural Infrastructure Finance LTSPC and Farmer Mac Guaranteed portfolios recorded during the year ended December 31, 2021 was primarily due to improving economic factor forecasts and ratings upgrades. The following table presents the unpaid principal balances by delinquency status of Agricultural Finance and Rural Infrastructure loans underlying LTSPCs and Farmer Mac Guaranteed Securities as of December 31, 2023 and 2022: 178 Table 12.8 As of December 31, 2023 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Agricultural Finance: $ 3,390,918 $ 2,776 $ 2,366 $ 1,784 $ 6,926 $ 3,397,844 Rural Infrastructure Finance: 535,013 — — — — 535,013 Total $ 3,925,931 $ 2,776 $ 2,366 $ 1,784 $ 6,926 $ 3,932,857 (1) Includes loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs that are 90 days of 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. As of December 31, 2022 Current 30-59 Days 60-89 Days 90 Days and Greater (1) Total Past Due Total Loans (in thousands) Agricultural Finance: $ 3,174,939 $ 11,614 $ 622 $ 3,817 $ 16,053 $ 3,190,992 Rural Infrastructure Finance: 523,192 — — — — 523,192 Total $ 3,698,131 $ 11,614 $ 622 $ 3,817 $ 16,053 $ 3,714,184 (1) Includes loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs that are 90 days of 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. Credit Quality Indicators The following tables present credit quality indicators related to Agricultural Finance and Rural Infrastructure loans underlying LTSPCs and Farmer Mac Guaranteed Securities as of December 31, 2023 and 2022, by year of origination: 179 Table 12.9 As of December 31, 2023 Year of Origination: 2023 2022 2021 2020 2019 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance: Internally Assigned Risk Rating: Acceptable $ 169,429 $ 246,441 $ 515,396 $ 534,395 $ 264,815 $ 1,185,811 $ 391,335 $ 3,307,622 Special mention (1) — 71 2,466 872 531 44,631 8,565 57,136 Substandard (2) — — — 131 1,536 26,328 5,091 33,086 Total $ 169,429 $ 246,512 $ 517,862 $ 535,398 $ 266,882 $ 1,256,770 $ 404,991 $ 3,397,844 For the Year Ended December 31, 2023: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets 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 Year of Origination: 2023 2022 2021 2020 2019 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Infrastructure Finance: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 419,190 $ 115,823 $ 535,013 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 419,190 $ 115,823 $ 535,013 For the Year Ended December 31, 2023: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 180 As of December 31, 2022 Year of Origination: 2022 2021 2020 2019 2018 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Agricultural Finance: Internally Assigned Risk Rating: Acceptable $ 202,998 $ 496,269 $ 535,798 $ 254,293 $ 207,379 $ 1,107,834 $ 296,508 $ 3,101,079 Special mention (1) — 1,319 1,778 — 1,198 42,680 3,205 50,180 Substandard (2) — — 176 — 3,588 32,597 3,372 39,733 Total $ 202,998 $ 497,588 $ 537,752 $ 254,293 $ 212,165 $ 1,183,111 $ 303,085 $ 3,190,992 For the Year Ended December 31, 2022: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets 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, 2022 Year of Origination: 2022 2021 2020 2019 2018 Prior Revolving Loans - Amortized Cost Basis Total (in thousands) Rural Infrastructure Finance: Internally Assigned Risk Rating: Acceptable $ — $ — $ — $ — $ — $ 470,659 $ 52,533 $ 523,192 Special mention (1) — — — — — — — — Substandard (2) — — — — — — — — Total $ — $ — $ — $ — $ — $ 470,659 $ 52,533 $ 523,192 For the Year Ended December 31, 2022: Current period charge-offs $ — $ — $ — $ — $ — $ — $ — $ — (1) Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. (2) Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. 