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As filed with the Securities and Exchange Commission on August 10, 2020

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
Commission File Number 001-14951 

AGM-20200630_G1.JPG
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)

Federally chartered instrumentality
of the United States
  52-1578738
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. employer identification number)
     
1999 K Street, N.W., 4th Floor,
 
Washington, DC 20006
(Address of principal executive offices)   (Zip code)

(202) 872-7700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol   Exchange on which registered
Class A voting common stock AGM.A   New York Stock Exchange
Class C non-voting common stock AGM   New York Stock Exchange
5.875% Non-Cumulative Preferred Stock, Series A AGM.PRA New York Stock Exchange
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C AGM.PRC New York Stock Exchange
5.700% Non-Cumulative Preferred Stock, Series D AGM.PRD New York Stock Exchange
5.750% Non-Cumulative Preferred Stock, Series E AGM.PRE New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Class B voting common stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes        o                                No          x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes        o                                No           x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes        ☒                              No           ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes                                       No          
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                                        No           
As of August 3, 2020, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock, and 9,201,754 shares of Class C non-voting common stock.

1





Table of Contents
PART I
4
4
4
5
6
7
9
10
62
62
63
69
71
88
93
94
112
113
114
114
119
119
120
120
120
127
127
127
127
128
129


3





PART I

Item 1.Financial Statements
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
  June 30, 2020 December 31, 2019
  (in thousands)
Assets:    
Cash and cash equivalents $ 827,600    $ 604,381   
Investment securities:    
Available-for-sale, at fair value (amortized cost of $3,458,957 and $2,961,430, respectively)
3,467,378    2,959,843   
Held-to-maturity, at amortized cost 45,032    45,032   
Total Investment Securities 3,512,410    3,004,875   
Farmer Mac Guaranteed Securities:    
Available-for-sale, at fair value (amortized cost of $7,539,944 and $7,016,971, respectively)
7,898,387    7,143,025   
Held-to-maturity, at amortized cost 1,140,718    1,447,451   
Total Farmer Mac Guaranteed Securities 9,039,105    8,590,476   
USDA Securities:    
Trading, at fair value 7,786    8,913   
Held-to-maturity, at amortized cost 2,339,923    2,232,160   
Total USDA Securities 2,347,709    2,241,073   
Loans:    
Loans held for investment, at amortized cost 6,469,997    5,390,977   
Loans held for investment in consolidated trusts, at amortized cost 1,436,090    1,600,917   
Allowance for losses (14,939)   (10,454)  
Total loans, net of allowance 7,891,148    6,981,440   
Financial derivatives, at fair value 16,588    10,519   
Interest receivable (includes $17,415 and $20,568, respectively, related to consolidated trusts)
175,659    199,195   
Guarantee and commitment fees receivable 36,612    38,442   
Deferred tax asset, net 38,790    16,510   
Prepaid expenses and other assets 47,035    22,463   
Total Assets $ 23,932,656    $ 21,709,374   
Liabilities and Equity:    
Liabilities:    
Notes payable 21,421,550    19,098,648   
Debt securities of consolidated trusts held by third parties 1,476,964    1,616,504   
Financial derivatives, at fair value 47,543    27,042   
Accrued interest payable (includes $15,007 and $18,018, respectively, related to consolidated trusts)
100,134    106,959   
Guarantee and commitment obligation 35,162    36,700   
Accounts payable and accrued expenses 24,167    22,081   
Reserve for losses 3,020    2,164   
Total Liabilities 23,108,540    20,910,098   
Commitments and Contingencies (Note 6)
Equity:    
Preferred stock:    
Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding
58,333    58,333   
      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    —   
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, 9,201,623 shares and 9,180,744 shares outstanding, respectively
9,202    9,181   
Additional paid-in capital 120,856    119,304   
Accumulated other comprehensive loss, net of tax (91,497)   (16,161)  
Retained earnings 478,647    457,047   
Total Equity 824,116    799,276   
Total Liabilities and Equity $ 23,932,656    $ 21,709,374   
The accompanying notes are an integral part of these consolidated financial statements.

4





FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

For the Three Months Ended For the Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
  (in thousands, except per share amounts)
Interest income:
Investments and cash equivalents $ 10,399    $ 20,156    $ 28,140    $ 38,863   
Farmer Mac Guaranteed Securities and USDA Securities 61,792    85,569    133,309    170,980   
Loans 55,430    59,403    116,026    110,800   
Total interest income 127,621    165,128    277,475    320,643   
Total interest expense 79,273    122,074    187,815    236,990   
Net interest income 48,348    43,054    89,660    83,653   
Provision for losses (451)   (578)   (3,889)   (314)  
Net interest income after provision for losses 47,897    42,476    85,771    83,339   
Non-interest income/(expense):
Guarantee and commitment fees 3,140    3,403    6,336    6,916   
Gains/(losses) on financial derivatives 6,523    8,913    (2,775)   8,553   
(Losses)/gains on trading securities (21)   61    85    105   
Gains on sale of real estate owned —    —    485    —   
Release of reserve for losses 400    158      287   
Other income 1,229    355    2,045    848   
Non-interest income 11,271    12,890    6,183    16,709   
Operating expenses:
Compensation and employee benefits 8,087    6,770    18,214    14,376   
General and administrative 5,295    4,689    10,658    9,285   
Regulatory fees 725    687    1,450    1,375   
Real estate owned operating costs, net —    64    —    64   
Operating expenses 14,107    12,210    30,322    25,100   
Income before income taxes 45,061    43,156    61,632    74,948   
Income tax expense 9,435    9,111    13,176    15,733   
Net income attributable to Farmer Mac 35,626    34,045    48,456    59,215   
Preferred stock dividends (3,939)   (3,785)   (7,370)   (7,081)  
Loss on retirement of preferred stock —    (1,956)   —    (1,956)  
Net income attributable to common stockholders $ 31,687    $ 28,304    $ 41,086    $ 50,178   
Earnings per common share:
Basic earnings per common share $ 2.95    $ 2.65    $ 3.83    $ 4.70   
Diluted earnings per common share $ 2.94    $ 2.63    $ 3.81    $ 4.66   
The accompanying notes are an integral part of these consolidated financial statements.

5





FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

For the Three Months Ended For the Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
  (in thousands)
Net income $ 35,626    $ 34,045    $ 48,456    $ 59,215   
Other comprehensive income before taxes:
Net unrealized gains/(losses) on available-for-sale securities 42,527    (28,588)   (56,789)   (25,347)  
Net changes in held-to-maturity securities (2,496)   (4,601)   (8,184)   (6,863)  
Net unrealized losses on cash flow hedges (2,132)   (9,972)   (30,388)   (15,637)  
Other comprehensive gain/(loss) before tax 37,899    (43,161)   (95,361)   (47,847)  
Income tax (expense)/benefit related to other comprehensive gain/(loss) (7,959)   9,064    20,025    10,048   
Other comprehensive gain/(loss) net of tax 29,940    (34,097)   (75,336)   (37,799)  
Comprehensive income/(loss) attributable to Farmer Mac $ 65,566    $ (52)   $ (26,880)   $ 21,416   
The accompanying notes are an integral part of these consolidated financial statements.

6





FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
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, 2019 9,400    $ 228,374    10,712    $ 10,712    $ 119,304    $ (16,161)   $ 457,047    $ 799,276   
Cumulative effect adjustment from adoption of current expected credit loss standard —    —    —    —    —    —    (2,099)   (2,099)  
Balance as of January 1, 2020 9,400    $ 228,374    10,712    $ 10,712    $ 119,304    $ (16,161)   $ 454,948    $ 797,177   
Net income —    —    —    —    —    —    12,830    12,830   
Other comprehensive loss, net of tax —    —    —    —    —    (105,276)   —    (105,276)  
Cash dividends:
Preferred stock —    —    —    —    —    —    (3,431)   (3,431)  
Common stock (cash dividend of $0.80 per share)
—    —    —    —    —    —    (8,571)   (8,571)  
Issuance of Class C common stock —    —    15    15    19    —    —    34   
Repurchase of Class C Common Stock —    —    (4)   (4)   —    —    (231)   (235)  
Stock-based compensation cost —    —    —    —    1,293    —    1,293   
Other stock-based award activity —    —    —    —    (204)   —    —    (204)  
Balance as of March 31, 2020 9,400    $ 228,374    10,723    $ 10,723    $ 120,412    $ (121,437)   $ 455,545    $ 693,617   
Net income —    —    —    —    —    —    35,626    35,626   
Other comprehensive income, net of tax —    —    —    —    —    29,940    —    29,940   
Cash dividends:
Preferred stock —    —    —    —    —    —    (3,939)   (3,939)  
Common stock (cash dividend of $0.80 per share)
—    —    —    —    —    —    (8,585)   (8,585)  
Issuance of Series E preferred stock 3,180    77,003    —    —    —    —    —    77,003   
Issuance of Class C common stock —    —    10    10    17    —    —    27   
Stock-based compensation cost —    —    —    —    719    —    —    719   
Other stock-based award activity —    —    —    —    (292)   —    —    (292)  
Balance as of June 30, 2020 12,580    $ 305,377    10,733    $ 10,733    $ 120,856    $ (91,497)   $ 478,647    $ 824,116   




7





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, 2018 8,400    $ 204,759    10,669    $ 10,669    $ 118,822    $ 24,956    $ 393,351    $ 752,557   
Net Income —    —    —    —    —    —    25,170    25,170   
Other comprehensive loss, net of tax —    —    —    —    —    (3,702)   —    (3,702)  
Cash dividends:
Preferred stock —    —    —    —    —    —    (3,296)   (3,296)  
Common stock (cash dividend of $0.70 per share)
—    —    —    —    —    —    (7,470)   (7,470)  
Issuance of Class C Common Stock —    —    20    20      —    —    23   
Stock-based compensation cost —    —    —    —    724    —    —    724   
Other stock-based award activity —    —    —    —    (708)   —    —    (708)  
Balance as of March 31, 2019 8,400    $ 204,759    10,689    $ 10,689    $ 118,841    $ 21,254    $ 407,755    $ 763,298   
Net income —    —    —    —    —    —    34,045    34,045   
Other comprehensive loss, net of tax —    —    —    —    —    (34,097)   —    (34,097)  
Cash dividends:
Preferred stock —    —    —    —    —    —    (3,785)   (3,785)  
Common stock (cash dividend of $0.70 per share)
—    —    —    —    —    —    (7,490)   (7,490)  
Issuance of Series D Preferred Stock 4,000    96,659    —    —    —    96,659   
Redemption of Series B Preferred Stock (3,000)   (73,044)   —    —    —    —    —    (73,044)  
Loss on retirement of preferred stock —    —    —    —    —    —    (1,956)   (1,956)  
Issuance of Class C Common Stock —    —    11    11      —    —    14   
Stock-based compensation cost —    —    —    —    533    —    —    533   
Other stock-based award activity —    —    —    —    (435)   —    —    (435)  
Balance as of June 30, 2019 9,400    $ 228,374    10,700    $ 10,700    $ 118,942    $ (12,843)   $ 428,569    $ 773,742   

The accompanying notes are an integral part of these consolidated financial statements.

8





FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
  June 30, 2020 June 30, 2019
  (in thousands)
Cash flows from operating activities:    
Net income $ 48,456    $ 59,215   
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 1,095    (4,922)  
Amortization of debt premiums, discounts, and issuance costs 14,769    24,022   
Net change in fair value of trading securities, hedged assets, and financial derivatives (401,002)   (208,213)  
Gain on sale of real estate owned (485)   —   
Total provision for allowance for losses 3,882    27   
Excess tax benefits related to stock-based awards (475)   259   
Deferred income taxes (2,254)   5,874   
Stock-based compensation expense 2,012    1,257   
Proceeds from repayment of loans purchased as held for sale 35,351    23,239   
Net change in:
Interest receivable 24,139    (4,578)  
Guarantee and commitment fees receivable 292    120   
Other assets (23,446)   (9,006)  
Accrued interest payable (6,825)   11,386   
Other liabilities (2,453)   651   
Net cash used in operating activities (306,944)   (100,669)  
Cash flows from investing activities:    
Purchases of available-for-sale investment securities (1,591,501)   (1,217,901)  
Purchases of Farmer Mac Guaranteed Securities and USDA Securities (1,361,109)   (1,660,280)  
Purchases of loans held for investment (1,502,920)   (1,101,705)  
Purchases of defaulted loans (6,272)   —   
Proceeds from repayment of available-for-sale investment securities 1,097,237    500,462   
Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities 1,029,718    1,241,156   
Proceeds from repayment of loans purchased as held for investment 712,238    330,387   
Proceeds from sale of Farmer Mac Guaranteed Securities 28,050    166,351   
Proceeds from sale of real estate owned 2,191    —   
Net cash used in investing activities (1,592,368)   (1,741,530)  
Cash flows from financing activities:    
Proceeds from issuance of discount notes 34,376,593    28,265,587   
Proceeds from issuance of medium-term notes 7,791,406    4,467,265   
Payments to redeem discount notes (34,075,014)   (27,730,461)  
Payments to redeem medium-term notes (5,847,765)   (3,106,538)  
Payments to third parties on debt securities of consolidated trusts (175,004)   (80,820)  
Proceeds from common stock issuance 36     
Retirement of Series B preferred stock —    (75,000)  
Proceeds from Series D preferred stock issuance, net of stock issuance costs —    96,659   
Proceeds from Series E preferred stock issuance, net of stock issuance costs 77,003    —   
Tax payments related to share-based awards (471)   (1,112)  
Purchases of common stock (235)   —   
Dividends paid on common and preferred stock (24,018)   (22,041)  
Net cash provided by financing activities 2,122,531    1,813,545   
Net change in cash and cash equivalents 223,219    (28,654)  
Cash and cash equivalents at beginning of period 604,381    425,256   
Cash and cash equivalents at end of period $ 827,600    $ 396,602   
Non-cash activity:
Loans acquired and securitized as Farmer Mac Guaranteed Securities 28,050    166,351   
Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties 28,050    118,004   
Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment 7,414    4,721   
Maturity of investment security - not yet settled —    (35,075)  
Purchases of securities - traded, not yet settled 4,588    10,000   
  The accompanying notes are an integral part of these consolidated financial statements.

9





FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2019 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2019 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2019 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 25, 2020. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and six months ended June 30, 2020.

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 ("FMMSC"), 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 Guarantees line of business – primarily the acquisition of USDA Securities. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary.

10






The following tables present, by line of business, details about the consolidation of VIEs:

Table 1.1

Consolidation of Variable Interest Entities
As of June 30, 2020
Farm & Ranch USDA Guarantees Corporate Total
(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost $ 1,436,090    $ —    $ —    $ 1,436,090   
Debt securities of consolidated trusts held by third parties (1)
1,476,964    —    —    1,476,964   
   Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Carrying value (2)
—    32,615    —    32,615   
      Maximum exposure to loss (3)
—    32,537    —    32,537   
   Investment securities:
        Carrying value (4)
—    —    1,651,031    1,651,031   
        Maximum exposure to loss (3) (4)
—    —    1,648,328    1,648,328   
Off-Balance Sheet:
 Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Maximum exposure to loss (3) (5)
90,225    330,309    —    420,534   
(1)Includes borrower remittances of $40.9 million. The borrower remittances had not been passed through to third party investors as of June 30, 2020.
(2)Includes $0.1 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(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, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(5)The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.

11






Consolidation of Variable Interest Entities
As of December 31, 2019
Farm & Ranch USDA Guarantees Corporate Total
(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost $ 1,600,917    $ —    $ —    $ 1,600,917   
Debt securities of consolidated trusts held by third parties (1)
1,616,504    —    —    1,616,504   
   Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Carrying value (2)
—    32,041    —    32,041   
      Maximum exposure to loss (3)
—    31,887    —    31,887   
   Investment securities:
        Carrying value (4)
—    —    1,117,203    1,117,203   
        Maximum exposure to loss (3) (4)
—    —    1,120,765    1,120,765   
Off-Balance Sheet:
 Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Maximum exposure to loss (3) (5)
107,322    389,216    —    496,538   
(1)Includes borrower remittances of $15.6 million. The borrower remittances had not been passed through to third party investors as of December 31, 2019.
(2)Includes $0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(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, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(5)The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.


12





(a)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 awards.  The following schedule reconciles basic and diluted EPS for the three and six months ended June 30, 2020 and 2019:

Table 1.2
For the Three Months Ended
June 30, 2020 June 30, 2019
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 $ 31,687    10,730    $ 2.95    $ 28,304    10,698    $ 2.65   
Effect of dilutive securities(1)
SARs and restricted stock —    46    (0.01)   —    72    (0.02)  
Diluted EPS $ 31,687    10,776    $ 2.94    $ 28,304    10,770    $ 2.63   
(1)For the three months ended June 30, 2020 and 2019, SARs and restricted stock of 83,297 and 62,660, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended June 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 12,284, 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.

