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Item 1A. Risk Factors

2025-02-21 compared with 2024-02-23 · 84 added, 92 removed, 224 unchanged (44% of the section changed)

Farmer Mac's business activities, financial performance, and results of operations are, by their nature, subject to risks and uncertainties, including those related to the agricultural industry, rural infrastructure industries, access to the capital markets, the regulatory environment, the level of prevailing interest rates and overall market conditions.

Farmer Mac's business activities, financial performance, and results of operations are, by their nature, subject to risks and uncertainties, including those related to the agricultural industry, infrastructure industries, access to the capital markets, the political and regulatory environment, the level of prevailing interest rates, and overall market conditions.

The following risk factors should be considered along with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report, including the risks and uncertainties described in the "Forward-Looking Statements" section.

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Economic stress caused by disruptive global events, such as geopolitical instability, and natural or human-caused disasters, may materially and adversely affect Farmer Mac's business, operations, operating results, financial condition, liquidity, or capital levels and may heighten other risk factors in this report.

In a tightly-linked global economy, recent or continuing disruptive global events have contributed and may continue to contribute to economic stress on America’s agricultural producers and rural infrastructure by disrupting or transforming markets, systems, or resources that America’s farmers, ranchers, and rural service providers rely on to remain profitable.

This includes supply chain disruptions that prevent producers from accessing critical resources or that inhibit exports, inflationary effects that put downward pressure on demand for agricultural products or that may increase production expenses, and rising interest rates that may increase the risk that Farmer Mac’s borrowers may default on their loans.

For example, the conflict between Russia and Ukraine, conflict in the Middle East, and severe weather conditions and natural disasters have all contributed to recent or current economic stress on producers and service providers in rural America.

In a tightly-linked global economy, recent or continuing disruptive global events have contributed and may continue to contribute to economic stress on America’s agricultural producers and infrastructure by disrupting or transforming markets, systems, or resources that America’s farmers, ranchers, and rural service providers rely on to remain profitable.

This includes supply chain disruptions that prevent producers from accessing critical resources or that inhibit exports, inflationary effects that put downward pressure on demand for agricultural products or that may increase production expenses, and higher interest rates that may increase the risk that Farmer Mac’s borrowers may default on their loans.

Depending on the severity and frequency of these types of disruptive events, as well as the capability of governments and global markets to effectively mitigate the resulting negative effects, a prolonged period of economic stress, including a broader economic downturn or recession, could ensue from these events, which could increase stress on Farmer Mac’s borrowers and their ability to remain profitable and make payments on their loans.

Farmer Mac assumes the ultimate credit risk of borrower defaults on its agricultural mortgage and rural infrastructure loan assets, and Farmer Mac's earnings, which come from net interest income, guarantee fees, and commitment fees on those assets, depend significantly on their performance.

Farmer Mac assumes the ultimate credit risk of borrower defaults on its agricultural mortgage and infrastructure loan assets, and Farmer Mac's earnings, which come from net interest income, guarantee fees, and commitment fees on those assets, depend significantly on their performance.

Widespread and sustained repayment shortfalls on loans in Farmer Mac's portfolio could result in losses, particularly if the value of the available collateral does not cover Farmer Mac's exposure, and could materially and adversely affect Farmer Mac’s business, operations, operating results, financial condition, liquidity, or capital levels.

The occurrence of these disruptive events and resulting negative economic effects may also heighten other risk factors described in this report.

Climate change and the occurrence of weather-related events, or other natural or environmental disasters could have a material adverse effect on Farmer Mac’s business, operating results, or financial condition.

In addition to the general risks posed by adverse weather conditions, Farmer Mac’s exposure to credit risk and the market value of loan collateral is potentially subject to risks associated with the long-term effects of climate change, as farmers and ranchers face increasing, as well as increasingly-severe, weather incidents.

experienced 28 separate billion-dollar weather disasters in 2023, surpassing 2020 (which had 22 billion-dollar weather disasters) as the highest level in the 40 years tracked by the National Oceanic and Atmospheric Administration.

Weather-related events or other natural or environmental disasters could have a material adverse effect on Farmer Mac’s business, operating results, or financial condition.

facing increasing, as well as increasingly-severe, weather incidents.

experienced 27 separate billion-dollar weather disasters in 2024, surpassed only by the 28 billion-dollar weather disasters in 2023, both of which significantly exceeded the previous high set in 2020 (which had 22 billion-dollar weather disasters) as the highest level in the more than 40 years tracked by the National Oceanic and Atmospheric Administration ("NOAA").

Many climatologists predict increases in average temperatures, more extreme temperatures, and increases in volatile weather over time.

These physical changes may prompt changes in regulations or consumer preferences, which in turn could have negative consequences for the business models of borrowers, such as increasing costs, reducing the value of assets, and increasing operating expenses.