181 13. FAIR VALUE DISCLOSURES Fair Value Classification and Transfers The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 13.1 Assets and Liabilities Measured at Fair Value as of December 31, 2023 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,082 $ 19,082 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,424,434 — 2,424,434 Fixed rate GSE guaranteed mortgage-backed securities — 1,569,615 — 1,569,615 Floating rate U.S. Treasuries 49,968 — — 49,968 Fixed rate U.S. Treasuries 855,832 — — 855,832 Total Available-for-sale Investment Securities 905,800 3,994,049 19,082 4,918,931 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 5,522,712 5,522,712 Farmer Mac Guaranteed Securities — — 9,767 9,767 Total Farmer Mac Guaranteed Securities — — 5,532,479 5,532,479 USDA Securities: Trading — — 1,241 1,241 Total USDA Securities — — 1,241 1,241 Financial derivatives 11 37,467 — 37,478 Guarantee Asset — — 5,831 5,831 Total Assets at fair value $ 905,811 $ 4,031,516 $ 5,558,633 $ 10,495,960 Liabilities: Financial derivatives $ 91 $ 117,040 $ — $ 117,131 Total Liabilities at fair value $ 91 $ 117,040 $ — $ 117,131 (1) Level 3 assets represent 19 % of total assets and 52 % of financial instruments measured at fair value. 182 Assets and Liabilities Measured at Fair Value as of December 31, 2022 Level 1 Level 2 Level 3 (1) Total (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ — $ — $ 19,027 $ 19,027 Floating rate Government/GSE guaranteed mortgage-backed securities — 2,392,540 — 2,392,540 Fixed rate GSE guaranteed mortgage-backed securities — 1,048,386 — 1,048,386 Fixed rate U.S. Treasuries 1,119,611 — — 1,119,611 Total Available-for-sale Investment Securities 1,119,611 3,440,926 19,027 4,579,564 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage — — 7,599,379 7,599,379 Farmer Mac Guaranteed Securities — — 7,847 7,847 Total Farmer Mac Guaranteed Securities — — 7,607,226 7,607,226 USDA Securities: Trading — — 1,767 1,767 Total USDA Securities — — 1,767 1,767 Financial derivatives — 37,409 — 37,409 Guarantee Asset — — 4,467 4,467 Total Assets at fair value $ 1,119,611 $ 3,478,335 $ 7,632,487 $ 12,230,433 Liabilities: Financial derivatives $ 142 $ 175,184 $ — $ 175,326 Total Liabilities at fair value $ 142 $ 175,184 $ — $ 175,326 (1) Level 3 assets represent 28 % of total assets and 62 % of financial instruments measured at fair value. There were no material assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2023 or 2022. Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. During the years ended December 31, 2023 and 2022, there were no transfers within the fair value hierarchy. 183 The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no liabilities measured at fair value using significant unobservable inputs during the years ended December 31, 2023, 2022, and 2021. Table 13.2 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2023 Beginning Balance Purchases Settlements Allowance for Losses Realized and unrealized (losses)/gains included in Income Unrealized gains included in Other Comprehensive Income Transfers Out (1) Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,027 $ — $ — $ 6 $ — $ 49 $ — $ 19,082 Total available-for-sale 19,027 — — 6 — 49 — 19,082 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 7,599,379 2,084,650 ( 1,561,507 ) 230 89,629 ( 5,573 ) ( 2,684,096 ) 5,522,712 Farmer Mac Guaranteed Securities 7,847 — ( 1,213 ) — — 3,133 — 9,767 Total available-for-sale 7,607,226 2,084,650 ( 1,562,720 ) 230 89,629 ( 2,440 ) ( 2,684,096 ) 5,532,479 USDA Securities: Trading 1,767 — ( 550 ) — 24 — — 1,241 Total USDA Securities 1,767 — ( 550 ) — 24 — — 1,241 Guarantee and commitment obligations: Guarantee Asset 4,467 — ( 590 ) — 1,954 — — 5,831 Total Guarantee and commitment obligations 4,467 — ( 590 ) — 1,954 — — 5,831 Total Assets at fair value $ 7,632,487 $ 2,084,650 $ ( 1,563,860 ) $ 236 $ 91,607 $ ( 2,391 ) $ ( 2,684,096 ) $ 5,558,633 (1) Includes $ 2.7 billion of AgVantage Securities transferred from available-for-sale to held-to-maturity on July 1, 2023. 