For the Six Months Ended
June 30, 2020 June 30, 2019
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 $ 41,086    10,721    $ 3.83    $ 50,178    10,684    $ 4.70   
Effect of dilutive securities(1)
SARs and restricted stock —    58    (0.02)   —    90    (0.04)  
Diluted EPS $ 41,086    10,779    $ 3.81    $ 50,178    10,774    $ 4.66   
(1)For the six months ended June 30, 2020 and 2019, SARs and restricted stock of 85,223 and 59,818, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the six months ended June 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 12,284, 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.
(b)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.


13





The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and six months ended June 30, 2020 and 2019:

Table 1.3
As of June 30, 2020 As of June 30, 2019
Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total Available-for-Sale Securities Held-to-Maturity Securities Cash Flow Hedges Total
(in thousands)
For the Three Months Ended:
Beginning Balance $ (121,858)   $ 28,351    $ (27,930)   $ (121,437)   $ (22,800)   $ 41,656    $ 2,398    $ 21,254   
Other comprehensive income/(loss) before reclassifications 34,374    —    (2,920)   31,454    (21,711)   —    (7,512)   (29,223)  
Amounts reclassified from AOCI (777)   (1,972)   1,235    (1,514)   (873)   (3,635)   (366)   (4,874)  
Net comprehensive income/(loss) 33,597    (1,972)   (1,685)   29,940    (22,584)   (3,635)   (7,878)   (34,097)  
Ending Balance $ (88,261)   $ 26,379    $ (29,615)   $ (91,497)   $ (45,384)   $ 38,021    $ (5,480)   $ (12,843)  
For the Six Months Ended:
Beginning Balance $ (43,397)   $ 32,845    $ (5,609)   $ (16,161)   $ (25,360)   $ 43,443    $ 6,873    $ 24,956   
Other comprehensive loss before reclassifications (43,310)   —    (25,588)   (68,898)   (18,393)   —    (11,608)   (30,001)  
Amounts reclassified from AOCI (1,554)   (6,466)   1,582    (6,438)   (1,631)   (5,422)   (745)   (7,798)  
Net comprehensive loss (44,864)   (6,466)   (24,006)   (75,336)   (20,024)   (5,422)   (12,353)   (37,799)  
Ending Balance $ (88,261)   $ 26,379    $ (29,615)   $ (91,497)   $ (45,384)   $ 38,021    $ (5,480)   $ (12,843)  



14





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 three and six months ended June 30, 2020 and 2019:

Table 1.4
For the Three Months Ended
June 30, 2020 June 30, 2019
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 $ 43,512    $ 9,138    $ 34,374    $ (27,482)   $ (5,771)   $ (21,711)  
Less reclassification adjustments included in:
Net interest income(1)
(971)   (204)   (767)   (956)   (201)   (755)  
Other income(2)
(14)   (4)   (10)   (150)   (32)   (118)  
Total $ 42,527    $ 8,930    $ 33,597    $ (28,588)   $ (6,004)   $ (22,584)  
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)
(2,496)   (524)   (1,972)   (4,601)   (966)   (3,635)  
Total $ (2,496)   $ (524)   $ (1,972)   $ (4,601)   $ (966)   $ (3,635)  
Cash flow hedges
Unrealized losses on cash flow hedges $ (3,695)   $ (775)   $ (2,920)   $ (9,510)   $ (1,998)   $ (7,512)  
Less reclassification adjustments included in:
Net interest income(4)
1,563    328    1,235    (462)   (96)   (366)  
Total $ (2,132)   $ (447)   $ (1,685)   $ (9,972)   $ (2,094)   $ (7,878)  
Other comprehensive income/(loss) $ 37,899    $ 7,959    $ 29,940    $ (43,161)   $ (9,064)   $ (34,097)  
(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)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.
(4)Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.


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For the Six Months Ended
June 30, 2020 June 30, 2019
Before Tax Provision (Benefit) After Tax Before Tax Provision (Benefit) After Tax
(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding losses on available-for-sale securities $ (54,822)   $ (11,512)   $ (43,310)   $ (23,282)   $ (4,889)   $ (18,393)  
Less reclassification adjustments included in:
Net interest income(1)
(1,940)   (407)   (1,533)   (1,909)   (401)   (1,508)  
Other income(2)
(27)   (6)   (21)   (156)   (33)   (123)  
Total $ (56,789)   $ (11,925)   $ (44,864)   $ (25,347)   $ (5,323)   $ (20,024)  
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)
(8,184)   (1,718)   (6,466)   (6,863)   (1,441)   (5,422)  
Total $ (8,184)   $ (1,718)   $ (6,466)   $ (6,863)   $ (1,441)   $ (5,422)  
Cash flow hedges
Unrealized losses on cash flow hedges $ (32,390)   $ (6,802)   $ (25,588)   $ (14,695)   $ (3,087)   $ (11,608)  
Less reclassification adjustments included in:
Net interest income(4)
2,002    420    1,582    (942)   (197)   (745)  
Total $ (30,388)   $ (6,382)   $ (24,006)   $ (15,637)   $ (3,284)   $ (12,353)  
Other comprehensive loss $ (95,361)   $ (20,025)   $ (75,336)   $ (47,847)   $ (10,048)   $ (37,799)  
(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)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.
(4)Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.


(c)Allowance for Losses and Reserve for Losses

On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ("CECL"). Under CECL, 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. Under CECL, 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"). Additionally, Farmer Mac 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.  


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Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the expected life of all financial instruments, including its Rural Utilities 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 industry.

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 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 against the allowance for losses principally when a loss has been confirmed through the receipt of assets, generally the underlying collateral, in full satisfaction of the loan. The loss 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 is comprised of the following key components:
An economic model for each portfolio, including Farm & Ranch, Rural Utilities, and Institutional Credit;
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

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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.

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.

COVID-19 Payment Deferments

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020. Section 4013 of the CARES Act titled “Temporary Relief from Troubled Debt Restructurings” provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of the novel coronavirus disease 2019 ("COVID-19"). On April 10, 2020, Farmer Mac’s prudential regulator, the Office of Secondary Market Oversight (OSMO) within the Farm Credit Administration (FCA), issued guidance to Farmer Mac on loan servicing and reporting TDRs for lines of business affected by the COVID-19 outbreak. This guidance was consistent with the guidance provided by other financial regulatory agencies and the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020 presidential proclamation declaring the COVID-19 outbreak a national emergency.

During second quarter 2020, Farmer Mac implemented the guidance from FCA by granting up to 6-month payment deferments to borrowers who have been economically impacted by COVID-19. Farmer Mac deems loans under a COVID-19 payment deferment not to be past due and continues to accrue interest on those loans. Furthermore, Farmer Mac does not consider a payment deferment on any such loan to be a troubled debt restructuring. For the purpose of estimating expected credit losses on Farm & Ranch loans held for investment, Farmer Mac does consider payment deferments along with other available credit and economic information that pertains to that portfolio.

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(d)New Accounting Standards

Recently Adopted Accounting Guidance
Standard Description Date of Adoption Effect on Consolidated Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This Update required entities to measure all expected credit losses for financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, as well as requiring entities to use forward-looking information to form their credit loss estimates. January 1, 2020 In first quarter 2020 Farmer Mac adopted the new guidance. The cumulative-effect adjustment to retained earnings as of January 1, 2020 reflected application of the new guidance and did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. For more information on the transition adjustment see Table 1.5 below.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. There is no required accounting change for securities held at a discount in this Update. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added. January 1, 2020 The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

The following table presents the impact of adopting CECL on January 1, 2020 on our allowance and retained earnings:

Table 1.5
December 31, 2019 Transition Adjustment January 1, 2020
(in thousands)
Allowance:
Farm & Ranch:
Loans $ 10,454    $ (3,909)   $ 6,545   
Long-term standby purchase commitments and guarantees 2,164    (148)   2,016   
Rural Utilities:
Loans —    5,378    5,378   
Long-term standby purchase commitments —    1,011    1,011   
Farmer Mac Guaranteed Securities:
AgVantage —    315    315   
Investment Securities —       
Total Allowance $ 12,618    $ 2,656    $ 15,274   
Retained Earnings $ 457,047    $ (2,099)   $ 454,948   



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Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
Standard Description Date of Planned Adoption Effect on Consolidated Financial Statements
ASU 2020-04, 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. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. Farmer Mac is currently evaluating the impact of the discontinuation of LIBOR on the consolidated financial statements and the applicability of the optional guidance provided by this Update.

(e)Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.


2.INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's investment securities as of June 30, 2020 and December 31, 2019:
 
Table 2.1
  As of June 30, 2020
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    $ (38)   $ —    $ (1,379)   $ 18,283   
Floating rate asset-backed securities 9,818    —    9,818    —    —    (11)   9,807   
Floating rate Government/GSE guaranteed mortgage-backed securities 2,108,505    29    2,108,534    —    7,409    (3,566)   2,112,377   
Fixed rate GSE guaranteed mortgage-backed securities 292    —    292    —    30    —    322   
Fixed rate U.S. Treasuries 1,314,850    5,763    1,320,613    —    6,043    (67)   1,326,589   
Total available-for-sale 3,453,165    5,792    3,458,957    (38)   13,482    (5,023)   3,467,378   
Held-to-maturity:
Floating rate Government/GSE guaranteed mortgage-backed securities(3)
45,032    —    45,032    —    650    —    45,682   
Total investment securities $ 3,498,197    $ 5,792    $ 3,503,989    $ (38)   $ 14,132    $ (5,023)   $ 3,513,060   
(1)Amounts presented exclude $6.6 million of accrued interest receivable on investment securities as of June 30, 2020.
(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 1.5% as of June 30, 2020.



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  As of December 31, 2019
Amount Outstanding Unamortized Premium/(Discount) Amortized
Cost
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    $ —    $ (788)   $ 18,912   
Floating rate asset-backed securities 11,092    —    11,092    —    (7)   11,085   
Floating rate Government/GSE guaranteed mortgage-backed securities 1,633,731    1,174    1,634,905    2,414    (4,736)   1,632,583   
Fixed rate GSE guaranteed mortgage-backed securities 315    —    315    25    —    340   
Fixed rate U.S. Treasuries 1,295,210    208    1,295,418    1,520    (15)   1,296,923   
Total available-for-sale 2,960,048    1,382    2,961,430    3,959    (5,546)   2,959,843   
Held-to-maturity:
Floating rate Government/GSE guaranteed mortgage-backed securities(1)
45,032    —    45,032    953    —    45,985   
Total investment securities $ 3,005,080    $ 1,382    $ 3,006,462    $ 4,912    $ (5,546)   $ 3,005,828   
(1)The held-to-maturity investment securities had a weighted average yield of 3.3% as of December 31, 2019.

Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the three and six months ended June 30, 2020 and 2019.

As of June 30, 2020 and December 31, 2019, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2
  As of June 30, 2020
  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 $ —    $ —    $ 18,283    $ (1,379)  
Floating rate asset-backed securities —    —    9,807    (11)  
Floating rate Government/GSE guaranteed mortgage-backed securities 565,860    (2,163)   217,525    (1,403)  
Fixed rate U.S. Treasuries 226,448    (67)   —    —   
Total $ 792,308    $ (2,230)   $ 245,615    $ (2,793)  
Number of securities in loss position 58    55   


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  As of December 31, 2019
  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 $ —    $ —    $ 18,912    $ (788)  
Floating rate asset-backed securities 2,583    (1)   8,502    (6)  
Floating rate Government/GSE guaranteed mortgage-backed securities 841,993    (2,244)   436,621    (2,492)  
Fixed rate U.S. Treasuries 35,107    (15)   —    —   
Total $ 879,683    $ (2,260)   $ 464,035    $ (3,286)  
Number of securities in loss position 57    62   

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 June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+."

Securities in unrealized loss positions for 12 months or longer have a fair value as of June 30, 2020 that is, on average, approximately 98.9% 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 or changes in credit spreads.

The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of June 30, 2020 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 2.3
As of June 30, 2020
Available-for-Sale Securities
Amortized
Cost
Fair Value Weighted-
Average
Yield
  (dollars in thousands)
Due within one year $ 1,235,047    $ 1,241,040    1.58%
Due after one year through five years 364,971    364,927    0.99%
Due after five years through ten years 922,322    926,675    0.72%
Due after ten years 936,617    934,736    0.69%
Total $ 3,458,957    $ 3,467,378    1.05%


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3.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 June 30, 2020 and December 31, 2019:

Table 3.1
  As of June 30, 2020
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 $ 1,108,720    $ (70)   $ 1,108,650    $ (546)   $ 30,070    $ —    $ 1,138,174   
Farmer Mac Guaranteed USDA Securities 32,537    77    32,614    —    1,249    —    33,863   
Total Farmer Mac Guaranteed Securities 1,141,257      1,141,264    (546)   31,319    —    1,172,037   
USDA Securities 2,307,684    32,239    2,339,923    —    85,626    (661)   2,424,888   
Total held-to-maturity $ 3,448,941    $ 32,246    $ 3,481,187    $ (546)   $ 116,945    $ (661)   $ 3,596,925   
Available-for-sale:        
AgVantage $ 7,540,043    $ (99)   $ 7,539,944    $ (235)   $ 405,926    $ (47,248)   $ 7,898,387   
Trading:        
USDA Securities(3)
$ 7,276    $ 391    $ 7,667    $ —    $ 122    $ (3)   $ 7,786   
(1)Amounts presented exclude $34.9 million, $35.3 million, and $0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of June 30, 2020.
(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)The trading USDA securities had a weighted average yield of 5.15% as of June 30, 2020.

  As of December 31, 2019
Unpaid Principal Balance Unamortized Premium/(Discount) Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
  (in thousands)
Held-to-maturity:
AgVantage $ 1,415,584    $ (174)   $ 1,415,410    $ 15,300    $ (164)   $ 1,430,546   
Farmer Mac Guaranteed USDA Securities 31,887    154    32,041    839    —    32,880   
Total Farmer Mac Guaranteed Securities 1,447,471    (20)   1,447,451    16,139    (164)   1,463,426   
USDA Securities 2,190,671    41,489    2,232,160    54,356    (758)   2,285,758   
Total held-to-maturity $ 3,638,142    $ 41,469    $ 3,679,611    $ 70,495    $ (922)   $ 3,749,184   
Available-for-sale:        
AgVantage $ 7,017,095    $ (124)   $ 7,016,971    $ 161,316    $ (35,262)   $ 7,143,025   
Trading:        
USDA Securities(1)
$ 8,400    $ 479    $ 8,879    $ 61    $ (27)   $ 8,913   
(1)The trading USDA securities had a weighted average yield of 5.20% as of December 31, 2019.


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As of June 30, 2020 and December 31, 2019, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows:

Table 3.2
As of June 30, 2020
  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:
USDA Securities $ —    $ —    $ 22,235    $ (661)  
Total held-to-maturity $ —    $ —    $ 22,235    $ (661)  
Available-for-sale:
AgVantage $ 521,979    $ (932)   $ 841,123    $ (46,316)  


As of December 31, 2019
  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 $ —    $ —    $ 301,836    $ (164)  
USDA Securities —    —    27,089    (758)  
Total held-to-maturity $ —    $ —    $ 328,925    $ (922)  
Available-for-sale:
AgVantage $ 225,239    $ (2,203)   $ 1,394,802    $ (33,059)  

The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to June 30, 2020 and December 31, 2019, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both June 30, 2020 and December 31, 2019 reflect their increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016.

The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States of America. As of June 30, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $50.1 million underlying USDA Securities.

The unrealized losses from AgVantage securities were on 13 and 17 available-for-sale securities as of June 30, 2020 and December 31, 2019, respectively. There were 0 and 4 held-to-maturity AgVantage securities with an unrealized loss as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020 and December 31, 2019, 6 and 13 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months.

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During the three and six months ended June 30, 2020 and 2019, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses.

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 June 30, 2020 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets.

Table 3.3
As of June 30, 2020
Available-for-Sale Securities
Amortized
Cost(1)
Fair Value Weighted-
Average
Yield
  (dollars in thousands)
Due within one year $ 1,435,445    $ 1,438,585    1.34  %
Due after one year through five years 3,434,770    3,557,439    2.34  %
Due after five years through ten years 1,147,366    1,232,206    2.34  %
Due after ten years 1,522,363    1,670,157    2.67  %
Total $ 7,539,944    $ 7,898,387    2.22  %
(1)Amounts presented exclude $34.9 million of accrued interest receivable.