For example, long and persistent heat and drought conditions affected agricultural production regions in the western and midwestern parts of the United States in 2021 and 2022.

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

Approximately 14% of the continental U.S.

was classified as being in severe to exceptional drought as of January 2, 2024, according to data from the National Center for Environmental Information.

The effects of climate change could make some agricultural properties less suitable for farming or for other alternative uses.

At the end of 2024, approximately 70% of the United States is classified as experiencing some level of drought or dryness according to the National Drought Mitigation Center, USDA, and NOAA.

The effects of severe weather events could make some agricultural properties less suitable for farming or for other alternative uses.

Extended periods of drought and dryness can reduce agricultural productivity, cause lasting damage to permanent crops like fruit and tree nuts, and result in producers leaving some fields fallow due to lack of water.

These and other effects of climate change could have an adverse impact on farming operations and the value of loan collateral, which could have a material adverse effect on Farmer Mac’s business, operating results, or financial condition.

Other external factors outside of Farmer Mac's or borrowers' control may impair borrowers' profitability and ability to repay their loans in Farmer Mac's portfolio, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

These and other effects of severe weather could have an adverse impact on farming operations and the value of loan collateral, which could have a material adverse effect on Farmer Mac’s business, operating results, or financial condition.

Political and other external factors outside of Farmer Mac's or borrowers' control may impair borrowers' profitability and ability to repay their loans in Farmer Mac's portfolio, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

Potential shifts in U.S.

trade policies, tax policies, environmental regulations, and immigration laws with the change in U.S.

political leadership could result in significant impacts on agricultural producers and the broader agricultural sector, as well as the infrastructure sector.

These changes could lead to both favorable and unfavorable conditions, influencing trade dynamics, the strength of the U.S.

dollar, labor costs and availability, and regulatory frameworks.

Infrastructure borrowers (particularly those involved in renewable energy projects) may experience delays in completing current projects or future investments in renewable energy and battery storage projects as well as deployment of fiber and broadband infrastructure in rural areas.

The agricultural and infrastructure sectors may experience varying degrees of disruption and adaptation in response to these evolving policies, and these changes could increase the uncertainty and volatility of profitability in the agriculture and infrastructure sectors in the near-term.

Other external factors beyond Farmer Mac's or borrowers' control could impair borrowers' profitability, such as volatility in demand for agricultural products or electricity in rural areas;

variability in borrowers' input costs;

protracted regional, domestic, or global economic stress (whether due to disruptive global events or otherwise);

legislative or regulatory actions affecting rural borrowers;

trade policy affecting the demand for agricultural exports or the price of imports required for borrowers' operations;

increased competition among producers due to oversupply or available alternatives;

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A decline in the value of collateral securing loans in Farmer Mac's portfolio or a decline in the value of Farmer Mac's borrowers could increase the probability of loss in the event of default, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

Farmer Mac's credit risk may increase due to decline in the collateral values securing the loans in Farmer Mac's portfolio.

Specialized or highly improved collateral, such as storage and processing facilities, permanent plantings, or rural utilities and renewable energy facilities, increase the risk of undercollateralization in a default scenario because producers requiring specialized or highly improved collateral are generally less able to adapt their operations or switch functional production when faced with adverse conditions.

Farmer Mac's credit risk may increase due to a decline in the collateral values securing the loans in Farmer Mac's portfolio.

Specialized or highly improved collateral, such as storage and processing facilities, permanent plantings, rural utilities, broadband, and renewable energy facilities, increase the risk of undercollateralization in a default scenario because producers requiring specialized or highly improved collateral are generally less able to adapt their operations or switch functional production when faced with adverse conditions.

Highly improved properties also face higher risk of loss in a default scenario, as the pool of potential purchasers in a sale or foreclosure action may be smaller for a highly improved property than for a property that is adaptable to multiple uses.

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In these scenarios, the borrower may experience downward pressure on cash flows and liquidity, which not only may contribute to an increased risk of default, but also could decrease the borrower's enterprise value.

Farmer Mac may incur losses if the value of the collateral securing a loan or the enterprise value of a borrower is less than the outstanding principal balance of Farmer Mac's loan at the time of foreclosure or sale, liquidation, or other disposition of the business.

Farmer Mac has incurred, and may in the future incur, losses if the value of the collateral securing a loan or the enterprise value of a borrower is less than the outstanding principal balance of Farmer Mac's loan at the time of foreclosure or sale, liquidation, or other disposition of the business.

If losses caused by declines in collateral value or borrower enterprise value occur across a large number of loans, or across loans with large principal balances in the aggregate, this could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

Concentrations in Farmer Mac's loan or investments portfolios, or to one or more borrowers or counterparties, may increase Farmer Mac's exposure to credit risk, which could materially and adversely affect its business, operating results, and financial condition.