184 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2022 Beginning Balance Purchases Settlements Allowance for Losses Realized and unrealized losses included in Income Unrealized losses included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,254 $ — $ — $ 19 $ — $ ( 246 ) $ 19,027 Total available-for-sale 19,254 — — 19 — ( 246 ) 19,027 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,316,145 3,411,665 ( 1,526,303 ) ( 283 ) ( 552,907 ) ( 48,938 ) 7,599,379 Farmer Mac Guaranteed Securities 12,414 — ( 1,675 ) — — ( 2,892 ) 7,847 Total available-for-sale 6,328,559 3,411,665 ( 1,527,978 ) ( 283 ) ( 552,907 ) ( 51,830 ) 7,607,226 USDA Securities: Trading 4,401 — ( 2,583 ) — ( 51 ) — 1,767 Total USDA Securities 4,401 — ( 2,583 ) — ( 51 ) — 1,767 Guarantee and commitment obligations: Guarantee Asset 6,237 — ( 903 ) — ( 867 ) — 4,467 Total Guarantee and commitment obligations 6,237 — ( 903 ) — ( 867 ) — 4,467 Total Assets at fair value $ 6,358,451 $ 3,411,665 $ ( 1,531,464 ) $ ( 264 ) $ ( 553,825 ) $ ( 52,076 ) $ 7,632,487 185 Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2021 Beginning Balance Purchases Settlements Allowance for Losses Realized and unrealized losses included in Income Unrealized gains included in Other Comprehensive Income Ending Balance (in thousands) Recurring: Assets: Investment Securities: Available-for-sale: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,171 $ — $ — $ ( 16 ) $ — $ 99 $ 19,254 Total available-for-sale 19,171 — — ( 16 ) — 99 19,254 Farmer Mac Guaranteed Securities: Available-for-sale: AgVantage 6,947,701 1,143,115 ( 1,614,598 ) 47 ( 176,064 ) 15,944 6,316,145 Farmer Mac Guaranteed Securities — 12,560 ( 263 ) — — 117 12,414 Total available-for-sale 6,947,701 1,155,675 ( 1,614,861 ) 47 ( 176,064 ) 16,061 6,328,559 USDA Securities: Trading 6,695 — ( 2,178 ) — ( 116 ) — 4,401 Total USDA Securities 6,695 — ( 2,178 ) — ( 116 ) — 4,401 Guarantee and commitment obligations: Guarantee Asset — 6,237 — — — — 6,237 Total Guarantee and commitment obligations — 6,237 — — — — 6,237 Total Assets at fair value $ 6,973,567 $ 1,161,912 $ ( 1,617,039 ) $ 31 $ ( 176,180 ) $ 16,160 $ 6,358,451 186 The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of December 31, 2023 and 2022: Table 13.3 As of December 31, 2023 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,082 Indicative bids Range of broker quotes 97.0 % - 97.0 % ( 97.0 %) Farmer Mac Guaranteed Securities: AgVantage $ 5,522,712 Discounted cash flow Discount rate 4.7 % - 5.4 % ( 5.0 %) Farmer Mac Guaranteed Securities $ 9,767 Discounted cash flow Discount rate 8.3 % CPR 3 % USDA Securities $ 1,241 Discounted cash flow Discount rate 5.4 % - 5.4 % ( 5.4 %) CPR 12 % - 12 % ( 12 %) Guarantee Asset $ 5,831 Discounted cash flow Discount rate 8.3 % CPR 3 % As of December 31, 2022 Financial Instruments Fair Value Valuation Technique Unobservable Input Range (Weighted-Average) (in thousands) Assets: Investment securities: Floating rate auction-rate certificates backed by Government guaranteed student loans $ 19,027 Indicative bids Range of broker quotes 96.8 % - 96.8 % ( 96.8 %) Farmer Mac Guaranteed Securities: AgVantage $ 7,599,379 Discounted cash flow Discount rate 4.7 % - 6.1 % ( 5.1 %) Farmer Mac Guaranteed Securities $ 7,847 Discounted cash flow Discount rate 4.8 % - 5.3 % ( 5.1 %) CPR 8 % USDA Securities $ 1,767 Discounted cash flow Discount rate 5.1 % - 5.7 % ( 5.3 %) CPR 19 % - 27 % ( 25 %) Guarantee Asset $ 4,467 Discounted cash flow Discount rate 5.4 % - 5.9 % ( 5.7 %) CPR 8 % The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. CPR are not presented in the table above for AgVantage securities 187 because they generally have fixed maturity dates when the secured general obligations are due and do not prepay. The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. Disclosures on Fair Value of