As of June 30, 2020
Held-to-Maturity Securities
Amortized
Cost(1)
Fair Value Weighted-
Average
Yield
  (dollars in thousands)
Due within one year $ 445,889    $ 451,452    2.94  %
Due after one year through five years 751,402    777,980    3.21  %
Due after five years through ten years 213,460    220,404    3.17  %
Due after ten years 2,070,436    2,147,089    3.39  %
Total $ 3,481,187    $ 3,596,925    3.28  %
(1)Amounts presented exclude $35.3 million of accrued interest receivable.



4.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.  For more information about Farmer Mac's financial derivatives, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020.


25





The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of June 30, 2020 and December 31, 2019:

Table 4.1
   As of June 30, 2020
   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:
Pay fixed non-callable $ 5,584,809    $ 8,358    $ (4,694)   2.24% 0.65% 11.71
Receive fixed non-callable 2,305,500    249    (8,087)   0.78% 1.90% 2.35
Receive fixed callable 413,500    5,891    —    0.48% 1.80% 3.53
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable 437,000    1,246    (11,964)   2.27% 0.71% 5.82
No hedge designation:
Interest rate swaps:
Pay fixed non-callable 446,721    —    (22,403)   2.78% 0.85% 4.25
Receive fixed non-callable 3,143,951    —    —    0.48% 1.09% 0.82
Receive fixed callable 150,000    138    —    0.73% 1.66% 1.27
Basis swaps 3,610,000    706    (545)   0.49% 0.27% 1.08
Treasury futures 27,500    (9)   139.14   
Credit valuation adjustment —    159         
Total financial derivatives $ 16,118,981    $ 16,588    $ (47,543)           
Collateral (held)/pledged (1,500)   248,293   
Net amount $ 15,088    $ 200,750   

26






   As of December 31, 2019
   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:
Pay fixed non-callable $ 4,955,686    $ 7,163    $ (3,281)   2.47% 1.93% 11.26
Receive fixed non-callable 1,413,200    76    (5,329)   1.88% 2.13% 1.25
Receive fixed callable 524,000    476    (772)   1.52% 1.91% 2.83
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable 428,000    1,882    (1,514)   2.36% 2.12% 5.43
No hedge designation:
Interest rate swaps:
Pay fixed non-callable 342,745      (14,046)   3.55% 2.00% 5.51
Receive fixed non-callable 3,124,148    49    (1,637)   1.88% 2.06% 1.66
Receive fixed callable 525,000    79    (80)   1.64% 1.68% 0.83
Basis swaps 2,670,000    787    (395)   1.86% 1.76% 0.90
Treasury futures 39,400    —    (51)   128.29   
Credit valuation adjustment —    63         
Total financial derivatives $ 14,022,179    $ 10,519    $ (27,042)           
Collateral (held)/pledged (2,685)   132,129   
Net amount $ 7,834    $ 105,087   

As of June 30, 2020, Farmer Mac expects to reclassify $5.3 million after tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after June 30, 2020. During the three and six months ended June 30, 2020 and 2019, 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.

















27






The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the three and six months ended June 30, 2020 and 2019:

Table 4.2
For the Three Months Ended June 30, 2020
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest Income Non-Interest Income Total
 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 $ 61,792    $ 55,430    $ (79,273)   $ 6,523    $ 44,472   
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives (12,257)   (4,535)   5,432    —    (11,360)  
Recognized on hedged items 32,102    9,812    (12,721)   —    29,193   
Discount amortization recognized on hedged items —    —    (181)   —    (181)  
Income/(expense) related to interest settlements on fair value hedging relationships $ 19,845    $ 5,277    $ (7,470)   $ —    $ 17,652   
(Losses)/gains on fair value hedging relationships:
Recognized on derivatives $ (9,226)   $ (6,616)   $ 3,722    $ —    $ (12,120)  
Recognized on hedged items 9,050    3,037    (2,348)   —    9,739   
(Losses)/gains on fair value hedging relationships $ (176)   $ (3,579)   $ 1,374    $ —    $ (2,381)  
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives $ —    $ —    $ (1,563)   $ —    $ (1,563)  
Recognized on hedged items —    —    (1,029)   —    (1,029)  
Discount amortization recognized on hedged items —    —    (2)   —    (2)  
Expense recognized on cash flow hedges $ —    $ —    $ (2,594)   $ —    $ (2,594)  
Gains on financial derivatives not designated in hedging relationships:
Gains on interest rate swaps $ —    $ —    $ —    $ 8,427    $ 8,427   
Interest expense on interest rate swaps —    —    —    (1,795)   (1,795)  
Treasury futures —    —    —    (109)   (109)  
Gains on financial derivatives not designated in hedge relationships $ —    $ —    $ —    $ 6,523    $ 6,523   








28






For The Three Months Ended June 30, 2019
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest Income Non-Interest Income Total
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: $ 85,569    $ 59,403    $ (122,074)   $ 8,913    $ 31,811   
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives 1,167    (202)   (2,572)   —    (1,607)  
Recognized on hedged items 30,380    6,323    (11,779)   —    24,924   
Discount amortization recognized on hedged items —    —    (164)   —    (164)  
Income/(expense) related to interest settlements on fair value hedging relationships $ 31,547    $ 6,121    $ (14,515)   $ —    $ 23,153   
(Losses)/gains on fair value hedging relationships:
Recognized on derivatives $ (116,405)   $ (33,953)   $ 16,146    $ —    $ (134,212)  
Recognized on hedged items 114,638    33,795    (15,649)   —    132,784   
(Losses)/gains on fair value hedging relationships $ (1,767)   $ (158)   $ 497    $ —    $ (1,428)  
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives $ —    $ —    $ 462    $ —    $ 462   
Recognized on hedged items —    —    (2,697)   —    (2,697)  
Discount amortization recognized on hedged items —    —    (1)   —    (1)  
Expense recognized on cash flow hedges $ —    $ —    $ (2,236)   $ —    $ (2,236)  
Gains on financial derivatives not designated in hedge relationships:
Gains on interest rate swaps $ —    $ —    $ —    $ 11,152    $ 11,152   
Interest expense on interest rate swaps —    —    —    (1,146)   (1,146)  
Treasury futures —    —    —    (1,093)   (1,093)  
Gains on financial derivatives not designated in hedge relationships $ —    $ —    $ —    $ 8,913    $ 8,913   



29





For the Six Months Ended June 30, 2020
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest Income Non-Interest Income Total
 Interest Income Farmer Mac Guaranteed Securities and USDA Securities Interest Income Loans Total Interest Expense Losses on financial derivatives
(in thousands)
Total amounts presented in the consolidated statement of operations $ 133,309    $ 116,026    $ (187,815)   $ (2,775)   $ 58,745   
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives (18,408)   (6,412)   7,066    —    (17,754)  
Recognized on hedged items 63,927    18,489    (26,997)   —    55,419   
Discount amortization recognized on hedged items —    —    (361)   —    (361)  
Income/(expense) related to interest settlements on fair value hedging relationships $ 45,519    $ 12,077    $ (20,292)   $ —    $ 37,304   
(Losses)/gains on fair value hedging relationships:
Recognized on derivatives $ (303,159)   $ (152,521)   $ 62,656    $ —    $ (393,024)  
Recognized on hedged items 299,430    148,445    (62,913)   —    384,962   
(Losses)/gains on fair value hedging relationships $ (3,729)   $ (4,076)   $ (257)   $ —    $ (8,062)  
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives $ —    $ —    $ (2,002)   $ —    $ (2,002)  
Recognized on hedged items —    —    (3,152)   —    (3,152)  
Discount amortization recognized on hedged items —    —    (2)   —    (2)  
Expense recognized on cash flow hedges $ —    $ —    $ (5,156)   $ —    $ (5,156)  
(Losses)/gains on financial derivatives not designated in hedging relationships:
Gains on interest rate swaps $ —    $ —    $ —    $ 1,878    $ 1,878   
Interest expense on interest rate swaps —    —    —    (2,657)   (2,657)  
Treasury futures —    —    —    (1,996)   (1,996)  
(Losses)/gains on financial derivatives not designated in hedge relationships $ —    $ —    $ —    $ (2,775)   $ (2,775)  



30





For The Six Months Ended June 30, 2019
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest Income Non-Interest Income Total
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: $ 170,980    $ 110,800    $ (236,990)   $ 8,553    $ 53,343   
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives 2,717    (224)   (5,790)   —    (3,297)  
Recognized on hedged items 55,198    10,878    (21,811)   —    44,265   
Discount amortization recognized on hedged items —    —    (314)   —    (314)  
Income/(expense) related to interest settlements on fair value hedging relationships $ 57,915    $ 10,654    $ (27,915)   $ —    $ 40,654   
Gains/(losses) on fair value hedging relationships:
Recognized on derivatives $ (175,392)   $ (54,034)   $ 25,123    $ —    $ (204,303)  
Recognized on hedged items 173,990    50,031    (23,846)   —    200,175   
Gains/(losses) on fair value hedging relationships $ (1,402)   $ (4,003)   $ 1,277    $ —    $ (4,128)  
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives $ —    $ —    $ 942    $ —    $ 942   
Recognized on hedged items —    —    (5,417)   —    (5,417)  
Discount amortization recognized on hedged items —    —    (2)   —    (2)  
Expense recognized on cash flow hedges $ —    $ —    $ (4,477)   $ —    $ (4,477)  
Gains on financial derivatives not designated in hedge relationships:
Gains on interest rate swaps $ —    $ —    $ —    $ 13,320    $ 13,320   
Interest expense on interest rate swaps —    —    —    (3,446)   (3,446)  
Treasury futures —    —    —    (1,321)   (1,321)  
Gains on financial derivatives not designated in hedge relationships $ —    $ —    $ —    $ 8,553    $ 8,553   


31





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 June 30, 2020 and December 31, 2019:

Table 4.3
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)
June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019
(in thousands)
Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value $ 4,506,185    $ 4,092,611    $ 479,632    $ 180,215   
Loans held for investment, at amortized cost(1)
1,634,784    1,050,335    186,352    37,907   
Notes Payable(2)
(2,787,699)   (2,761,052)   (70,433)   (7,433)  
(1)Includes $0.4 million as of June 30, 2020 in fair value adjustment, currently included in "Prepaid expenses and other assets" related to a hedge of a purchase commitment of a loan.
(2)Carrying amount represents amortized cost.

The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of June 30, 2020 and December 31, 2019:

Table 4.4
June 30, 2020
Gross Amount Recognized(1)
Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet
(in thousands)
Assets:
Derivatives
Interest rate swap $ 122,793    $ 121,310    $ 1,483   
Liabilities:
Derivatives
Interest rate swap $ 799,070    $ 779,807    $ 19,263   
(1)Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.

December 31, 2019
Gross Amount Recognized(1)
Counterparty Netting Net Amount Presented in the Consolidated Balance Sheet
(in thousands)
Assets:
Derivatives
Interest rate swaps $ 56,139    $ 53,771    $ 2,368   
Liabilities:
Derivatives
Interest rate swaps $ 305,584    $ 291,326    $ 14,258   
(1)Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.


32





As of June 30, 2020, Farmer Mac held $1.5 million of cash and no investment securities as collateral for its derivatives in net asset positions, compared to $2.7 million of cash and no investment securities as collateral for its derivatives in net asset positions as of December 31, 2019.

Farmer Mac posted $17.6 million cash and $230.7 million of investment securities as of June 30, 2020 and posted $0.5 million cash and $131.7 million investment securities as of December 31, 2019.  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 June 30, 2020 and December 31, 2019, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of June 30, 2020 and December 31, 2019, 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 $16.1 billion notional amount of interest rate swaps outstanding as of June 30, 2020, $13.3 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $14.0 billion notional amount of interest rate swaps outstanding as of December 31, 2019, $11.0 billion were cleared through the CME. During the first half of 2020 and throughout 2019, Farmer Mac increased its use of non-cleared basis swaps as it began to prepare for the transition away from the use of LIBOR as a reference rate. For more information about interest rate swaps cleared through a clearinghouse, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020.

5.LOANS

Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. The following table displays the composition of the loan balances as of June 30, 2020 and December 31, 2019:

Table 5.1
As of June 30, 2020(1)
As of December 31, 2019(2)
Unsecuritized In Consolidated Trusts Total Unsecuritized In Consolidated Trusts Total
(in thousands)
Farm & Ranch $ 4,181,422    $ 1,436,090    $ 5,617,512    $ 3,675,640    $ 1,600,917    $ 5,276,557   
Rural Utilities 2,101,568    —    2,101,568    1,671,293    —    1,671,293   
Total unpaid principal balance(3)
6,282,990    1,436,090    7,719,080    5,346,933    1,600,917    6,947,850   
Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments 187,007    —    187,007    44,044    —    44,044   
Total loans 6,469,997    1,436,090    7,906,087    5,390,977    1,600,917    6,991,894   
Allowance for losses (13,758)   (1,181)   (14,939)   (8,853)   (1,601)   (10,454)  
Total loans, net of allowance $ 6,456,239    $ 1,434,909    $ 7,891,148    $ 5,382,124    $ 1,599,316    $ 6,981,440   
(1)Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained an allowance for losses to cover estimated probable incurred losses on loans held.
(3)Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business.


33





Allowance for Losses

The following table is a summary, by asset type, of the allowance for losses as of June 30, 2020 and December 31, 2019:

Table 5.2
June 30, 2020(1)
December 31, 2019(2)
Allowance for Losses Allowance for Losses
(in thousands)
Loans:
Farm & Ranch $ 6,039    $ 10,454   
Rural Utilities 8,900    —   
Total $ 14,939    $ 10,454   

(1)Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held.

The following is a summary of the changes in the allowance for losses for the three and six month period ended June 30, 2020 and 2019:

Table 5.3
For the Three Months Ended For the Six Months Ended
June 30, 2020(1)
June 30, 2019(2)
June 30, 2020(1)
June 30, 2019(2)
Allowance for Losses Allowance for Losses Allowance for Losses Allowance for Losses
(in thousands)
Farm & Ranch:
Beginning Balance $ 7,353    $ 6,753    $ 10,454    $ 7,017   
Cumulative effect adjustment from adoption of current expected credit loss standard —    —    (3,909)   —   
Adjusted Beginning Balance 7,353    6,753    6,545    7,017   
(Release of)/provision for losses (920)   578    (112)   314   
Charge-offs (394)   (67)   (394)   (67)  
Ending Balance(3)
$ 6,039    $ 7,264    $ 6,039    $ 7,264   
Rural Utilities:
Beginning Balance $ 7,503    $ —    $ —    $ —   
Cumulative effect adjustment from adoption of current expected credit loss standard —    —    5,378    —   
Adjusted Beginning Balance 7,503    —    5,378    —   
Provision for losses 1,397    —    3,522    —   
Charge-offs —    —    —    —   
Ending Balance(4)
$ 8,900    $ —    $ 8,900    $ —   

(1)Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained an allowance for loan losses to cover estimated probable incurred losses on loans held.
(3)Allowance for losses includes $1.8 million for collateral dependent assets secured by commercial real estate.
(4)Allowance for losses includes no allowance for collateral dependent assets.

The cumulative transition adjustment decrease of $3.9 million in the Farm & Ranch portfolio was primarily driven by differences in the way that the two loss models measure the impact of low loan-to-

34





value ratios in that portfolio. Under the previous accounting standard, Farmer Mac's estimated incurred loss model was based on historical weighted-average loss rates from realized losses within commodities and risk ratings. The historical weighted average loss rates were then applied to sub-portfolios, as disaggregated by commodity and risk rating, to calculate the general allowance. Under the CECL accounting standard, Farmer Mac's current expected credit losses are calculated individually based on the expected probability of default and the expected loss-given-default for each loan. The low loan-to-value ratios in the Farm & Ranch portfolio result in low individual losses-given-default. Thus, our expected credit losses as of January 1, 2020 were less than our estimate of incurred losses as of December 31, 2019.

The cumulative transition adjustment increase of $5.4 million in the Rural Utilities portfolio was primarily driven by the change from measuring incurred probable credit losses to measuring expected credit losses over the expected lives of these loans. Farmer Mac has never experienced a credit loss in its Rural Utilities portfolio. Additionally, these loans have strong credit ratings and performance, which supported Farmer Mac's estimate of no incurred credit losses under the previous accounting standard. Upon the adoption of CECL, Farmer Mac is now required to measure its expected credit losses for the entire expected life of all financial instruments, including its Rural Utilities loans. To estimate expected credit losses on these loans, Farmer Mac relies upon industry data from ratings agencies and publicly available information as disclosed in the securities filings of other major lenders who serve the utilities industry. Under the CECL accounting standard, Farmer Mac's loss allowance model for these loans is primarily impacted by the long-term maturities of the loans and their low probability of prepayment. In addition, the highly-specialized nature of power generation and transmission facilities results in significant losses given default even though the probability of default is low. Thus, the long-term expected lives of these loans combined with high losses given default result in an estimate of expected losses although we have never incurred a credit loss in this portfolio.