Concentrations in Farmer Mac's loan or investment portfolios, or to one or more borrowers or counterparties, may increase Farmer Mac's exposure to credit risk, which could materially and adversely affect its business, operating results, and financial condition.

Farmer Mac's exposure to credit risk may increase due to concentrations in its loan portfolio, which can include concentrated exposure to particular commodities, geographic regions, or collateral types, as well as concentrations in processing and manufacturing segments of agricultural supply chains or in rural utilities or renewable energy industries.

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Farmer Mac’s portfolio consists of loans varying in size and by borrower, including large exposures ($25 million or more) to individual borrowers.

The default of any one of these borrowers could negatively affect Farmer Mac's financial condition.

Farmer Mac also has concentrated

exposures to individual business counterparties on AgVantage securities, which are general obligations of institutional counterparties secured by eligible loans held by the issuing institution.

The default of any one of these

borrowers could negatively affect Farmer Mac's financial condition.

Farmer Mac also has concentrated exposures to individual business counterparties on AgVantage securities, which are general obligations of institutional counterparties secured by eligible loans held by the issuing institution.

Although AgVantage securities are collateralized by eligible loans in a principal amount equal to or greater than the principal amount of the securities outstanding, Farmer Mac could suffer losses if the market value of the loan collateral declines and the counterparty defaults.

Taking possession of the loan collateral upon a default by the AgVantage counterparty could also result in higher current expected credit losses for Farmer Mac's loans held on balance sheet, as well as increased capital requirements.

As of December 31, 2023, $9.0 billion of the $10.0 billion of AgVantage securities outstanding had been issued by only three counterparties.

As of December 31, 2024, $7.6 billion of the $8.5 billion of AgVantage securities outstanding had been issued by three counterparties.

A default by any of these counterparties could have a significant adverse effect on Farmer Mac's business, operating results, and financial condition.

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As of December 31, 2024, the aggregate notional balance of Farmer Mac's cleared swaps was $19.1 billion, and the aggregate notional balance of Farmer Mac's non-cleared swaps was $5.7 billion.

Strategic/Business Risk

Strategic and Business Risk

Farmer Mac's business, operating results, financial condition, and capital levels may be materially and adversely affected by external factors that may affect the demand for Farmer Mac's secondary market, the price or marketability of Farmer Mac's products, or Farmer Mac's ability to offer its products and services.

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• legislative or regulatory developments adversely affecting Farmer Mac's ability to offer new products, the ability or motivation of lenders to participate in Farmer Mac's lines of business, or the cost of related corporate activities;

• reduced demand for agricultural real estate loans or rural infrastructure loans due to regional, domestic, or global economic conditions;

• expanded funding alternatives available to agricultural and rural infrastructure borrowers.

• reduced demand for agricultural real estate loans or infrastructure loans due to regional, domestic, or global economic conditions;

• expanded funding alternatives available to agricultural and infrastructure borrowers.

An inability to access the equity and debt capital markets could have a material adverse effect on Farmer Mac's business, operating results, financial condition, liquidity, and capital levels.

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In 2024, ten institutions generated approximately 65% of loan purchase volume in the Agricultural Finance line of business.

Between December 31, 2023 and December 31, 2024, the outstanding balance of Farmer Mac's AgVantage securities decreased by approximately $1.5 billion.

As of December 31, 2024, approximately 89.1% of the $8.5 billion outstanding principal amount of AgVantage securities (of which $1.6 billion and $1.2 billion will be maturing in 2025 and 2026, respectively) were issued by three institutions.

As of December 31, 2023, transactions with two institutions represented nearly all of the business volume under Farmer Mac's Rural Infrastructure Finance line of business.

As of December 31, 2024, transactions with two institutions represented nearly all of the business volume under Farmer Mac's Infrastructure Finance line of business.

Farmer Mac's ability to maintain the current relationships with its business counterparties or customers and the business generated by those business counterparties or customers is significant to Farmer Mac's business.

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Farmer Mac may be unable to replace the loss of business of a key business counterparty or customer with alternate sources of business due to limitations on the types of assets eligible for Farmer Mac's secondary market, which could adversely affect Farmer Mac's business and decrease its revenues and profits.

Farmer Mac's efforts to balance fulfilling its mission with providing a return to its stockholders may result in business transactions that involve lower returns or higher risk, which could adversely affect its business, operating results, or financial condition.

Congress created Farmer Mac to provide for a secondary market for agricultural mortgage loans, rural infrastructure loans, and the guaranteed portions of USDA-guaranteed loans.

In pursuing this mission, Farmer Mac's secondary market activities are designed to:

• increase the accessibility of financing to rural borrowers at stable interest rates;

• provide greater liquidity and lending capacity in extending credit to rural borrowers;

• provide an arrangement for new lending by facilitating capital market investments in funding for rural borrowers, including funds at fixed rates of interest.