Financial Instruments The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of December 31, 2023 and 2022: Table 13.4 As of December 31, 2023 As of December 31, 2022 Fair Value Carrying Amount Fair Value Carrying Amount (in thousands) Financial assets: Cash and cash equivalents $ 888,707 $ 888,707 $ 861,002 $ 861,002 Investment securities 4,981,249 4,979,504 4,630,701 4,628,268 Farmer Mac Guaranteed Securities 9,710,074 9,745,548 8,573,781 8,628,380 USDA Securities 2,036,046 2,355,412 2,099,445 2,411,601 Loans 10,426,021 11,039,349 9,666,710 10,205,466 Financial derivatives 37,478 37,478 37,409 37,409 Guarantee and commitment fees receivable 58,465 49,832 50,653 47,151 Financial liabilities: Notes payable 25,670,971 26,336,542 23,591,330 24,469,113 Debt securities of consolidated trusts held by third parties 1,268,563 1,351,069 1,106,837 1,181,948 Financial derivatives 117,131 117,131 175,326 175,326 Guarantee and commitment obligations 56,195 47,563 50,083 46,582 The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are valued using the market standard methodology of netting the discounted future fixed cash payments (or 188 receipts) and the discounted expected variable cash receipts (or payments) and are classified as Level 2. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. 14. BUSINESS SEGMENT REPORTING The following table presents the alignment of the Farmer Mac's seven segments: Agricultural Finance Rural Infrastructure Finance Treasury Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Corporate The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis. Accordingly, the core earnings for Farmer Mac's segments would differ from any stand-alone financial statements of Farmer Mac's subsidiaries. These differences would be due to various factors, including the exclusion of unrealized gains and losses related to fair value changes of trading assets and financial derivatives, as well as the allocation of certain expenses such as operating expenses, dividends and interest expense related to the issuance of capital and the issuance of indebtedness managed at the corporate level. The following tables present core earnings for Farmer Mac's segments and a reconciliation to consolidated net income for the years ended December 31, 2023, 2022, and 2021. 189 Table 14.1 Core Earnings by Business Segment For the Year Ended December 31, 2023 Agricultural Finance Rural Infrastructure Treasury Corporate Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 137,079 $ 31,224 $ 25,187 $ 4,648 $ 128,415 $ 994 $ — $ — $ 327,547 Less: reconciling adjustments (1)(2)(3) ( 4,179 ) — ( 168 ) — 3,594 186 — 567 — Net effective spread 132,900 31,224 25,019 4,648 132,009 1,180 — 567 — Guarantee and commitment fees 17,415 283 1,133 97 — — — ( 2,216 ) 16,712 Other income/(expense) (3) 2,952 35 — — 3 29 280 3,778 7,077 Total revenues 153,267 31,542 26,152 4,745 132,012 1,209 280 2,129 351,336 Release of/(provision for) losses 145 ( 207 ) ( 581 ) ( 219 ) — 4 — — ( 858 ) (Provision for)/release of reserve for losses ( 652 ) — 374 — — — — — ( 278 ) Operating expenses — — — — — — ( 97,099 ) — ( 97,099 ) Total non-interest expense ( 652 ) — 374 — — — ( 97,099 ) — ( 97,377 ) Core earnings before income taxes 152,760 31,335 25,945 4,526 132,012 1,213 ( 96,819 ) 2,129 (4) 253,101 Income tax (expense)/benefit ( 32,079 ) ( 6,581 ) ( 5,449 ) ( 951 ) ( 27,721 ) ( 255 ) 20,385 ( 447 ) ( 53,098 ) Core earnings before preferred stock dividends 120,681 24,754 20,496 3,575 104,291 958 ( 76,434 ) 1,682 (4) 200,003 Preferred stock dividends — — — — — — ( 27,165 ) — ( 27,165 ) Segment core earnings/(losses) $ 120,681 $ 24,754 $ 20,496 $ 3,575 $ 104,291 $ 958 $ ( 103,599 ) $ 1,682 (4) $ 172,838 Total Assets $ 15,052,606 $ 1,566,906 $ 7,002,620 $ 443,772 $ — $ 5,342,089 $ 116,389 $ — $ 29,524,382 Total on- and off-balance sheet program assets at principal balance $ 18,808,801 $ 1,693,979 $ 7,480,723 $ 487,521 $ — $ — $ — $ — $ 28,471,024 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 190 Core Earnings by Business Segment For the Year Ended December 31, 2022 Agricultural Finance Rural Infrastructure Treasury Corporate Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 133,218 $ 29,209 $ 16,175 $ 2,483 $ 96,613 $ ( 6,758 ) $ — $ — $ 270,940 Less: reconciling adjustments (1)(2)(3) ( 4,161 ) — ( 103 ) — ( 11,147 ) — — 15,411 — Net effective spread 129,057 29,209 16,072 2,483 85,466 ( 6,758 ) — 15,411 — Guarantee and commitment fees 16,718 139 1,238 49 — — — ( 5,104 ) 13,040 Other income/(expense) (3) 1,420 261 — — — — 3 23,447 25,131 Total revenues 147,195 29,609 17,310 2,532 85,466 ( 6,758 ) 3 33,754 309,111 (Provision for)/release of losses ( 1,463 ) ( 2,136 ) 2,751 ( 494 ) — 19 — — ( 1,323 ) Release of reserve for losses 247 — 270 — — — — — 517 Operating expenses ( 819 ) — — — — — ( 81,807 ) — ( 82,626 ) Total non-interest expense ( 572 ) — 270 — — — ( 81,807 ) — ( 82,109 ) Core earnings before income taxes 145,160 27,473 20,331 2,038 85,466 ( 6,739 ) ( 81,804 ) 33,754 (4) 225,679 Income tax (expense)/benefit ( 30,482 ) ( 5,768 ) ( 4,268 ) ( 428 ) ( 17,949 ) 1,416 17,033 ( 7,089 ) ( 47,535 ) Core earnings before preferred stock dividends 114,678 21,705 16,063 1,610 67,517 ( 5,323 ) ( 64,771 ) 26,665 (4) 178,144 Preferred stock dividends — — — — — — ( 27,165 ) — ( 27,165 ) Segment core earnings/(losses) $ 114,678 $ 21,705 $ 16,063 $ 1,610 $ 67,517 $ ( 5,323 ) $ ( 91,936 ) $ 26,665 (4) $ 150,979 Total Assets $ 14,623,596 $ 1,541,151 $ 5,867,517 $ 219,609 $ — $ 4,806,010 $ 275,227 $ — $ 27,333,110 Total on- and off-balance sheet program assets at principal balance $ 17,728,792 $ 1,603,507 $ 6,359,613 $ 230,170 $ — $ — $ — $ — $ 25,922,082 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. 191 Core Earnings by Business Segment For the Year Ended December 31, 2021 Agricultural Finance Rural Infrastructure Treasury Corporate Farm & Ranch Corporate AgFinance Rural Utilities Renewable Energy Funding Investments Reconciling Adjustments Consolidated Net Income (in thousands) Net interest income $ 118,289 $ 27,081 $ 8,224 $ 1,219 $ 66,581 $ 557 $ — $ — $ 221,951 Less: reconciling adjustments (1)(2)(3) ( 4,753 ) — ( 157 ) — 3,627 — — 1,283 — Net effective spread 113,536 27,081 8,067 1,219 70,208 557 — 1,283 — Guarantee and commitment fees 16,178 48 1,287 20 — — — ( 4,864 ) 12,669 Gain on sale of mortgage loans 6,539 — — — — — — — 6,539 Other income/(expense) (3) 1,966 — 5 — — — ( 291 ) 851 2,531 Total revenues 138,219 27,129 9,359 1,239 70,208 557 ( 291 ) ( 2,730 ) 243,690 Release of/(provision for) losses 1,574 ( 210 ) ( 291 ) ( 198 ) — ( 15 ) — — 860 Release of reserve for losses 1,034 — 293 — — — — — 1,327 Operating expenses — — — — — — ( 73,416 ) — ( 73,416 ) Total non-interest expense 1,034 — 293 — — — ( 73,416 ) — ( 72,089 ) Core earnings before income taxes 140,827 26,919 9,361 1,041 70,208 542 ( 73,707 ) ( 2,730 ) (4) 172,461 Income tax (expense)/benefit ( 29,574 ) ( 5,653 ) ( 1,965 ) ( 219 ) ( 14,744 ) ( 114 ) 15,325 572 ( 36,372 ) Core earnings before preferred stock dividends 111,253 21,266 7,396 822 55,464 428 ( 58,382 ) ( 2,158 ) (4) 136,089 Preferred stock dividends — — — — — — ( 24,677 ) — ( 24,677 ) Segment core earnings/(losses) $ 111,253 $ 21,266 $ 7,396 $ 822 $ 55,464 $ 428 $ ( 83,059 ) $ ( 2,158 ) (4) $ 111,412 Total Assets $ 13,112,193 $ 1,507,848 $ 5,344,707 $ 87,553 $ — $ 5,012,827 $ 55,881 $ — $ 25,121,009 Total on- and off-balance sheet program assets at principal balance $ 16,094,640 $ 1,537,834 $ 5,895,226 $ 86,763 $ — $ — $ — $ — $ 23,614,463 (1) Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. (2) Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. (3) Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment. (4) Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 192