The provision to the allowance for loan losses of $0.5 million recorded during second quarter 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio of $311.8 million. The impact of the Rural Utilities portfolio on the net increase to the provision was partially offset by improving economic factors that uniquely impacted the Farm & Ranch portfolio, specifically improvements in commodity prices and expectations for stable farm land values. In addition, there was a $0.4 million charge-off to the allowance related to the acquisition of a new real estate owned property ("REO") during second quarter 2020.

The provision to the allowance for loan losses of $3.4 million recorded during the six months ended June 30, 2020 was primarily due to the impact of net new loan volume in the Rural Utilities portfolio and the impact of economic factor forecasts on the Rural Utilities portfolio, especially expected higher unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility.

The provision for the allowance for loan losses recorded during three and six months ended June 30, 2019 was attributable to an increase in the general allowance due to net volume growth in on-balance sheet Farm & Ranch loans and a slight decrease in the portfolio credit quality.


35





The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of June 30, 2020:

Table 5.4
As of June 30, 2020
Accruing
Current(5)
30-59 Days 60-89 Days
90 Days and Greater(2)
Total Past Due
Nonaccrual loans(3)(4)
Total Loans
(in thousands)
Loans(1):
Farm & Ranch $ 5,476,962    $ 7,892    $ —    $ 15,528    $ 23,420    $ 117,130    $ 5,617,512   
Rural Utilities 2,101,568    —    —    —    —    —    2,101,568   
Total $ 7,578,530    $ 7,892    $ —    $ 15,528    $ 23,420    $ 117,130    $ 7,719,080   
(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 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 $23.1 million of nonaccrual loans for which there was no associated allowance. During the three and six months ended June 30, 2020, Farmer Mac received $1.3 million and 2.3 million, respectively, in interest on nonaccrual loans.
(5)Includes $82.2 million of unpaid principal balance related to Farm & Ranch loans that Farmer Mac has executed a COVID-19 payment deferment.

The following tables present the unpaid principal balances of loans held and the related total allowance for losses by impairment method and commodity type as of December 31, 2019:

Table 5.5
   As of December 31, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
Ending Balance:              
Collectively evaluated for impairment $ 2,664,362    $ 1,161,900    $ 871,341    $ 356,920    $ 10,360    $ 4,597    $ 5,069,480   
Individually evaluated for impairment 108,815    51,256    39,962    7,044    —    —    207,077   
Total Farm & Ranch loans $ 2,773,177    $ 1,213,156    $ 911,303    $ 363,964    $ 10,360    $ 4,597    $ 5,276,557   
Allowance for Losses:              
Collectively evaluated for impairment $ 1,880    $ 1,362    $ 714    $ 249    $ 47    $   $ 4,256   
Individually evaluated for impairment 2,628    1,008    2,447    115    —    —    6,198   
Total Farm & Ranch loans $ 4,508    $ 2,370    $ 3,161    $ 364    $ 47    $   $ 10,454   


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The following tables present by commodity type the unpaid principal balances, recorded investment, and specific allowance for losses related to impaired loans and the recorded investment in loans on nonaccrual status as of December 31, 2019:

Table 5.6
   As of December 31, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
Impaired Loans:              
With no specific allowance:              
Recorded investment $ 30,846    $ 16,696    $ 3,195    $ 1,398    $ —    $ 56    $ 52,191   
Unpaid principal balance 30,741    16,638    3,185    1,394    —    56    52,014   
With a specific allowance:  
Recorded investment(1)
84,044    36,852    47,113    6,376    —    —    174,385   
Unpaid principal balance 83,772    36,732    46,984    6,356    —    —    173,844   
Associated allowance 2,725    1,051    2,636    129    —    —    6,541   
Total:              
Recorded investment 114,890    53,548    50,308    7,774    —    56    226,576   
Unpaid principal balance 114,513    53,370    50,169    7,750    —    56    225,858   
Associated allowance 2,725    1,051    2,636    129    —    —    6,541   
Recorded investment of loans on nonaccrual status(2)
$ 34,037    $ 22,849    $ 28,441    $ 2,454    $ —    $ —    $ 87,781   
(1)Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $159.1 million (70%) of impaired loans as of December 31, 2019, which resulted in a specific allowance of $3.0 million.
(2)Includes $30.1 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status.

The following table presents by commodity type the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2019:

Table 5.7
June 30, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
For the Three Months Ended:
Average recorded investment in impaired loans $ 98,176    $ 39,056    $ 28,650    $ 7,675    $ —    $ 59    $ 173,616   
Income recognized on impaired loans 379    121    304    55    —    —    859   
For the Six Months Ended:
Average recorded investment in impaired loans $ 85,652    $ 41,903    $ 26,279    $ 8,268    $ —    $ 66    $ 162,168   
Income recognized on impaired loans 701    420    417    122    —    —    1,660   

Net credit losses and 90-day delinquencies as of and for the periods indicated for loans held are presented in the table below.  As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities loan portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities loans.

37






Table 5.8
90-Day Delinquencies(1)
Net Credit Losses
  As of For the Six Months Ended
  December 31, 2019 June 30, 2019
  (in thousands)
Farm & Ranch loans $ 57,719    $ 131   
(1)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.

Of the $57.7 million of on-balance sheet loans reported as 90-day delinquencies as of December 31, 2019, no loans were subject to "removal-of-account" provisions.

Rural Utilities

As of December 31, 2019, no allowance for losses had been provided for Farmer Mac's Rural Utilities line of business based on the performance of the loans in this line of business and the credit quality of the collateral supporting these loans, as well as Farmer Mac's counterparty risk analysis. As of December 31, 2019, there were no delinquencies or probable losses inherent in Farmer Mac's Rural Utilities loans held or underlying LTSPCs.


38





Credit Quality Indicators

The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of June 30, 2020, by year of origination:

Table 5.9

As of June 30, 2020
Year of Origination:
2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total
(in thousands)
Farm & Ranch(1):
Internally Assigned Risk Rating:
Acceptable $ 758,965    $ 773,199    $ 562,604    $ 617,751    $ 528,068    $ 1,345,384    $ 501,625    $ 5,087,596   
Special mention(2)
76,588    166,829    32,164    9,278    5,477    19,630    10,260    320,226   
Substandard(3)
448    6,655    18,326    59,545    53,639    60,478    10,599    209,690   
Total $ 836,001    $ 946,683    $ 613,094    $ 686,574    $ 587,184    $ 1,425,492    $ 522,484    $ 5,617,512   
For the Three Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ 394    $ —    $ 394   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Farm & Ranch net charge-offs $ —    $ —    $ —    $ —    $ —    $ 394    $ —    $ 394   
For the Six Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ 394    $ —    $ 394   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Farm & Ranch net charge-offs $ —    $ —    $ —    $ —    $ —    $ 394    $ —    $ 394   
(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.



39





As of June 30, 2020
Year of Origination:
2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total
(in thousands)
Rural Utilities(1):
Internally Assigned Risk Rating:
Acceptable $ 470,419    $ 827,336    $ 8,337    $ 92,440    $ 31,829    $ 658,827    $ 7,366    $ 2,096,554   
Special mention(2)
—    —    —    —    —    —    —    —   
Substandard(3)
—    —    —    —    —    5,014    —    5,014   
Total $ 470,419    $ 827,336    $ 8,337    $ 92,440    $ 31,829    $ 663,841    $ 7,366    $ 2,101,568   
For the Three Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Rural Utilities net charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
For the Six Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Rural Utilities net 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.

The following table presents credit quality indicators related to Farm & Ranch loans held as of December 31, 2019:
Table 5.10
   As of December 31, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
Internally Assigned Risk Rating(1)
             
Acceptable $ 2,556,956    $ 1,050,160    $ 825,234    $ 343,329    $ 10,360    $ 4,597    $ 4,790,636   
Special mention(2)
107,406    111,739    46,107    13,591    —    —    278,843   
Substandard(3)
108,815    51,257    39,962    7,044    —    —    207,078   
Total $ 2,773,177    $ 1,213,156    $ 911,303    $ 363,964    $ 10,360    $ 4,597    $ 5,276,557   
Commodity analysis of past due loans(1)
$ 21,167    $ 15,828    $ 19,354    $ 1,370    $ —    $ —    $ 57,719   
(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.


40





6.GUARANTEES

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 June 30, 2020 and December 31, 2019, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans:

Table 6.1
Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities
   As of June 30, 2020 As of December 31, 2019
   (in thousands)
Farm & Ranch:    
Farmer Mac Guaranteed Securities $ 90,225    $ 107,322   
USDA Guarantees:
Farmer Mac Guaranteed USDA Securities 330,309    389,216   
Institutional Credit:    
AgVantage Securities 6,068    7,567   
Total off-balance sheet Farmer Mac Guaranteed Securities $ 426,602    $ 504,105   

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 6.2
  For the Six Months Ended
   June 30, 2020 June 30, 2019
   (in thousands)
Proceeds from new securitizations $ 28,050    $ 166,351   
Guarantee fees received 894    861   

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:

Table 6.3
As of June 30, 2020 As of December 31, 2019
(dollars in thousands)
Guarantee and commitment obligation $ 1,890    $ 2,230   
Weighted average remaining maturity:
  Farmer Mac Guaranteed Securities 9.6 years 9.8 years
  AgVantage Securities 4.5 years 5.0 years


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Long-Term Standby Purchase Commitments

Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee 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 6.4
As of June 30, 2020 As of December 31, 2019
(dollars in thousands)
Guarantee and commitment obligation(1)
$ 33,273    $ 34,470   
Maximum principal amount 2,900,166    3,002,349   
Weighted-average remaining maturity 15.2 years 15.2 years
(1) Relates to LTSPCs issued or modified on or after January 1, 2003.


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Reserve for Losses

The following table is a summary, by asset type, of the reserve for losses as of June 30, 2020 and December 31, 2019:

Table 6.5
June 30, 2020(1)
December 31, 2019(2)
Reserve for Losses Reserve for Losses
(in thousands)
Farm & Ranch:
LTSPCs and Farmer Mac Guaranteed Securities $ 1,650    $ 2,164   
Rural Utilities
LTSPCs 1,370    —   
Total $ 3,020    $ 2,164   
(1)Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities.

The following is a summary of the changes in the reserve for losses for the three and six month period ended June 30, 2020 and 2019:

Table 6.6
For the Three Months Ended For the Six Months Ended
June 30, 2020(1)
June 30, 2019(2)
June 30, 2020(1)
June 30, 2019(2)
Reserve for Losses Reserve for Losses Reserve for Losses Reserve for Losses
(in thousands)
Farm & Ranch:
Beginning Balance $ 2,020    $ 2,038    $ 2,164    $ 2,167   
Cumulative effect adjustment from adoption of current expected credit loss standard —    —    (148)   —   
Adjusted Beginning Balance 2,020    2,038    2,016    2,167   
Release of losses $ (370)   $ (158)   $ (366)   $ (287)  
Charge-offs —    —    —    —   
Ending Balance $ 1,650    $ 1,880    $ 1,650    $ 1,880   
Rural Utilities:
Beginning Balance $ 1,400    $ —    $ —    $ —   
Cumulative effect adjustment from adoption of current expected credit loss standard —    —    1,011    —   
Adjusted Beginning Balance 1,400    —    1,011    —   
(Release of)/provision for losses $ (30)   $ —    $ 359    $ —   
Charge-offs —    —    —    —   
Ending Balance $ 1,370    $ —    $ 1,370    $ —   
(1)Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities.

The release from the reserve for losses recorded during the three and six months ended June 30, 2020 was primarily due to the net decreases in LTSPC volume of $58.5 million and $119.3 million, respectively.


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The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of June 30, 2020:

Table 6.7
As of June 30, 2020
Current(2)
30-59 Days 60-89 Days
90 Days and Greater(1)
Total Past Due Total Loans
(in thousands)
Farm and Ranch:
LTSPCs and Farmer Mac Guaranteed Securities $ 2,374,988    $ 9,947    $ 12,587    $ 2,816    $ 25,350    $ 2,400,338   
Rural Utilities:
LTSPCs $ 590,053    $ —    $ —    $ —    $ —    $ 590,053   
(1)Includes loans underlying off-balance sheet Farm & Ranch 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.
(2)Includes $109.5 million of unpaid principal balance related to Farm & Ranch LTSPCs for which the lender has notified Farmer Mac of an executed COVID-19 payment deferment.


The following tables present the unpaid principal balances of Farm & Ranch loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and the related reserve for losses by impairment method and commodity type as of December 31, 2019:

Table 6.8
   As of December 31, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
Ending Balance:              
Collectively evaluated for impairment: $ 1,151,983    $ 511,991    $ 581,377    $ 167,395    $ 66,106    $ 2,760    $ 2,481,612   
Individually evaluated for impairment: 5,698    2,114    10,207    706    —    56    18,781   
Total Farm & Ranch $ 1,157,681    $ 514,105    $ 591,584    $ 168,101    $ 66,106    $ 2,816    $ 2,500,393   
Allowance for Losses:              
Collectively evaluated for impairment: $ 599    $ 96    $ 308    $ 50    $ 767    $   $ 1,821   
Individually evaluated for impairment: 97    43    189    14    —    —    343   
Total Farm & Ranch $ 696    $ 139    $ 497    $ 64    $ 767    $   $ 2,164   


44





Net credit losses and 90-day delinquencies as of and for the periods indicated for loans underlying off-balance sheet securities representing interests in pools of eligible Farm & Ranch LTSPCs are presented in the table below.  As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities LTSPCs portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities LTSPCs.

Table 6.9
90-Day Delinquencies(1)
Net Credit Losses/(Recoveries)
  As of For the Six Months Ended
  December 31, 2019 June 30, 2019
  (in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities $ 3,235    $ —   
(1)Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

Credit Quality Indicators

The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of June 30, 2020, by year of origination:

Table 6.10
As of June 30, 2020
Year of Origination:
2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total
(in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities:
Internally Assigned Risk Rating:
Acceptable $ 71,569    $ 206,177    $ 177,787    $ 251,149    $ 222,988    $ 1,072,259    $ 172,509    $ 2,174,438   
Special mention(1)
—    10,250    7,835    24,518    16,090    61,674    10,359    130,726   
Substandard(2)
286    —    3,982    15,277    11,619    59,342    4,668    95,174   
Total $ 71,855    $ 216,427    $ 189,604    $ 290,944    $ 250,697    $ 1,193,275    $ 187,536    $ 2,400,338   
For the Three Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Farm & Ranch net charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
For the Six Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Farm & Ranch net 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.  

45





(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 June 30, 2020
Year of Origination:
2020 2019 2018 2017 2016 Prior Revolving Loans - Amortized Cost Basis Total
(in thousands)
Rural Utilities LTSPCs:
Internally Assigned Risk Rating:
Acceptable $ —    $ —    $ —    $ —    $ —    $ 577,920    $ 12,133    $ 590,053   
Special mention(1)
—    —    —    —    —    —    —    —   
Substandard(2)
—    —    —    —    —    —    —    —   
Total $ —    $ —    $ —    $ —    $ —    $ 577,920    $ 12,133    $ 590,053   
For the Three Months Ended
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Rural Utilities net charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
For the Six Months Ended:
Current period charge-offs $ —    $ —    $ —    $ —    $ —    $ —    $ —    $ —   
Current period recoveries —    —    —    —    —    —    —    —   
Current period Rural Utilities net 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.

The following table presents credit quality indicators related to Farm & Ranch loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities as of December 31, 2019:

Table 6.11
   As of December 31, 2019
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
   (in thousands)
Internally Assigned Risk Rating(1)
             
Acceptable $ 1,033,002    $ 484,601    $ 521,341    $ 161,361    $ 66,106    $ 2,594    $ 2,269,005   
Special mention(2)
68,372    22,909    35,618    1,612    —    —    128,511   
Substandard(3)
56,307    6,595    34,625    5,128    —    222    102,877   
Total $ 1,157,681    $ 514,105    $ 591,584    $ 168,101    $ 66,106    $ 2,816    $ 2,500,393   
Commodity analysis of past due loans(1)
$ 1,493    $ 196    $ 1,066    $ 480    $ —    $ —    $ 3,235   
(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.



46





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 1.0 year or less, whereas medium-term notes generally have maturities of 0.5 years to 15.0 years.