Farmer Mac's charter provides that its standards for Farm & Ranch loans shall not discriminate against small originators or small agricultural mortgage loans of at least $50,000.

The charter also requires Farmer Mac's board of directors to promote and encourage the inclusion of qualified loans for small farms and family farmers in the agricultural mortgage secondary market.

Although Farmer Mac strives to undertake its mission-related activities in a manner consistent with providing an accretive return to Farmer Mac's stockholders, these activities could contribute to a lower return to stockholders than if Farmer Mac's sole purpose were to maximize stockholder value.

Mac were to undertake activities involving greater risk or lower returns to satisfy its mission, Farmer Mac's business, operating results, or financial condition could be adversely affected.

A few stockholders who own large amounts of Farmer Mac voting common stock may seek to influence Farmer Mac's business, strategy, or board composition, and the interests of these stockholders may differ from the interests of Farmer Mac or other holders of Farmer Mac's common stock.

The ownership of Farmer Mac's two classes of voting common stock is concentrated in a few institutions.

Four financial institutions hold approximately 51% of Farmer Mac's Class A voting common stock, with 31% held by one institution.

Five FCS institutions hold approximately 97% of Farmer Mac's Class B voting common stock (two of which are related to each other through a parent-subsidiary relationship).

The holders of Farmer Mac's Class A voting common stock and the holders of Farmer Mac's Class B voting common stock each have the right to elect one-third of the membership of Farmer Mac's board of directors.

Many of these holders are rural lenders that may compete directly with each other.

As long as Farmer Mac's Class A and Class B voting common stock is highly concentrated in a few institutions, these institutions may seek to influence Farmer Mac's business, strategy, or board composition in a way that may not be in the best interests of either Farmer Mac or other stockholders.

Operational Risk

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unauthorized access to, or acquisition, destruction, alteration, release, theft, or loss of, confidential, proprietary, or personal data;

fraud on Farmer Mac's

business and customers;

fraud on Farmer Mac's business and customers;

financial and economic loss or costs;

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Yet Farmer Mac's ability to implement safeguards preventing disruption or unauthorized access to third-party systems or infrastructure is more limited than for its own systems or infrastructure.

If the financial, accounting, data processing, backup, information technology, or other operating systems and infrastructure of third parties with whom Farmer Mac interacts or upon whom it relies fail to operate properly, are subject to unauthorized access, or are disrupted, then Farmer Mac may be impacted in the same manner as it would be due to inadequacies or failures in Farmer Mac's own internal processes, personnel, systems, cybersecurity program, or infrastructure.

Farmer Mac’s internal loan servicing function and reliance on third-party servicers could expose Farmer Mac to operational risks that could adversely affect its business, operating results, or financial condition.

If the financial, accounting, data processing, backup, information technology, or other operating systems and infrastructure of third parties with whom Farmer Mac interacts or upon whom it relies fail to operate properly, are subject to unauthorized access or improper use, or are disrupted, then Farmer Mac may be impacted in the same manner as it would be due to inadequacies or failures in Farmer Mac's own internal processes, personnel, systems, cybersecurity program, or infrastructure.

Farmer Mac’s internal loan servicing function and reliance on third-party servicers exposes Farmer Mac to operational risks that could adversely affect its business, operating results, or financial condition.

Effective and reliable loan servicing is essential for Farmer Mac to successfully operate its business.

Starting in 2021, Farmer Mac has expanded its internal loan servicing function through two strategic acquisitions that included the loan servicing rights for a sizeable portion of Farmer Mac’s Agricultural Finance mortgage loan and USDA Securities portfolios, as well as servicing rights for eligible agricultural mortgage loans that are held by an unrelated third party.

Starting in 2021, Farmer Mac expanded its internal loan servicing function through two strategic acquisitions that included the loan servicing rights for a sizeable portion of Farmer Mac’s Agricultural Finance mortgage loan and USDA Securities portfolios, as well as servicing rights for eligible agricultural mortgage loans that are held by an unrelated third party.

Farmer Mac has also acquired experienced servicing personnel and an operational servicing platform during that time.

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The ineffective implementation, operation, or oversight of one or more of the servicing processes or controls employed by Farmer Mac or any of its third-party servicers could expose Farmer Mac to operational risk that could adversely affect Farmer Mac’s business, operating results, or financial condition.

A deficiency, failure, interruption, or breach in Farmer Mac's or its service providers' technology and information systems, infrastructure, or cybersecurity program, including the occurrence of a cybersecurity incident, could result in a loss of business, damage to Farmer Mac's reputation, the disclosure or misuse of confidential or proprietary information, or increased costs or liability to Farmer Mac, which could adversely affect Farmer Mac's business, operating results, or financial condition.