The following tables set forth information related to Farmer Mac's borrowings as of June 30, 2020 and December 31, 2019:

Table 7.1
  June 30, 2020
 Outstanding as of June 30 Average Outstanding During the First Six Months
   Amount Weighted- Average Rate Amount Weighted- Average Rate
   (dollars in thousands)
Due within one year:        
Discount notes $ 2,507,363    0.44  % $ 2,221,571    1.05  %
Medium-term notes 1,394,857    0.47  % 1,120,213    1.16  %
Current portion of medium-term notes 6,985,303    0.93  %
 Total due within one year $ 10,887,523    0.76  %    
Due after one year:      
Medium-term notes due in:      
Two years $ 3,764,817    1.08  %    
Three years 1,839,291    1.70  %    
Four years 1,204,584    1.78  %    
Five years 1,213,467    1.56  %
Thereafter 2,511,868    2.28  %    
Total due after one year 10,534,027    1.61  %    
Total $ 21,421,550    1.18  %    


47





  December 31, 2019
 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 $ 2,194,177    1.72  % $ 1,977,214    2.25  %
Medium-term notes 1,152,770    1.98  % 1,780,517    2.33  %
Current portion of medium-term notes 6,672,135    1.85  %
 Total due within one year $ 10,019,082    1.84  %    
Due after one year:        
Medium-term notes due in:        
Two years $ 3,700,835    2.04  %    
Three years 1,594,709    2.15  %    
Four years 1,205,276    2.27  %    
Five years 760,887    2.25  %
Thereafter 1,817,859    2.89  %    
Total due after one year 9,079,566    2.28  %    
Total $ 19,098,648    2.05  %    

During the six months ended June 30, 2020, Farmer Mac increased its use of short-term funding in order to fund the growth of short-term assets in its liquidity portfolio. The maximum amount of Farmer Mac's discount notes outstanding at any month end during the six months ended June 30, 2020 and 2019 was $2.6 billion and $2.1 billion, respectively.

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 2020 as of June 30, 2020:

Table 7.2
Debt Callable in 2020 as of June 30, 2020, by Maturity
Amount Weighted-Average Rate
(dollars in thousands)
Maturity:
2021 $ 491,862    1.02  %
2022 203,845    1.43  %
2023 37,953    0.82  %
2024 143,832    1.80  %
Thereafter 399,489    2.25  %
 Total $ 1,276,981    1.56  %

The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of June 30, 2020, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date:


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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:    
2020 $ 11,227,000    0.48  %
2021 3,047,823    1.79  %
2022 1,745,399    1.74  %
2023 1,706,568    1.88  %
2024 965,056    1.86  %
Thereafter 2,729,704    2.31  %
Total $ 21,421,550    1.18  %

During the six months ended June 30, 2020 and 2019, Farmer Mac called $1.9 billion and $0.3 billion of callable medium-term notes, respectively. The decrease in market interest rates throughout 2019 and continuing into the first half of 2020 led to an increase in called medium-term notes compared to the prior year.

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 for the purpose of fulfilling 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 June 30, 2020, Farmer Mac had not used this borrowing authority.

Gains on Repurchase of Outstanding Debt

No outstanding debt repurchases were made in the six months ended June 30, 2020 or 2019.

8.EQUITY

Preferred Stock

In May 2020, Farmer Mac issued 3.2 million shares of 5.750% non-cumulative perpetual Series E preferred stock, par value $25.00 per share. Farmer Mac incurred direct costs of $2.5 million related to the issuance of the Series E preferred stock. The dividend rate on the Series E preferred stock will remain at a non-cumulative, fixed rate of 5.750% per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series E preferred stock remains outstanding. The Series E preferred stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2025.


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Common Stock

During first and second quarter 2020, Farmer Mac paid a quarterly dividend of $0.80 per share on all classes of its common stock. For each quarter in 2019, Farmer Mac paid a quarterly dividend of $0.70 per share on all classes of its common stock.

Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. As of June 30, 2020, 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. The program expires at the end of March 2021.

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 June 30, 2020 and December 31, 2019, 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 June 30, 2020, Farmer Mac's minimum capital requirement was $667.7 million and its core capital level was $915.6 million, which was $247.9 million above the minimum capital requirement as of that date. As of December 31, 2019, Farmer Mac's minimum capital requirement was $618.8 million and its core capital level was $815.4 million, which was $196.6 million above the minimum capital requirement as of that date.

In accordance with the Farm Credit Administration's rule 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.


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9.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 June 30, 2020 and December 31, 2019, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:

Table 9.1
Assets and Liabilities Measured at Fair Value as of June 30, 2020
  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 $ —    $ —    $ 18,283    $ 18,283   
Floating rate asset-backed securities —    9,807    —    9,807   
Floating rate Government/GSE guaranteed mortgage-backed securities —    2,112,377    —    2,112,377   
Fixed rate GSE guaranteed mortgage-backed securities —    322    —    322   
Fixed rate U.S. Treasuries 1,326,589    —    —    1,326,589   
Total Investment Securities 1,326,589    2,122,506    18,283    3,467,378   
Farmer Mac Guaranteed Securities:        
Available-for-sale:        
AgVantage —    —    7,898,387    7,898,387   
Total Farmer Mac Guaranteed Securities —    —    7,898,387    7,898,387   
USDA Securities:        
Trading —    —    7,786    7,786   
Total USDA Securities —    —    7,786    7,786   
Financial derivatives —    16,588    —    16,588   
Total Assets at fair value $ 1,326,589    $ 2,139,094    $ 7,924,456    $ 11,390,139   
Liabilities:        
Financial derivatives $   $ 47,534    $ —    $ 47,543   
Total Liabilities at fair value $   $ 47,534    $ —    $ 47,543   
(1) Level 3 assets represent 33% of total assets and 69% of financial instruments measured at fair value.

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Assets and Liabilities Measured at Fair Value as of December 31, 2019
  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 $ —    $ —    $ 18,912    $ 18,912   
Floating rate asset-backed securities —    11,085    —    11,085   
Floating rate Government/GSE guaranteed mortgage-backed securities —    1,632,583    —    1,632,583   
Fixed rate GSE guaranteed mortgage-backed securities —    340    —    340   
Fixed rate U.S. Treasuries 1,296,923    —    —    1,296,923   
Total available-for-sale 1,296,923    1,644,008    18,912    2,959,843   
Farmer Mac Guaranteed Securities:        
Available-for-sale:        
AgVantage —    —    7,143,025    7,143,025   
Total Farmer Mac Guaranteed Securities —    —    7,143,025    7,143,025   
USDA Securities:        
Trading —    —    8,913    8,913   
Total USDA Securities —    —    8,913    8,913   
Financial derivatives —    10,519    —    10,519   
Total Assets at fair value $ 1,296,923    $ 1,654,527    $ 7,170,850    $ 10,122,300   
Liabilities:        
Financial derivatives $ 51    $ 26,991    $ —    $ 27,042   
Total Liabilities at fair value $ 51    $ 26,991    $ —    $ 27,042   
(1) Level 3 assets represent 33% of total assets and 71% of financial instruments measured at fair value.

There were no significant assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2020 or December 31, 2019.

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 first half of 2020 and 2019, there were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives.

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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 three and six months ended June 30, 2020 and 2019.

Table 9.2

Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2020
   Beginning
Balance
Purchases Sales Settlements Allowance for losses Realized and
unrealized gains/(losses) included
in Income
Unrealized gains/(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 $ 16,721    $ —    $ —    $ —    $ (15)   $ —    $ 1,577    $ 18,283   
Total available-for-sale 16,721    —    —    —    (15)   —    1,577    18,283   
Farmer Mac Guaranteed Securities:          
Available-for-sale:          
AgVantage 7,587,186    351,896    —    (85,261)   (69)   9,050    35,585    7,898,387   
Total available-for-sale 7,587,186    351,896    —    (85,261)   (69)   9,050    35,585    7,898,387   
USDA Securities:          
Trading 8,408    —    —    (602)   —    (20)   —    7,786   
Total USDA Securities 8,408    —    —    (602)   (20)   —    7,786   
Total Assets at fair value $ 7,612,315    $ 351,896    $ —    $ (85,863)   $ (84)   $ 9,030    $ 37,162    $ 7,924,456   



53





Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2019
   Beginning
Balance
Purchases Sales Settlements Realized and
unrealized gains/(losses) included
in Income
Unrealized gains/(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 $ 18,912    $ —    $ —    $ —    $ —    $ 296    $ 19,208   
Total available-for-sale 18,912    —    —    —    —    296    19,208   
Farmer Mac Guaranteed Securities:          
Available-for-sale:          
AgVantage 6,441,624    613,764    —    (98,579)   114,638    (35,779)   7,035,668   
Total available-for-sale 6,441,624    613,764    —    (98,579)   114,638    (35,779)   7,035,668   
USDA Securities:          
Available-for-sale —    29,419    (29,419)   —    —    —    —   
Trading 9,487    —    —    (347)   61    —    9,201   
Total USDA Securities 9,487    29,419    (29,419)   (347)   61    —    9,201   
Total Assets at fair value $ 6,470,023    $ 643,183    $ (29,419)   $ (98,926)   $ 114,699    $ (35,483)   $ 7,064,077   

Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2020
Beginning Balance Purchases Sales Settlements Allowance for Losses Realized and
unrealized gains/(losses) included
in Income
Unrealized gains/(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 $ 18,912    $ —    $ —    $ —    $ (38)   $ —    $ (591)   $ 18,283   
Total available-for-sale 18,912    —    —    —    (38)   —    (591)   18,283   
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage 7,143,025    835,476    —    (312,516)   (234)   299,429    (66,793)   7,898,387   
Total available-for-sale 7,143,025    835,476    —    (312,516)   (234)   299,429    (66,793)   7,898,387   
USDA Securities:
Trading 8,913    —    —    (1,213)   —    86    —    7,786   
Total USDA Securities 8,913    —    —    (1,213)   86    —    7,786   
Total Assets at fair value $ 7,170,850    $ 835,476    $ —    $ (313,729)   $ (272)   $ 299,515    $ (67,384)   $ 7,924,456   

54





Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2019
   Beginning
Balance
Purchases Sales Settlements Realized and
unrealized gains/(losses) included
in Income
Unrealized gains/(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 $ 18,715    $ —    $ —    $ —    $ —    $ 493    $ 19,208   
Total available-for-sale 18,715    —    —    —    —    493    19,208   
Farmer Mac Guaranteed Securities:          
Available-for-sale:          
AgVantage 5,974,497    1,390,096    —    (470,312)   173,990    (32,603)   7,035,668   
Total available-for-sale 5,974,497    1,390,096    —    (470,312)   173,990    (32,603)   7,035,668   
USDA Securities:          
Available-for-sale —    48,347    (48,347)   —    —    —    —   
Trading 9,999    —    —    (903)   105    —    9,201   
Total USDA Securities 9,999    48,347    (48,347)   (903)   105    —    9,201   
Total Assets at fair value $ 6,003,211    $ 1,438,443    $ (48,347)   $ (471,215)   $ 174,095    $ (32,110)   $ 7,064,077   


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 June 30, 2020 and December 31, 2019:

Table 9.3
As of June 30, 2020
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 $ 18,283    Indicative bids Range of broker quotes
93.0% - 93.0% (93.0%)
Farmer Mac Guaranteed Securities:
AgVantage $ 7,898,387    Discounted cash flow Discount rate
0.9% - 4.0% (1.2%)
USDA Securities $ 7,786    Discounted cash flow Discount rate
1.5% - 2.2% (1.6%)
CPR
14% - 23% (22%)


55





As of December 31, 2019
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 $ 18,912    Indicative bids Range of broker quotes
96.0% - 96.0% (96.0%)
Farmer Mac Guaranteed Securities:
AgVantage $ 7,143,025    Discounted cash flow Discount rate
2.3% - 5.5% (2.6%)
USDA Securities $ 8,913    Discounted cash flow Discount rate
2.3% - 2.6% (2.1%)
CPR
10% - 21% (19%)

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. Prepayment rates are not presented in the table above for AgVantage securities because they generally have fixed maturity dates when the secured general obligations are due and don't 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.


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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 June 30, 2020 and December 31, 2019:

Table 9.4
  As of June 30, 2020 As of December 31, 2019
  Fair Value Carrying
Amount
Fair Value Carrying
Amount
  (in thousands)
Financial assets:        
Cash and cash equivalents $ 827,600    $ 827,600    $ 604,381    $ 604,381   
Investment securities 3,513,060    3,512,410    3,005,828    3,004,875   
Farmer Mac Guaranteed Securities 9,070,424    9,039,105    8,606,451    8,590,476   
USDA Securities 2,432,674    2,347,709    2,294,671    2,241,073   
Loans 8,214,871    7,891,148    7,317,091    6,981,440   
Financial derivatives 16,588    16,588    10,519    10,519   
Guarantee and commitment fees receivable 32,254    36,612    36,732    38,442   
Financial liabilities:
Notes payable 21,736,245    21,421,550    19,234,079    19,098,648   
Debt securities of consolidated trusts held by third parties 1,499,947    1,476,964    1,663,177    1,616,504   
Financial derivatives 47,543    47,543    27,042    27,042   
Guarantee and commitment obligations 30,804    35,162    34,990    36,700   

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 unadjusted counterparty valuations 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.


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10.BUSINESS SEGMENT REPORTING

The following tables present core earnings for Farmer Mac's operating segments and a reconciliation to consolidated net income for the three and six months ended June 30, 2020 and 2019:

Table 10.1


Core Earnings by Business Segment
For the Three Months Ended June 30, 2020
Farm & Ranch USDA Guarantees
Rural 
Utilities
Institutional Credit Corporate Reconciling
Adjustments
Consolidated Net Income
  (in thousands)
Net interest income $ 19,310    $ 5,403    $ 2,322    $ 20,084    $ 1,229    $ —      $ 48,348   
Less: reconciling adjustments(1)(2)(3)
(2,577)   (714)   3,194    (1,302)   (480)   1,879    —   
Net effective spread 16,733    4,689    5,516    18,782    749    1,879    —   
Guarantee and commitment fees(2)
4,394    210    332      —    (1,803)   3,140   
Other income/(expense)(3)
585    617      —    (159)   6,683    7,731   
Non-interest income/(loss) 4,979    827    337      (159)   4,880    10,871   
Provision for loan losses 920    —    (1,397)   41    (15)   —      (451)  
Provision for reserve for losses 370    —    30    —    —    —      400   
Other non-interest expense (5,254)   (1,584)   (1,386)   (2,083)   (3,800)   —      (14,107)  
Non-interest expense(4)
(4,884)   (1,584)   (1,356)   (2,083)   (3,800)   —      (13,707)  
Core earnings before income taxes 17,748    3,932    3,100    16,747    (3,225)   6,759   
(5)
45,061   
Income tax (expense)/benefit (3,727)   (826)   (651)   (3,517)   705    (1,419)   (9,435)  
Core earnings before preferred stock dividends 14,021    3,106    2,449    13,230    (2,520)   5,340   
(5)
35,626   
Preferred stock dividends —    —    —    —    (3,939)   —      (3,939)  
Segment core earnings/(losses) $ 14,021    $ 3,106    $ 2,449    $ 13,230    $ (6,459)   $ 5,340   
(5)
$ 31,687   
Total assets at carrying value $ 5,746,556    $ 2,408,713    $ 2,281,490    $ 9,049,393    $ 4,446,504    $ —      $ 23,932,656   
Total on- and off-balance sheet program assets at principal balance $ 8,017,850    $ 2,677,807    $ 2,691,621    $ 8,654,830    $ —    $ —      $ 22,042,108   
(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/(losses) on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)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.



58





Core Earnings by Business Segment
For the Three Months Ended June 30, 2019
Farm & Ranch USDA Guarantees Rural 
Utilities
Institutional Credit Corporate
Reconciling
Adjustments
Consolidated Net Income
  (in thousands)
Net interest income $ 15,797    $ 4,112    $ 3,936    $ 16,385    $ 2,824    $ —      $ 43,054   
Less: reconciling adjustments(1)(2)(3)
(2,462)   (15)   60    986    (268)   1,699    —   
Net effective spread 13,335    4,097    3,996    17,371    2,556    1,699    —   
Guarantee and commitment fees(2)
4,594    238    358    86    —    (1,873)   3,403   
Other income/(expense)(3)
188    —      —    582    8,552    9,329   
Non-interest income/(loss) 4,782    238    365    86    582    6,679    12,732   
Provision for loan losses (578)   —    —    —    —    —      (578)  
Release of reserve for losses 158    —    —    —    —    —      158   
Other non-interest expense (4,587)   (1,345)   (816)   (2,034)   (3,428)   —      (12,210)  
Non-interest expense(4)
(4,429)   (1,345)   (816)   (2,034)   (3,428)   —      (12,052)  
Core earnings before income taxes 13,110    2,990    3,545    15,423    (290)   8,378   
(5)
43,156   
Income tax (expense)/benefit (2,753)   (628)   (744)   (3,239)   13    (1,760)   (9,111)  
Core earnings before preferred stock dividends 10,357    2,362    2,801    12,184    (277)   6,618   
(5)
34,045   
Preferred stock dividends —    —    —    —    (3,785)   —      (3,785)  
Loss on retirement of preferred stock —    —    —    —    —    (1,956)   (1,956)  
Segment core earnings/(losses) $ 10,357    $ 2,362    $ 2,801    $ 12,184    $ (4,062)   $ 4,662   
(5)
$ 28,304   
Total assets at carrying value $ 4,872,766    $ 2,198,514    $ 1,580,979    $ 8,633,059    $ 3,452,842    $ —      $ 20,738,160   
Total on- and off-balance sheet program assets at principal balance $ 7,291,352    $ 2,521,394    $ 2,155,671    $ 8,778,318    $ —    $ —      $ 20,746,735   
(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/(losses) on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)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.


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Core Earnings by Business Segment
For the Six Months Ended June 30, 2020
Farm & Ranch USDA Guarantees
Rural 
Utilities
Institutional Credit Corporate Reconciling
Adjustments
Consolidated Net Income
  (in thousands)
Net interest income $ 35,675    $ 9,944    $ 7,069    $ 33,888    $ 3,084    $ —      $ 89,660   
Less: reconciling adjustments(1)(2)(3)
(4,004)   (630)   3,367    2,596    (357)   (972)   —   
Net effective spread 31,671    9,314    10,436    36,484    2,727    (972)   —   
Guarantee and commitment fees(2)
8,711    445    667    16    —    (3,503)   6,336   
Other income/(expense)(3)
1,754    729    12    —    (288)   (2,367)   (160)  
Non-interest income/(loss) 10,465    1,174    679    16    (288)   (5,870)   6,176   
Provision for loan losses 112    —    (3,522)   (450)   (29)   —      (3,889)  
Provision for reserve for losses 366    —    (359)   —    —    —       
Other non-interest expense (11,251)   (3,402)   (2,990)   (4,446)   (8,233)   —      (30,322)  
Non-interest expense(4)
(10,885)   (3,402)   (3,349)   (4,446)   (8,233)   —      (30,315)  
Core earnings before income taxes 31,363    7,086    4,244    31,604    (5,823)   (6,842)  
(5)
61,632   
Income tax (expense)/benefit (6,586)   (1,488)   (891)   (6,637)   988    1,438    (13,176)  
Core earnings before preferred stock dividends 24,777    5,598    3,353    24,967    (4,835)   (5,404)  
(5)
48,456   
Preferred stock dividends —    —    —    —    (7,370)   —      (7,370)  
Segment core earnings/(losses) $ 24,777    $ 5,598    $ 3,353    $ 24,967    $ (12,205)   $ (5,404)  
(5)
$ 41,086   
Total assets at carrying value $ 5,746,556    $ 2,408,713    $ 2,281,490    $ 9,049,393    $ 4,446,504    $ —      $ 23,932,656   
Total on- and off-balance sheet program assets at principal balance $ 8,017,850    $ 2,677,807    $ 2,691,621    $ 8,654,830    $ —    $ —      $ 22,042,108   
(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/(losses) on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)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.



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Core Earnings by Business Segment
For the Six Months Ended June 30, 2019
Farm & Ranch USDA Guarantees Rural 
Utilities
Institutional Credit Corporate
Reconciling
Adjustments
Consolidated Net Income
  (in thousands)
Net interest income $ 31,079    $ 8,554    $ 3,662    $ 34,572    $ 5,786    $ —      $ 83,653   
Less: reconciling adjustments(1)(2)(3)
(5,007)   (493)   3,567    (828)   (736)   3,497    —   
Net effective spread 26,072    8,061    7,229    33,744    5,050    3,497    —   
Guarantee and commitment fees(2)
9,338    462    721    174    —    (3,779)   6,916   
Other income/(expense)(3)
668    —    14    —    604    8,220    9,506   
Non-interest income/(loss) 10,006    462    735    174    604    4,441    16,422   
Provision for loan losses (314)   —    —    —    —    —      (314)  
Release of reserve for losses 287    —    —    —    —    —      287   
Other non-interest expense (9,386)   (2,773)   (1,682)   (4,193)   (7,066)   —      (25,100)  
Non-interest expense(4)
(9,099)   (2,773)   (1,682)   (4,193)   (7,066)   —      (24,813)  
Core earnings before income taxes 26,665    5,750    6,282    29,725    (1,412)   7,938   
(5)
74,948   
Income tax (expense)/benefit (5,600)   (1,208)   (1,319)   (6,242)   303    (1,667)   (15,733)  
Core earnings before preferred stock dividends 21,065    4,542    4,963    23,483    (1,109)   6,271   
(5)
59,215   
Preferred stock dividends —    —    —    —    (7,081)   —      (7,081)  
Loss on retirement of preferred stock —    —    —    —    —    (1,956)   (1,956)  
Segment core earnings/(losses) $ 21,065    $ 4,542    $ 4,963    $ 23,483    $ (8,190)   $ 4,315   
(5)
$ 50,178   
Total assets at carrying value $ 4,872,766    $ 2,198,514    $ 1,580,979    $ 8,633,059    $ 3,452,842    $ —      $ 20,738,160   
Total on- and off-balance sheet program assets at principal balance $ 7,291,352    $ 2,521,394    $ 2,155,671    $ 8,778,318    $ —    $ —      $ 20,746,735   
(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/(losses) on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)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.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial information included in this report is consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC. This discussion and analysis of financial condition and results of operations should be read together with: (1) the interim unaudited consolidated financial statements and the related notes that appear elsewhere in this report; and (2) Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020.

FORWARD-LOOKING STATEMENTS

In this report, the words "Farmer Mac," "we," "our," and "us" refer to the Federal Agricultural Mortgage Corporation unless otherwise stated or unless the context otherwise requires.

Some statements made in this report, such as in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 about management's current expectations for Farmer Mac's future financial results, business prospects, and business developments.  Forward-looking statements include, without limitation, any statement, including statements about COVID-19 and the impact of the pandemic on Farmer Mac, that may predict, forecast, indicate, or imply future results, performance, or achievements. These statements typically include terms such as "anticipates," "believes," "continues," "estimates," "expects," "forecasts," "intends," "outlook," "plans," "potential," "project," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will," and "would."  This report includes forward-looking statements addressing Farmer Mac's:
 
prospects for earnings;
prospects for growth in business volume;
assessment of the impact of the COVID-19 pandemic on our business, financial results, financial condition, and business plans and strategies;
trends in net interest income and net effective spread;
trends in portfolio credit quality, delinquencies, substandard assets, credit losses, and provisions for losses;
trends in expenses;
trends in investment securities;
prospects for asset impairments and allowance for losses;
changes in capital position;
future dividend payments; and
other business and financial matters.

Management's expectations for Farmer Mac's future necessarily involve assumptions, estimates, and the evaluation of risks and uncertainties.  Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including the factors discussed under "Risk Factors" in Part I, Item 1A of Farmer Mac's Annual Report on Form 10-K for the fiscal period ended December 31, 2019 filed with the

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SEC on February 25, 2020, the factors discussed under "Risk Factors" in Part II, Item 1A of this report, and uncertainties about:
 
the duration, spread, and severity of the COVID-19 pandemic;
the actions taken to address the COVID-19 pandemic, including government actions to mitigate the economic impact of the pandemic, how quickly and to what extent normal economic and operating conditions can resume, the possibility of future disruptions to economic recovery caused by additional outbreaks, regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, and the duration and efficacy of such restrictions;
the effects of the COVID-19 pandemic on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations;
the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;
legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries;
fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;
the level of lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac;
the general rate of growth in agricultural mortgage and rural utilities indebtedness;
the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products, and volatility in commodity prices;
the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac's borrowing costs relative to market indexes;
developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
the effect of any changes in Farmer Mac's executive leadership; and
other factors that could have a negative effect on agricultural mortgage lending or borrower repayment capacity, including the effects of weather and fluctuations in agricultural real estate values.

Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this report.  Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements to reflect new information or any future events or circumstances, except as otherwise required by applicable law. The information in this report is not necessarily indicative of future results.

Overview

The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."


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COVID-19 Update
Farmer Mac continues to closely monitor the effect of the COVID-19 pandemic on our financial condition and operations. We have maintained uninterrupted continuity of our operations while operating entirely remotely and our liquidity levels remain well above regulatory requirements, which has enabled us to execute our mission to support rural America during this pandemic. For example:

we have maintained uninterrupted access to the debt capital markets;
we provided a total of $1.7 billion in liquidity and lending capacity to lenders serving rural America during the quarter-ended June 30, 2020;
we are working with our loan servicers, and other partners, to respond to and facilitate payment deferment requests from borrowers; as of June 30, 2020, we had executed COVID-19 payment deferments for $241.7 million of unpaid principal balance related to Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers;
we are maintaining strong liquidity in our investment portfolio, as evidenced by our quarter-end cash position of $0.8 billion; and
we have built and preserved capital and liquidity by issuing $79.5 million of preferred stock in the second quarter and indefinitely suspending our share repurchase program in the first quarter.

The economic deterioration from the COVID-19 pandemic caused our total allowance for credit losses to remain elevated in the second quarter and continues to be higher than it would have been without the economic effects from the pandemic. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Loss (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"). Under CECL, our allowances and reserve for credit losses reflect our estimate of expected losses over the lives of our financial instruments based on historical information and reasonable and supportable forecasts. Both the adoption of this new accounting standard and the economic effects from the COVID-19 pandemic combined to increase the amount of our total allowance for losses from December 31, 2019 to June 30, 2020. The economic effects from the COVID-19 pandemic that most affected our estimate of expected credit losses were the effects on credit spreads and expectations for higher unemployment. Of the $3.9 million credit loss provision that we recorded in the first six months of 2020, $1.2 million was attributable to updated economic factors, predominantly related to COVID-19. For more information about the impact of COVID-19 on Farmer Mac's expected credit losses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees."

We have also observed an increase in payment deferment requests from our loan servicers on behalf of borrowers in our loan portfolio, as well as from our AgVantage counterparties for loans collateralizing their obligations. For more information about Farm & Ranch payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees." For more information about AgVantage loan collateral payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional."

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Net Income and Core Earnings

The following table shows our net income attributable to common stockholders and core earnings for the periods presented. Core earnings and core earnings per share are non-GAAP measures that principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations as well as the effects of specified infrequent or unusual transactions.

Table 1
For the Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(in thousands)
Net income attributable to common stockholders $ 31,687    $ 9,399    $ 28,304   
Core earnings 26,347    20,143    23,642   

The $22.3 million sequential increase in net income attributable to common stockholders was primarily due to a $12.5 million after-tax increase in the fair value of financial derivatives not designated as hedging instruments in hedge accounting relationships (undesignated financial derivatives) due to fluctuations in long-term interest rates, a $5.6 million after-tax increase in net interest income, a $3.0 million after-tax decrease in the total provision for credit losses, and a $1.7 million after-tax decrease in operating expenses.

The $3.4 million year-over-year increase in net income attributable to common stockholders was primarily due to a $4.2 million after-tax increase in net interest income, the absence of $2.0 million in deferred issuance costs related to the redemption of Series B Preferred Stock in the prior period, and a $0.7 after-tax increase in other income. These increases were partially offset by a $1.9 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates and a $1.6 million after-tax increase in operating expenses.

The $6.2 million sequential increase in core earnings was primarily due to a $3.0 million after-tax decrease in the total provision for credit losses, a $1.8 million after-tax increase in net effective spread, and a $1.7 million after-tax decrease in operating expenses.
The $2.7 million year-over-year increase in core earnings was primarily due to a $4.0 million after-tax increase in net effective spread and a $0.3 million after-tax decrease in the total provision for losses. These increases were partially offset by a $1.6 million after-tax increase in operating expenses.

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


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Net Interest Income and Net Effective Spread

The following table shows our net interest income and net effective spread in both dollars and percentage yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as an alternative to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income.

Table 2
For the Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(in thousands)
Net interest income $ 48,348    $ 41,312    $ 43,054   
Net interest yield % 0.87  % 0.78  % 0.87  %
Net effective spread 46,469    44,163    41,355   
Net effective spread % 0.89  % 0.89  % 0.91  %

The $7.0 million sequential increase in net interest income was primarily due to a $3.3 million decrease in net fair value losses from derivatives designated in fair value hedge accounting relationships (designated financial derivatives), a $2.3 million increase related to net volume growth across most lines of business, an $0.8 million increase in cash-basis interest income received from past due loans that are on nonaccrual status, and a $0.5 million decrease in funding and liquidity costs. In percentage terms, the increase of 0.09% was primarily attributable to an increase of 0.06% in net fair value changes from designated financial derivatives, an increase of 0.01% related to other income, an increase of 0.1% in funding and liquidity costs, and an increase of 0.01% related to net volume growth.

The $5.3 million year-over-year increase in net interest income was primarily due to net growth across most lines of business, which contributed to a $5.5 million increase in net interest income, and a $0.7 million decrease in funding and liquidity costs. These increases were partially offset by the decrease of $1.0 million in net fair value gains from designated financial derivatives due to fluctuations in long-term interest rates. In percentage terms, net interest income remained at 0.87% in both second quarter 2020 and second quarter 2019.

The $2.3 million sequential increase in net effective spread was primarily due to a $2.3 million increase related to net volume growth across most lines of business. In percentage terms, net effective spread remained at 0.89% in both second quarter 2020 and first quarter 2020.

The $5.1 million year-over-year increase in net effective spread was primarily due to growth in outstanding business volume, which increased net effective spread by approximately $5.5 million. In percentage terms, the decrease of 0.02% was primarily attributable to an increase in funding and liquidity costs of 0.05%, offset by an increase of 0.03% related to net volume growth.

For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."


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Business Volume

Our outstanding business volume was $22.0 billion as of June 30, 2020, a net increase of $502.8 million from March 31, 2020, after taking into account all new business, maturities, and paydowns on existing assets. This net increase was attributable to three lines of business: $306.2 million in Rural Utilities, $206.3 million in Farm & Ranch, and $31.6 million in USDA Guarantees. These increases were partially offset by a net decrease of $41.3 million in Institutional Credit.

Farmer Mac's net business volume growth of $502.8 million in second quarter 2020 was $263.0 million more than the $239.8 million of net growth achieved in second quarter 2019. The increase in second quarter 2020 was primarily attributable to historically low interest rates and pent-up demand that drove strong market demand from borrowers taking advantage of low interest rates on long-term funding. We experienced strong demand from our two main Rural Utilities counterparties as well as widespread robust demand among our network of active Farm & Ranch sellers. We achieved this growth by offering competitive pricing while maintaining our credit underwriting standards and profitable spreads, that improved toward the end of the quarter. We recorded more than half of our net business volume growth for the quarter in June, which will not be fully reflected in core earnings and net effective spread until the third quarter.

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

Capital

Table 3
As of
June 30, 2020 December 31, 2019
(in thousands)
Core capital $ 915,613    $ 815,437   
Capital in excess of minimum capital level required 247,916    196,669   

The increase in capital in excess of the minimum capital level required was primarily due to the Board-authorized issuance of Series E Preferred Stock and the increase in retained earnings, partially offset by growth in our outstanding business volume.

Current Expected Credit Loss

As noted above, Farmer Mac adopted CECL on January 1, 2020. Under CECL, we estimate and recognize expected credit losses over the lives of our financial assets. We base our estimate of expected losses on historical loss information and reasonable and supportable forecasts. In second quarter 2020, our reasonable and supportable forecasts included the impact of the COVID-19 pandemic on economic factors such as credit spreads and unemployment. Thus, our total provision for credit losses during the three months ended June 30, 2020 was affected by the ongoing economic effects of the COVID-19 pandemic.

As of June 30, 2020, Farmer Mac's allowance for losses on its on-balance sheet loan portfolio was $14.9 million (0.19% of all loans), compared to $14.9 million (0.20% of all loans) as of March 31, 2020 and $10.5 million (0.15% of all loans) as of December 31, 2019. In first quarter 2020, Farmer Mac recorded a transition adjustment of $1.5 million. Farmer Mac also recorded a provision of $2.9 million to

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the allowance for loan losses in first quarter 2020 related to a decline in expected economic factors. In second quarter 2020, Farmer Mac recorded a provision to its allowance for loan losses of $0.5 million, which was mostly offset by a direct charge-off of $0.4 million to the allowance. The charge-off was related to the foreclosure of a single Farm & Ranch loan during the quarter.

As of June 30, 2020, Farmer Mac's reserve for losses on its off-balance sheet LTSPCs and Guaranteed Securities was $3.0 million (0.09% of all off-balance sheet LTSPCs and Guaranteed Securities), compared to $3.4 million (0.10% of all off-balance sheet LTSPCs and Guaranteed Securities) as of March 31, 2020 and $2.2 million (0.06% of all off-balance sheet LTSPCs and Guaranteed Securities) on December 31, 2019. The first quarter increase was comprised of a $0.9 million transition adjustment related to the adoption of CECL on January 1, 2020 and an additional $0.4 million provision to the reserve. The second quarter release from the reserve for losses of $0.4 million was primarily related to repayments and payoffs that occurred in the LTSPC portfolio during the quarter.