Farmer Mac relies heavily on technology and information systems, including from third parties, for the secure collection, processing, transmission, and storage of confidential, proprietary, and personal information in its information systems (and those of third parties) to conduct and manage its business operations.

These technology and information systems encompass an integrated set of hardware, software, infrastructure, and personnel organized to facilitate the planning, control, coordination, operations, and

decision-making processes within Farmer Mac.

As the importance and complexity of Farmer Mac’s technology and information systems has increased, and as new technologies are developed that are used by its customers, Farmer Mac, or its service providers to support its business and operations, the risks posed to Farmer Mac’s information systems and data from cybersecurity attacks that threaten the confidentiality, integrity, or availability of Farmer Mac’s information technology assets and resources and its data have increased.

Like many other financial institutions, Farmer Mac and its third party service providers face regular attacks by threat actors attempting to gain unauthorized access to, or disrupt, its information systems and access or acquire its data, including from organized criminal groups, hackers, nation states, activists, insiders, and other unauthorized third parties.

To conduct and manage its business operations, Farmer Mac relies heavily on technology and information systems, including from third parties, for the secure collection, processing, transmission, and storage of confidential, proprietary, and personal information in its information systems (and those of third parties).

These technology and information systems encompass an integrated set of hardware, software, infrastructure, and personnel organized to facilitate the planning, control, coordination, operations, and decision-making processes within Farmer Mac.

Risks to Farmer Mac's information systems and data as a result of cybersecurity attacks has increased as the importance and complexity of Farmer Mac’s technology and information systems has increased, and as new technologies are developed that are used by its customers, Farmer Mac, and its service providers to support its business and operations.

Like many other financial institutions, Farmer Mac and its third-party service providers, vendors, and suppliers face regular attacks by threat actors attempting to gain unauthorized access to, or disrupt, its information systems and access or acquire its data, including from organized criminal groups, hackers, nation states, activists, insiders, and others.

These threats come from a variety of different sources, including cyber-attacks, computer viruses, malware, exploits of system and network vulnerabilities, human error, phishing, ransomware, and distributed denial of service attacks.

The threats Farmer Mac faces and the methods used to gain unauthorized access to or disrupt its information systems and data, or those of its service providers, are evolving.

Farmer Mac is not always able to prevent or recognize attacks, and Farmer Mac's existing cybersecurity defenses may not be sufficient to detect attacks in a timely manner.

Also, Farmer Mac may be unable to implement effective preventive measures or proactively address these threats until after a cybersecurity incident has been discovered.

Moreover, any employees or agents of Farmer Mac’s (or its third-party customers or vendors) who have authorized access to confidential, proprietary, or personal information could also intentionally, inadvertently, or erroneously disseminate the information to unauthorized third parties.

The threats Farmer Mac and its third-party service providers face and the methods used to gain unauthorized access to or disrupt their information systems and data are evolving.

Farmer Mac is not always able to prevent or recognize attacks, its existing cybersecurity defenses may not be sufficient to detect attacks in a timely manner or to fully investigate an attack, and it may be unable to implement effective preventive measures or proactively address these threats until after a cybersecurity incident has been discovered.

Farmer Mac also may have limited or no control over its service providers' handling of cybersecurity incidents, including their recognition and prevention practices.

Any employees or agents of Farmer Mac’s (or its third-party customers or vendors) who have authorized access to confidential, proprietary, or personal information could also intentionally, inadvertently, or erroneously disseminate the information to unauthorized third parties.

Farmer Mac’s current information security program with cybersecurity procedures, policies, practices, and controls, may not be sufficient to prevent unauthorized access to its information technology assets or data, which could lead to a significant disruption to business operations;

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or reputational damage.

Farmer Mac also could be subject to litigation and government enforcement actions as a result of any such failure.

Even when an attempted cybersecurity attack or other security breach is successfully avoided or thwarted, Farmer Mac may need to expend substantial resources in doing so, may be required to take actions that could adversely affect customer satisfaction or behavior, or may be exposed to reputational damage.

Farmer Mac also could be subject to litigation and government enforcement actions as a result of any failure in its procedures, policies, practices, and controls.

Any such claim or proceeding could cause us to incur significant unplanned expenses in excess of Farmer Mac's insurance coverage, which could adversely affect Farmer Mac's financial condition and results of operations.

The amount and scope of insurance Farmer Mac maintains may not cover all expenses related to such claims.

Also, Farmer Mac's service providers may also experience interruptions to their technology, facilities, and information systems that could adversely impact Farmer Mac and over which Farmer Mac may have limited or no control.

Finally, the risk of unauthorized access to confidential, proprietary, or personal information through information system breaches or inadvertent dissemination may be heightened in a remote-working environment, which is currently more prevalent at Farmer Mac.