Credit Quality

The following table presents Farm & Ranch substandard assets, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of June 30, 2020, March 31, 2020, and December 31, 2019:

Table 4
Farm & Ranch Line of Business
On-Balance Sheet Off-Balance Sheet
Substandard Assets % of Portfolio Substandard Assets % of Portfolio
(dollars in thousands)
June 30, 2020 $ 209,690    3.7  % $ 95,174    4.0  %
March 31, 2020 211,376    3.9  % 100,964    4.1  %
December 31, 2019 207,078    3.9  % 102,877    4.1  %
Increase/(decrease) from prior quarter-ending $ (1,686)   (0.2) % $ (5,790)   (0.1) %
Increase/(decrease) from prior year-ending $ 2,612    (0.2) % $ (7,703)   (0.1) %
The decrease of $1.7 million in on-balance sheet substandard assets during second quarter 2020 was primarily driven by repayments during the quarter on loans that were classified as substandard as of the first quarter, partially offset by downgrades during the quarter. The overall portfolio grew by $259.1 million, which caused substandard assets as a percentage of the total on-balance sheet portfolio to decrease. The $5.8 million decrease in substandard assets in our off-balance sheet portfolio during second quarter 2020 was primarily due to a net decrease in business volume in that portfolio, with a slight improvement in credit quality overall during the period. For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 27 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees."
The following table presents Farm & Ranch 90-day delinquencies, in dollars and as a percentage of the Farm & Ranch portfolio, for both on- and off-balance sheet assets as of June 30, 2020 and December 31, 2019:



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Table 5
Farm & Ranch Line of Business
On-Balance Sheet Off-Balance Sheet
90-Day
Delinquencies
% of Portfolio 90-Day
Delinquencies
% of Portfolio
(dollars in thousands)
June 30, 2020 $ 65,866    1.17  % $ 2,816    0.12  %
March 31, 2020 75,117    1.40  % 4,605    0.19  %
December 31, 2019 57,719    1.09  % 3,235    0.13  %
Increase/(decrease) from prior quarter-ending $ (9,251)   (0.23) % $ (1,789)   (0.07) %
Increase/(decrease) from prior year-ending $ 8,147    0.08  % $ (419)   (0.01) %
The sequential decrease in 90-day delinquencies is primarily due to the seasonal payment pattern associated with loans that have annual (January 1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio. In addition, the sequential decrease was primarily driven by two commodity groups – permanent plantings and crops. Other commodity groups also experienced smaller decreases or remained constant. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of June 30, 2020.

In the Rural Utilities portfolio, one $5.0 million loan was downgraded to substandard and there were no delinquencies as of June 30, 2020.

For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total allowance for losses, and substandard assets, as well as the effects of the COVID-19 pandemic on loan payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees."

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends.

The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

Core Earnings and Core Earnings Per Share

Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value

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fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected.

Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, in prior periods we have excluded from core earnings losses on retirement of preferred stock and the re-measurement of the deferred tax asset. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations."

Net Effective Spread

Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. 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, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated 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.

Farmer Mac excludes from net effective spread the premiums and discounts on assets consolidated at fair value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not expected to have an economic effect on Farmer Mac's financial performance if the assets are held to maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity.

Net effective spread also principally differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual

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amounts due in "Gains/(losses) on financial derivatives" on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread.

Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship.

For a reconciliation of net interest income and net interest yield to net effective spread, see Table 11 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."

Results of Operations

Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings:



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Table 6
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings
For the Three Months Ended
June 30, 2020 June 30, 2019
(in thousands, except per share amounts)
Net income attributable to common stockholders $ 31,687    $ 28,304   
Less reconciling items:    
Gains on undesignated financial derivatives due to fair value changes (see Table 14) 8,700    10,485   
Losses on hedging activities due to fair value changes (2,676)   (1,438)  
Unrealized (losses)/gains on trading securities (20)   61   
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 35    (139)  
Net effects of terminations or net settlements on financial derivatives 720    (592)  
Issuance costs on the retirement of preferred stock —    (1,956)  
Income tax effect related to reconciling items (1,419)   (1,759)  
Sub-total 5,340    4,662   
Core earnings $ 26,347    $ 23,642   
Composition of Core Earnings:
Revenues:
Net effective spread(1)
$ 46,469    $ 41,355   
Guarantee and commitment fees(2)
4,943    5,276   
Other(3)
1,048    777   
Total revenues 52,460    47,408   
Credit related expense (GAAP):
Provision for losses 51    420   
REO operating expenses —    64   
Total credit related expense 51    484   
Operating expenses (GAAP):
Compensation and employee benefits 8,087    6,770   
General and administrative 5,295    4,689   
Regulatory fees 725    687   
Total operating expenses 14,107    12,146   
Net earnings 38,302    34,778   
Income tax expense(4)
8,016    7,351   
Preferred stock dividends (GAAP) 3,939    3,785   
Core earnings $ 26,347    $ 23,642   
Core earnings per share:
  Basic $ 2.46    $ 2.21   
  Diluted 2.45    2.20   
Weighted-average shares:
  Basic 10,730    10,698   
  Diluted 10,776    10,770   
(1)Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread.
(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

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(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

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Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings
For the Six Months Ended
June 30, 2020 June 30, 2019
(in thousands, except per share amounts)
Net income attributable to common stockholders $ 41,086    $ 50,178   
Less reconciling items:    
Gains on undesignated financial derivatives due to fair value changes (see Table 14) 2,216    12,725   
Losses on hedging activities due to fair value changes (8,601)   (4,255)  
Unrealized gains on trading securities 86    105   
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 38    (155)  
Net effects of terminations or net settlements on financial derivatives (580)   (482)  
Issuance costs on the retirement of preferred stock —    (1,956)  
Income tax effect related to reconciling items 1,437    (1,667)  
Sub-total (5,404)   4,315   
Core earnings $ 46,490    $ 45,863   
Composition of Core Earnings:
Revenues:
Net effective spread(1)
$ 90,632    $ 80,156   
Guarantee and commitment fees(2)
9,839    10,695   
Other(3)
1,722    1,286   
Total revenues 102,193    92,137   
Credit related expense (GAAP):
Provision for losses 3,882    27   
REO operating expenses —    64   
Gains on sale of REO (485)   —   
Total credit related expense 3,397    91   
Operating expenses (GAAP):
Compensation and employee benefits 18,214    14,376   
General and administrative 10,658    9,285   
Regulatory fees 1,450    1,375   
Total operating expenses 30,322    25,036   
Net earnings 68,474    67,010   
Income tax expense(4)
14,614    14,066   
Preferred stock dividends (GAAP) 7,370    7,081   
Core earnings $ 46,490    $ 45,863   
Core earnings per share:
  Basic $ 4.34    $ 4.29   
  Diluted 4.31    4.26   
Weighted-average shares:
  Basic 10,721    10,684   
  Diluted 10,779    10,774   
(1)Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net effective spread.

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(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.
(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Table 7
Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share
   For the Three Months Ended For the Six Months Ended
   June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(in thousands, except per share amounts)
GAAP - Basic EPS $ 2.95    $ 2.65    $ 3.83    $ 4.70   
Less reconciling items:
Gains on undesignated financial derivatives due to fair value changes (see Table 14) 0.81    0.98    0.21    1.19   
Losses on hedging activities due to fair value changes (0.25)   (0.13)   (0.80)   (0.39)  
Unrealized gains on trading securities —    0.01    0.01    0.01   
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value —    (0.01)   —    (0.01)  
Net effects of terminations or net settlements on financial derivatives 0.06    (0.06)   (0.06)   (0.05)  
Issuance costs on the retirement of preferred stock —    (0.18)   —    (0.18)  
Income tax effect related to reconciling items (0.13)   (0.17)   0.13    (0.16)  
Sub-total 0.49    0.44    (0.51)   0.41   
Core Earnings - Basic EPS $ 2.46    $ 2.21    $ 4.34    $ 4.29   
Shares used in per share calculation (GAAP and Core Earnings) 10,730    10,698    10,721    10,684   

Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share
   For the Three Months Ended For the Six Months Ended
   June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(in thousands, except per share amounts)
GAAP - Diluted EPS $ 2.94    $ 2.63    $ 3.81    $ 4.66   
Less reconciling items:
Gains on undesignated financial derivatives due to fair value changes (see Table 14) 0.81    0.96    0.21    1.17   
Losses on hedging activities due to fair value changes (0.25)   (0.14)   (0.80)   (0.40)  
Unrealized gains on trading securities —    0.01    0.01    0.01   
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value —    (0.01)   —    (0.01)  
Net effects of terminations or net settlements on financial derivatives 0.06    (0.05)   (0.05)   (0.04)  
Issuance costs on the retirement of preferred stock —    (0.18)   —    (0.18)  
Income tax effect related to reconciling items (0.13)   (0.16)   0.13    (0.15)  
Sub-total 0.49    0.43    (0.50)   0.40   
Core Earnings - Diluted EPS $ 2.45    $ 2.20    $ 4.31    $ 4.26   
Shares used in per share calculation (GAAP and Core Earnings) 10,776    10,770    10,779    10,774   


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The non-GAAP reconciling items between net income attributable to common stockholders and core earnings are:

1. Losses on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) (Losses)/gains on undesignated financial derivatives due to fair value changes; and (b) Losses on hedging activities due to fair value changes. The table below calculates the non-GAAP reconciling item for losses on hedging activities due to fair value changes:

Table 8
Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes
   For the Three Months Ended For the Six Months Ended
   June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
(in thousands)
Losses due to fair value changes (see Table 4.2) $ (2,381)   $ (1,428)   $ (8,062)   $ (4,128)  
Initial cash payment (received) at inception of swap (295)   (10)   (539)   (127)  
Losses on hedging activities due to fair value changes $ (2,676)   $ (1,438)   $ (8,601)   $ (4,255)  

2. Unrealized gains/(losses) on trading securities. The unrealized gains/(losses) on trading securities are reported on Farmer Mac's consolidated statements of operations, which represent changes during the period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the reporting period.
3. Amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount).
4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to:
Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years.
Initial cash payments received by Farmer Mac upon the inception of certain swaps. When there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. For GAAP purposes, changes in fair value of the swaps are recognized in "Gains on financial derivatives," while the economically offsetting discount on the associated hedged debt is amortized over the term of the debt as an adjustment to its yield. For purposes of core earnings, these initial cash payments are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years.
5. The recognition of deferred issuance costs on the retirement of the Series B Preferred Stock in second quarter 2019 has been excluded from core earnings because it is not a frequently occurring transaction, nor

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is it indicative of future operating results. This is consistent with Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred stock.
The following sections provide more detail about specific components of Farmer Mac's results of operations.

Net Interest Income.  The following table provides information about interest-earning assets and funding for the six months ended June 30, 2020 and 2019. The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis.  Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly.  The average balance of loans in consolidated trusts with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities.  The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts. 

Table 9
   For the Six Months Ended
  June 30, 2020 June 30, 2019
Average
Balance
Income/
Expense
Average
Rate
Average
Balance
Income/
Expense
Average
Rate
  (dollars in thousands)
Interest-earning assets:          
Cash and investments $ 3,839,155    $ 28,140    1.47  % $ 2,894,225    $ 38,863    2.69  %
Loans, Farmer Mac Guaranteed Securities and USDA Securities(1)
16,464,280    220,035    2.67  % 14,853,973    251,338    3.38  %
Total interest-earning assets 20,303,435    248,175    2.44  % 17,748,198    290,201    3.27  %
Funding:          
Notes payable due within one year 3,341,975    18,122    1.08  % 3,667,842    44,848    2.45  %
Notes payable due after one year(2)
16,676,078    143,897    1.73  % 13,421,483    165,479    2.47  %
Total interest-bearing liabilities(3)
20,018,053    162,019    1.62  % 17,089,325    210,327    2.46  %
Net non-interest-bearing funding 285,382    —      658,873    —     
Total funding 20,303,435    162,019    1.60  % 17,748,198    210,327    2.37  %
Net interest income/yield prior to consolidation of certain trusts 20,303,435    86,156    0.85  % 17,748,198    79,874    0.90  %
Net effect of consolidated trusts(4)
1,499,758    3,504    0.47  % 1,553,815    3,779    0.49  %
Net interest income/yield $ 21,803,193    $ 89,660    0.82  % $ 19,302,013    $ 83,653    0.87  %
(1)Excludes interest income of $29.3 million and $30.4 million, in the first half of 2020 and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties.
(2)Includes current portion of long-term notes.
(3)Excludes interest expense of $25.8 million and $26.7 million in the first half of 2020 and 2019, respectively, related to consolidated trusts with beneficial interests owned by third parties.
(4)Includes the effect of consolidated trusts with beneficial interests owned by third parties.

The $6.0 million year-over-year increase in net interest income was primarily due to net growth across all lines of business, which contributed $10.0 million towards the increase in net interest income. This increase was partially offset by the decrease of $3.9 million in net fair value changes from fair value hedge accounting relationships as a result of material changes in market interest rates.

In percentage terms, the decrease of 0.05% was primarily attributable to a decrease of 0.04% in net fair value changes from fair value hedge accounting relationships and an increase of 0.04% in funding and liquidity costs. These decreases were partially offset by an increase of 0.03% related to net volume growth.


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The following table sets forth information about changes in the components of Farmer Mac's net interest income prior to consolidation of certain trusts for the periods indicated.  For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate) and changes in rate (change in rate multiplied by old volume).  Combined rate/volume variances, the third element of the calculation, are allocated based on their relative size.  

Table 10
   For the Six Months Ended June 30, 2020 Compared to Same Period in 2019
  Increase/(Decrease) Due to
  Rate Volume Total
  (in thousands)
Income from interest-earning assets:      
Cash and investments $ (21,001)   $ 10,278    $ (10,723)  
Loans, Farmer Mac Guaranteed Securities and USDA Securities (56,602)   25,299    (31,303)  
Total (77,603)   35,577    (42,026)  
Expense from other interest-bearing liabilities (80,236)   31,928    (48,308)  
Change in net interest income prior to consolidation of certain trusts(1)
$ 2,633    $ 3,649    $ 6,282   
(1)Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties.

The following table presents a reconciliation of net interest income and net interest yield to net effective spread.  Net effective spread is measured by: including (1) expenses related to undesignated financial derivatives, which consists of income or expense related to contractual amounts due on financial derivatives not designated in hedge relationships (the income or expense related to financial derivatives designated in hedge accounting relationships is already included in net interest income), and (2) the amortization of losses due to terminations or net settlements of financial derivatives; and excluding (3) the amortization of premiums and discounts on assets consolidated at fair value, (4) the net effects of consolidated trusts with beneficial interests owned by third parties, and (5) the fair value changes of financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for more information about net effective spread.

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Table 11
   For the Three Months Ended For the Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
  Dollars Yield Dollars Yield Dollars Yield Dollars Yield
  (dollars in thousands)
Net interest income/yield $ 48,348    0.87  % $ 43,054    0.87  % $ 89,660    0.82  % $ 83,653    0.87  %
Net effects of consolidated trusts (1,804)   0.02  % (1,873)   0.03  % (3,505)   0.03  % (3,778)   0.03  %
Expense related to undesignated financial derivatives (2,413)   (0.05) % (1,557)   (0.03) % (3,603)   (0.04) % (4,102)   (0.05) %
Amortization of premiums/discounts on assets consolidated at fair value (21)   —  % 289    0.01  % (10)   —  % 311    —  %
Amortization of losses due to terminations or net settlements on financial derivatives (22)   —  % 14    —  % 27    —  % (56)   —  %
Fair value changes on fair value hedge relationships 2,381    0.05  % 1,428    0.03  % 8,063    0.08  % 4,128    0.05  %
Net effective spread $ 46,469    0.89  % $ 41,355    0.91  % $ 90,632    0.89  % $ 80,156    0.90  %

For the three months ended June 30, 2020 compared to the same period in 2019, the $5.1 million increase in net effective spread in dollars was primarily due to growth in outstanding business volume, which increased net effective spread by approximately $5.5 million.

For the first six months of 2020 compared to the same period in 2019, the $10.5 million increase in net effective spread in dollars was primarily due to growth in outstanding business volume, which increased net effective spread by approximately $10.0 million.

See Note 10 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business.