Failure by Farmer Mac's third-party loan servicers, third-party applications, information systems providers, and other service providers to protect confidential information from unauthorized access and dissemination could result in liability for Farmer Mac or damage Farmer Mac's reputation, which could have a negative effect on Farmer Mac's business, operating results, or financial condition.

The amount and scope of insurance Farmer Mac maintains may not cover all expenses related to those claims.

Also, the risk of unauthorized access to confidential, proprietary, or personal information through information system breaches or inadvertent dissemination may be heightened in a remote-working environment, which is currently more

prevalent at Farmer Mac.

Failure by Farmer Mac's third-party loan servicers, third-party applications, information systems providers (including artificial intelligence systems), and other service providers to protect confidential information from unauthorized access and dissemination could have a negative effect on Farmer Mac's business, operating results, or financial condition.

Farmer Mac relies on third parties, including loan servicers, information systems providers, software-as-a-service (SaaS) providers, cloud computing service providers, law firms, and other service providers, to perform various functions that support Farmer Mac’s business and operations.

Farmer Mac depends on these third parties to collect, process, transmit, and store a variety of confidential, proprietary, or personal information, including sensitive financial information and customer information.

Just as Farmer Mac is

subject to numerous cyber-attacks from a variety of actors, so too are these third parties.

Just as Farmer Mac is subject to numerous cyber-attacks from a variety of actors, so too are these third parties.

Farmer Mac requires third parties who collect, process, or store confidential, proprietary, or personal data to adhere to security policies, processes, and controls.

However, the control systems, cybersecurity program, infrastructure, and personnel associated with third parties with which Farmer Mac does business or obtains services are beyond its control.

Farmer Mac is aware of cybersecurity incidents involving its third party service providers in the past, and although Farmer Mac has not experienced a material loss of data or disruption of its operations due to a breach of third party systems, unauthorized access to a third party service provider's information technology assets or data may significantly impact Farmer Mac's operations in the same manner as incidents on its own systems.

Farmer Mac relies upon a variety of third parties to run and operate its business, including servicers who perform certain duties for loans Farmer Mac has purchased.

Farmer Mac also relies upon a variety of third-party applications, services, and tools that are not developed by Farmer Mac, including cloud-based platforms and related data centers, to host data and support and operate certain aspects of its services and business operations.

These third parties – particularly servicers – maintain, transmit, and receive confidential, proprietary, and personal information, including customer information.

The unauthorized access to, acquisition, misuse, mishandling, unavailability, or destruction of Farmer Mac's data or confidential information stored by these third parties or on their applications and systems, or unauthorized access to or disruption of these third party applications, services, or tools could result in:

Farmer Mac is aware of cybersecurity incidents involving its third party service providers in the past.

Although Farmer Mac has not experienced a material loss of data or disruption of its operations due to a breach of third party systems, unauthorized access to a third party service provider's information technology assets or data may significantly impact Farmer Mac's operations in the same manner as incidents on its own systems.

Farmer Mac relies upon a variety of third-party applications, services, and tools that are not developed by Farmer Mac, including artificial intelligence systems and cloud-based platforms and related data centers, to host data and support and operate certain aspects of its services and business operations.

The effective adoption, integration, and leveraging of existing and emerging technologies, including artificial intelligence and machine learning systems into our operations, presents operational and market risks, including system failures, inaccuracies with artificial intelligence outputs, and the investment of time and resources to develop and implement successful artificial intelligence solutions in a rapidly changing competitive market.

The unauthorized access to, acquisition, misuse, mishandling, unavailability, or destruction of Farmer Mac's data or confidential information stored by these third parties or on their applications and systems, including artificial intelligence systems, or unauthorized access to or disruption of these third party applications, services, or tools could result in:

unauthorized access to Farmer Mac's own systems;

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Some of Farmer Mac's qualitative tools and metrics for managing risk are based on its use of observed historical market behavior.

Farmer Mac applies statistical and other tools to these observations to quantify its risks.

Farmer Mac applies

statistical and other tools to these observations to quantify its risks.

These tools and metrics may fail to predict future or unanticipated risks or may not be effective in mitigating its risk exposure in all economic market environments or against all types of risk, which could expose Farmer Mac to material unanticipated losses.

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As Farmer Mac expands its product offerings and services, it is exposed to operational risk in implementing these new products and services.

New products and services may require new operational processes, which often require new internal controls to manage

new risks that these new processes present.

New products and services may require new operational processes, which often require new internal controls to manage new risks that these new processes present.

If these controls are insufficient or ineffective to manage the risks inherent in these new processes, or if there is human error in executing these new controls either due to their novelty or otherwise, Farmer Mac could face financial loss, reputational damage, or regulatory enforcement, which could materially and adversely affect Farmer Mac's business, operating results, or financial condition.

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In addition, rapid changes in interest rates could have a negative effect on Farmer Mac's net interest income across quarters.

For example, since 2022, the Federal Reserve has rapidly increased the target range for the federal funds rate by 5.25% in an effort to combat rising inflation.

Although Farmer Mac benefited from higher nominal interest rates in its investment portfolio, if those nominal interest rates decline, Farmer Mac may earn less interest income on its investments in future periods.

Furthermore, a future period of rapid increase or decline in interest rates may create or exacerbate periods of market volatility that could adversely affect Farmer Mac's ability to manage interest rate risk, which could have a material adverse effect on Farmer Mac's operating results or financial condition.

Although Farmer Mac has benefited from higher nominal interest rates in its investment portfolio, if those nominal interest rates decline, Farmer Mac may earn less interest income on its investments in future periods.

A future period of rapid increase or decline in interest rates may create or exacerbate periods of market volatility that could adversely affect Farmer Mac's ability to manage interest rate risk, which could have a material adverse effect on Farmer Mac's operating results or financial condition.

See "Management's Discussion and Analysis—Risk Management—Interest Rate Risk" for more information on Farmer Mac's management of interest rate risk.

Farmer Mac is also subject to repricing risk, which is the risk that Farmer Mac's funding cost relative to a benchmark index (for example, the Secured Overnight Financing Rate known as "SOFR") will increase from the time the initial funding was issued and the time the liabilities are re-funded.

This repricing risk arises from a funding strategy whereby Farmer Mac issues floating rate debt across a variety of maturities to fund floating or synthetically floating rate assets that on average may have longer maturities.

This repricing risk

arises from a funding strategy whereby Farmer Mac issues floating rate debt across a variety of maturities to fund floating or synthetically floating rate assets that on average may have longer maturities.

A significant increase in the difference between Farmer Mac's funding cost relative to the benchmark index, including SOFR, may compress spread income on the assets Farmer Mac holds and seeks to re-fund with the higher cost funding.

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Farmer Mac enters into financial derivatives transactions to hedge interest rate risks inherent in its business and carries its financial derivatives at fair value in its consolidated financial statements.

Farmer Mac's financial derivatives provide economic hedges of interest rate risk, changes in the fair values of financial derivatives can cause volatility in net income and in capital, particularly if those financial derivatives are not designated in hedge accounting relationships or if there is any ineffectiveness in a hedge accounting relationship.

Although Farmer Mac's financial derivatives provide economic hedges of interest rate risk, changes in the fair values of financial derivatives can cause volatility in net income and in capital, particularly if those financial derivatives are not designated in hedge accounting relationships or if there is any ineffectiveness in a hedge accounting relationship.

As interest rates increase or decrease, the fair values of Farmer Mac's derivatives change based on the position Farmer Mac holds relative to the specific characteristics of the derivative.

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Adverse changes in the fair values of Farmer Mac's financial derivatives that are not designated in hedge accounting relationships and any hedge ineffectiveness that results in a loss would reduce the amount of core capital available to meet this requirement.

In 2023 and 2022, Farmer Mac recorded a gain of $5.1 million and a gain of $13.5 million, respectively, from changes in the fair values of its financial derivatives as a result of movements in interest rates during those years.

Farmer Mac recorded losses of $5.4 million and gains of $5.8 million in 2023 and 2022, respectively, related to ineffectiveness in hedge accounting relationships.

In 2024 and 2023, Farmer Mac recorded gains of $3.3 million and $5.1 million, respectively, from changes in the fair values of its financial derivatives as a result of movements in interest rates during those years.

Farmer Mac recorded gains of $11.5 million and losses of $5.4 million in 2024 and 2023, respectively, related to ineffectiveness in hedge accounting relationships.

Changes in interest rates have required, and in the future may require, Farmer Mac to post cash or investment securities to collateralize its derivative exposures due to corresponding changes in the fair market values of these derivatives.

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Some of these policies and methods require management to make estimates and assumptions in preparing Farmer Mac's consolidated financial statements.

Incorrect estimates and assumptions by management in connection with preparing Farmer Mac's consolidated financial statements could adversely affect the reported amounts of assets and liabilities and the reported amounts of income and expenses.

amounts of income and expenses.

For example, as of December 31, 2024, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $5.5 billion whose fair values management estimated in the absence of readily observable fair values (in other words, level 3).

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Regulatory and Compliance Risk

Farmer Mac and many of its business counterparties are subject to comprehensive government regulation, and unanticipated changes to those laws and regulations could adversely affect Farmer Mac's business, operating results, reputation, or financial condition.

Farmer Mac and many of its business counterparties are subject to comprehensive government regulation, and changes to those laws and regulations could adversely affect Farmer Mac's business, operating results, reputation, or financial condition.

Farmer Mac was established under a statutory charter that the U.S.

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As a result, Farmer Mac's business, operating results, reputation, or financial condition could be adversely affected.

The legal and regulatory environment related to data privacy and cybersecurity is constantly changing.

Privacy and cybersecurity are currently areas of considerable legislative and regulatory attention, with new or modified laws, regulations, rules, and standards being frequently adopted and potentially subject to divergent interpretation or application in different jurisdictions in a manner that may create inconsistent or conflicting requirements for businesses.

The uncertainty and compliance risks created by these legislative and regulatory developments are compounded by the rapid pace of technology development, such as artificial intelligence and advances in data science, that affect the use or security of data, including personal information.

Privacy and cybersecurity laws and regulations often impose strict requirements on the collection, storage, handling, use, disclosure, transfer, security, and other processing of personal information.

These laws and regulations may increase Farmer Mac’s compliance costs and require changes to its business and operations.

An actual or perceived failure by Farmer Mac, lenders, servicers, vendors, service providers, counterparties, or other third parties to comply with privacy, data protection, and information security laws, regulations, standards, policies, and contractual obligations could result in legal liabilities, fines, regulatory action, and reputational harm that have a material adverse impact on Farmer Mac’s business, financial results, and financial condition.

Farmer Mac's capital requirements may change, and failure to meet those requirements could result in supervisory measures or the inability of Farmer Mac to declare dividends, or otherwise materially and adversely affect Farmer Mac's business, operating results, or financial condition.

Farmer Mac is required by statute and regulation to maintain certain capital levels.

Any inability by Farmer Mac to meet these capital requirements could result in supervisory measures by FCA, adversely affect Farmer Mac's ability to declare dividends on its common and preferred stock, or otherwise materially and adversely affect Farmer Mac's business, operating results, or financial condition.

Any inability by Farmer Mac to meet these capital requirements could result in supervisory measures by FCA, adversely

affect Farmer Mac's ability to declare dividends on its common and preferred stock, or otherwise materially and adversely affect Farmer Mac's business, operating results, or financial condition.

As required by an FCA regulation on capital planning, Farmer Mac has adopted a policy to maintain a sufficient level of Tier 1 capital and to restrict paying Tier 1-eligible dividends if Tier 1 capital falls below specified thresholds.

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• changes in GAAP.

Political Risk

Farmer Mac is a GSE that may be materially and adversely affected by legislative or political developments.

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Although Farmer Mac is not aware of any pending legislative or regulatory proposals that would materially impact its business or operations, Farmer Mac's ability to effectively conduct its business is subject to risks and uncertainties related to political developments that could affect Farmer Mac or GSEs generally.

These political risks and uncertainties may be heightened under a new Congress or Presidential administration.

These political risks and uncertainties generally are heightened under a newly-elected Congress and Presidential administration.

For example, five members of Farmer Mac's board of directors serve at the pleasure of the President of the United States.

Also, the organization and operation of Farmer Mac's federal safety and soundness regulator, the Farm Credit Administration, could be affected by efforts to consolidate or otherwise reorganize federal financial regulatory agencies.

Farmer Mac cannot predict whether or when legislative or regulatory initiatives may commence that, if successful, could negatively affect the status of Farmer Mac as a GSE or how Farmer Mac operates, and which could have a material and adverse effect on Farmer Mac's business, operating results, financial condition, or capital levels.

See "Business—Government Regulation of Farmer Mac" for more information about the rules and regulations governing Farmer Mac's activities.

Human Capital Risk

Farmer Mac's ability to attract and retain motivated and qualified employees is critical to the success of its business, and significant or sustained disruption in the continuity of Farmer Mac's employees or executive leaders may materially adversely affect Farmer Mac's business performance, operations, financial condition, or reputation.

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If Farmer Mac cannot continue to retain and attract motivated and qualified employees or does not have adequate human capital to achieve its business objectives, Farmer Mac's business performance, operations, financial condition, or reputation could be materially adversely affected.

A significant disruption in the continuity of Farmer Mac's employees or any significant executive leadership change could also result in a loss of productivity and affect Farmer Mac's ability to successfully execute business strategies by creating uncertainty or instability or requiring Farmer Mac to divert or expend more resources to replace personnel.

divert or expend more resources to replace personnel.

Loss of key leadership personnel could also damage the public or market perception of Farmer Mac or result in the departure of other executives or key employees.

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Any of the risks described in this section could materially and adversely affect Farmer Mac's business, operating results, financial condition, reputation, capital levels, and future earnings.

For more information about Farmer Mac's risk management, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management" in Item 7 of this Annual Report on Form 10-K.

For more information about Farmer Mac's risk management, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management" in Item 7 of this report.

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What changed 10-K

Item 1A. Risk Factors