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Provision for and Release of Allowance for Losses and Reserve for Losses. The following table summarizes the components of Farmer Mac's total allowance for losses for the three and six months ended June 30, 2020 and 2019:

Table 12
As of June 30, 2020 As of June 30, 2019
Allowance
for
Losses
Reserve
for Losses
Total
Allowance
for Losses
Allowance
for
Losses
Reserve
for Losses
Total
Allowance
for Losses
(in thousands)
For the Three Months Ended:
Beginning balance $ 15,685    $ 3,420    $ 19,105    $ 6,753    $ 2,038    $ 8,791   
Provision for/(release of) losses 467    (400)   67    578    (158)   420   
Charge-offs (394)   —    (394)   (67)   —    (67)  
Ending Balance $ 15,758    $ 3,020    $ 18,778    $ 7,264    $ 1,880    $ 9,144   
For the Six Months Ended:
Beginning balance $ 10,454    $ 2,164    $ 12,618    $ 7,017    $ 2,167    $ 9,184   
Cumulative effect adjustment from adoption of current expected credit loss standard 1,793    863    2,656    —    —    —   
Adjusted beginning balance 12,247    3,027    15,274    7,017    2,167    9,184   
Provision for/(release of) losses 3,905    (7)   3,898    314    (287)   27   
Charge-offs (394)   —    (394)   (67)   —    (67)  
Ending balance $ 15,758    $ 3,020    $ 18,778    $ 7,264    $ 1,880    $ 9,144   

The cumulative effect adjustment from the adoption of CECL on January 1, 2020 was $2.7 million and was recorded directly to retained earnings, net of tax. The transition adjustment was the difference between (1) the total allowance for losses on December 31, 2019 that reflected probable incurred losses and (2) the total allowance for losses on January 1, 2020 that reflected expected losses.

The cumulative effect adjustment for credit losses on on-balance sheet assets was $1.8 million and was comprised of an increase of $5.4 million to the allowance for losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a $3.6 million decrease in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities. Although Farmer Mac has never experienced any credit losses in its portfolio of Rural Utilities loans and Farmer Mac Guaranteed Securities, our estimate of expected losses is based upon reasonable and supportable forecasts over the expected lives of these assets. The reduction in the allowance for losses on Farm & Ranch loans and Farmer Mac Guaranteed Securities reflects the expected recovery rate based on loan-to-value ratios in those portfolios.

The cumulative effect adjustment for credit losses on LTSPCs was $0.9 million and was comprised of an increase of $1.0 million on Rural Utilities LTSPCs and a decrease of $0.1 million on Farm & Ranch LTSPCs.

In second quarter 2020, our forecasts continue to include the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment. Primarily due to the stabilization of credit spreads in the second quarter, Farmer Mac recorded a lower total provision for losses than in the first quarter. The total provision for loan losses in the second quarter was approximately $0.1 million.

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The provision to Farmer Mac's allowance for losses for on-balance sheet assets was $0.5 million and was comprised of $1.4 million for expected losses on Rural Utilities loans and Farmer Mac Guaranteed Securities and a release of $0.9 million on Farm & Ranch loans and Farmer Mac Guaranteed Securities. Updates to our economic factor forecast in the second quarter had a negative impact on the Rural Utilities portfolio, where the positive impacts of stabilizing credit spreads were more than offset by net business volume growth and continued uncertainty surrounding unemployment expectations for the next 12 months. Conversely, updated second quarter economic factors had a positive impact on our Farm & Ranch portfolio where improving commodity prices and lower expected volatility in land values decreased expected losses for our lowest risk-rated assets. The release from Farmer Mac's reserve for losses on LTSPCs was $0.4 million, was primarily related to Farm & Ranch LTSPCs, and was driven by decreased volume in that portfolio in the second quarter.

Our estimates of expected losses are based on historical information and reasonable and supportable forecasts. Our reasonable and supportable forecasts incorporate economic factor forecasts and are sensitive to changes in those economics factor forecasts. As of June 30, 2020, our estimate of expected credit losses considered the economic volatility from the COVID-19 pandemic. In particular, the stabilization of credit spreads and continued uncertainty in unemployment expectations were the two economic factors that had the most significant impact. These economic factors also had a more significant impact on our estimate of expected losses in Farmer Mac's Rural Utilities portfolio than in the Farm & Ranch portfolio because of stable farm land values and stable credit quality in the Farm & Ranch portfolio during both the first and second quarters. Notwithstanding the impact of improved economic conditions as of the end of the second quarter, growth in net outstanding business volume across three of our portfolios caused Farmer Mac to record a provision for expected credit losses of approximately $0.1 million. However, a charge-off to the allowance of $0.4 million decreased Farmer Mac's total allowance for losses by $0.4 million compared to the end of the first quarter.

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

Guarantee and Commitment Fees.  The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the three and six months ended June 30, 2020 and 2019:

Table 13
For the Three Months Ended For the Six Months Ended
Change Change
June 30, 2020 June 30, 2019 $ % June 30, 2020 June 30, 2019 $ %
(dollars in thousands)
Guarantee and commitment fees 3,140    3,403    $ (263)   (8) % $ 6,336    $ 6,916    $ (580)   (8) %

In Farmer Mac's presentation of core earnings, guarantee and commitment fees include interest income and interest expense related to consolidated trusts owned by third parties to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. The decrease in guarantee and commitment fees for the three and six months ended June 30, 2020 compared to the same periods in 2019 was primarily due to decreased LTSPC volume. As

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adjusted for the core earnings presentation, guarantee and commitment fees were $4.9 million and $9.8 million for the three and six months ended June 30, 2020, respectively, compared to $5.3 million and $10.7 million for the three and six months ended June 30, 2019, respectively.

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

Gains/(losses) on financial derivatives.  The components of gains and losses on financial derivatives for the three and six months ended June 30, 2020 and 2019 are summarized in the following table:

Table 14
  For the Three Months Ended For the Six Months Ended
Change Change
  June 30, 2020 June 30, 2019 $ % June 30, 2020 June 30, 2019 $ %
  (dollars in thousands)
Gains due to fair value changes $ 8,700    $ 10,485    $ (1,785)   (17) % $ 2,216    $ 12,725    $ (10,509)   (83) %
Accrual of contractual payments (2,413)   (1,557)   (856)   55  % (3,603)   (4,101)   498    (12) %
Gains/(losses) due to terminations or net settlements 236    (15)   251    (1,673) % (1,388)   (71)   (1,317)   1,855  %
Gains/(losses) on financial derivatives $ 6,523    $ 8,913    $ (2,390)   (27) % $ (2,775)   $ 8,553    $ (11,328)   (132) %

These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "Gains/(losses) due to terminations or net settlements" in the table above. For undesignated swaps, when there is no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt. Changes in the fair value of these swaps are recognized immediately in "Gains/(losses) on financial derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an adjustment to its yield. The amounts of initial cash payments received by Farmer Mac vary depending on the number of the aforementioned type of swaps it executes during a quarter.


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Other Income. The following table presents other income for the three and six months ended June 30, 2020 and 2019:

Table 15
  For the Three Months Ended For the Six Months Ended
Change Change
  June 30, 2020 June 30, 2019 $ % June 30, 2020 June 30, 2019 $ %
  (dollars in thousands)
Late fees $ 296    $ 154    $ 142    92  % $ 887    $ 569    $ 318    56  %
Other 933    201    732    364  % 1,158    279    879    315  %
Total other income $ 1,229    $ 355    $ 874    246  % $ 2,045    $ 848    $ 1,197    141  %

The increase in other fees is primarily due to an increase in the fees received from borrowers to modify their long-term fixed borrowing rate to a new lower rate.

Operating Expenses. The components of operating expenses for the three and six months ended June 30, 2020 and 2019 are summarized in the following table:

Table 16
  For the Three Months Ended For the Six Months Ended
Change Change
  June 30, 2020 June 30, 2019 $ % June 30, 2020 June 30, 2019 $ %
  (dollars in thousands)
Compensation and employee benefits 8,087    $ 6,770    $ 1,317    19  % $ 18,214    $ 14,376    $ 3,838    27  %
General and administrative 5,295    4,689    606    13  % 10,658    9,285    1,373    15  %
Regulatory fees 725    687    38    % 1,450    1,375    75    %
Total Operating Expenses $ 14,107    $ 12,146    $ 1,961    16  % $ 30,322    $ 25,036    $ 5,286    21  %

a.Compensation and Employee Benefits. The increase in compensation and employee benefits expenses for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower than expected bonus payments in the prior year period and increased headcount in the current period. The increase in compensation and employee benefits expenses for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to an increase in bonus expense in first quarter 2020 due to 2019 financial performance and the severance payments made to an executive who resigned in first quarter 2020.

b.General and Administrative Expenses (G&A). The increase in G&A expenses for the three and six months ended June 30, 2020 compared to the same periods in 2019 was primarily due to increased spending on software licenses and information technology consultants to support growth and strategic initiatives.


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Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the three and six months ended June 30, 2020 and 2019:

Table 17
  For the Three Months Ended For the Six Months Ended
Change Change
  June 30, 2020 June 30, 2019 $ % June 30, 2020 June 30, 2019 $ %
  (dollars in thousands)
Income tax expense $ 9,435    $ 9,111    $ 324    % $ 13,176    $ 15,733    $ (2,557)   (16) %
Effective tax rate 20.9  % 21.1  % (0.2) % 21.4  % 21.0  % 0.4  %


Business Volume.  

The following table sets forth the net growth or decrease under Farmer Mac's lines of business for the three and six months ended June 30, 2020 and 2019:

Table 18
Net New Business Volume – Farmer Mac Loan Purchases, Guarantees, LTSPCs, and AgVantage Securities
  For the Three Months Ended For the Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease) Net Growth/(Decrease)
  (in thousands)
Farm & Ranch:
Loans $ 259,130    $ 143,361    $ 340,956    $ 165,936   
LTSPCs (52,874)   (67,594)   (100,055)   (108,556)  
USDA Guarantees:
USDA Securities 72,194    14,392    116,538    (25,252)  
Farmer Mac Guaranteed USDA Securities (40,594)   22,223    (58,907)   31,026   
Rural Utilities:
Loans 311,843    98,049    430,276    588,307   
LTSPCs (5,632)   (17,092)   (19,226)   (24,752)  
Institutional Credit:
AgVantage securities (41,271)   46,483    214,584    395,501   
Total purchases, guarantees, LTSPCs, and AgVantage securities $ 502,796    $ 239,822    $ 924,166    $ 1,022,210   

Farmer Mac's net business volume growth of $502.8 million in second quarter 2020 was $263.0 million more than the $239.8 million of net growth achieved in second quarter 2019. The increase in second quarter 2020 was primarily attributable to historically low interest rates that drove strong market demand by borrowers seeking to take advantage of low interest rates on long-term funding.

Our outstanding business volume was $22.0 billion as of June 30, 2020, a net increase of $502.8 million from March 31, 2020, after taking into account all new business, maturities, and repayments on existing assets. This net increase consisted of increases of $306.2 million in Rural Utilities, $206.3 million in Farm & Ranch, and $31.6 million in the USDA Guarantees line of business, partially offset by a decrease of $41.3 million in Institutional Credit.

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The $306.2 million net growth in our Rural Utilities line of business during second quarter 2020 was primarily due to the purchase of $339.4 million in loans from the two main counterparties in that line of business, partially offset by regularly scheduled payments, prepayments, and maturities of loans previously purchased and loans under LTSPCs.

The $206.3 million net increase in our Farm & Ranch line of business was comprised of a $259.1 million net increase in outstanding loan purchase volume, partially offset by a $52.8 million net decrease in loans under LTSPCs. The net growth in second quarter 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with our customers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs. Our net growth of 18.2% in Farm & Ranch loan purchases over the twelve months ended June 30, 2020 is significantly higher than the 3.1% net growth of the overall agricultural mortgage loan market over the twelve months ended March 31, 2020 (based on our analysis of bank and Farm Credit System call report data).

Our USDA Guarantees line of business grew by $31.6 million in second quarter 2020. The second quarter gross volume of $224.0 million was the highest gross volume that we have ever recorded in any quarter. When added to the $147.9 million, it is the most gross business volume in USDA Guarantees that Farmer Mac has recorded in any six-month period. This growth reflected the positive effect of adjustments that we made to our product structure in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased loan limits mandated by the 2018 Farm Bill described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report.

The $41.3 million net decrease in the Institutional Credit line of business during second quarter 2020 was due primarily to two large counterparties who reduced their amount of outstanding credit in connection with the maturity of one bond and regularly scheduled payments on multiple bonds. We also experienced a slight net increase from smaller fund counterparties.

For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report.

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

Table 19
  For the Three Months Ended For the Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
  (in thousands)
Loans securitized and sold as Farm & Ranch Guaranteed Securities $ —    $ 20,224    $ 28,050    $ 118,004   
Farmer Mac Guaranteed USDA Securities —    29,419    28,050    48,347   
AgVantage securities 430,024    659,447    990,419    1,484,864   
Total Farmer Mac Guaranteed Securities Issuances $ 430,024    $ 709,090    $ 1,046,519    $ 1,651,215   

Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac Guaranteed Securities backed by those loans.  The weighted-average age of the Farm & Ranch non-delinquent eligible loans purchased and retained (excluding the purchases of defaulted loans) during both

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second quarter 2020 and 2019 was less than one year. Of those loans, 25% and 63% had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining term to maturity of 15.0 years for both periods.

During second quarter 2020 and 2019, Farmer Mac securitized some of the Farm & Ranch loans it had purchased and sold the resulting Farmer Mac Guaranteed Securities, as shown below. During the three and six months ended June 30, 2020 and 2019, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities or USDA Securities. Farmer Mac consolidates these loans and presents them as "Loans held for investment in consolidated trusts, at amortized cost" on the consolidated balance sheets. For the three and six months ended June 30, 2020, none of our Farmer Mac Guaranteed Securities were sold to a related party to Farmer Mac, compared to none and $63.1 million of our Farmer Mac Guaranteed Securities were sold to a related party to Farmer Mac (which is related by virtue of its owning more than 10% of Farmer Mac's Class A voting common stock) for the same periods in 2019, respectively.

The following table sets forth information about outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:

Table 20
Lines of Business - Outstanding Business Volume
  As of June 30, 2020 As of December 31, 2019
  (in thousands)
Farm & Ranch:
Loans $ 4,181,422    $ 3,675,640   
Loans held in trusts:
Beneficial interests owned by third party investors 1,436,090    1,600,917   
LTSPCs 2,310,113    2,393,071   
Guaranteed Securities 90,225    107,322   
USDA Guarantees:
USDA Securities 2,314,961    2,199,072   
Farmer Mac Guaranteed USDA Securities 362,846    421,103   
Rural Utilities:
Loans 2,101,568    1,671,293   
LTSPCs(1)
590,053    609,278   
Institutional Credit
AgVantage Securities 8,654,830    8,440,246   
Total $ 22,042,108    $ 21,117,942   
(1)As of both June 30, 2020 and December 31, 2019, includes $20.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee.



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The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of June 30, 2020:

Table 21
Schedule of Principal Amortization as of June 30, 2020
Loans Held Loans Underlying Off-Balance Sheet Farmer Mac Guaranteed Securities and LTSPCs  USDA Securities and Farmer Mac Guaranteed USDA Securities Total
(in thousands)
2020 $ 152,425    $ 106,391    $ 59,137    $ 317,953   
2021 336,225    281,270    116,557    734,052   
2022 330,914    224,825    117,421    673,160   
2023 333,244    210,451    121,362    665,057   
2024 328,160    176,133    119,630    623,923   
Thereafter 6,238,112    1,991,321    2,143,700    10,373,133   
Total $ 7,719,080    $ 2,990,391    $ 2,677,807    $ 13,387,278   

Of the $22.0 billion outstanding principal balance of volume included in Farmer Mac's four lines of business as of June 30, 2020, $8.7 billion were AgVantage securities included in the Institutional Credit line of business.  Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of June 30, 2020:

Table 22
AgVantage Balances by Year of Maturity
  As of
  June 30, 2020
  (in thousands)
2020 $ 1,157,737   
2021 1,692,298   
2022 1,582,868   
2023 964,527   
2024 828,108   
Thereafter(1)
2,429,292   
Total $ 8,654,830   
(1)Includes various maturities ranging from 2025 to 2044.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.7 years as of June 30, 2020.  


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Outlook  

Farmer Mac continues to provide a stable source of liquidity, capital, and risk management tools as the secondary market that helps meet the financing needs of rural America. The pace of Farmer Mac’s growth will depend on the capital and liquidity needs of the lending institutions in the agricultural and rural financing business as well as the overall health of agriculture and rural borrowers in the sectors we serve.
Farmer Mac foresees opportunities for growth across our lines of business driven by several key factors:

As agricultural and rural utilities lenders seek to manage equity capital and return on equity capital requirements or seek to reduce exposure due to lending limits or concentration limits, Farmer Mac can provide relief for those institutions through loan and portfolio purchases, participations, guarantees, LTSPCs, or wholesale funding.

While overall loan growth within the rural utilities industry appears to be moderate in the near term due to generally flat demand for capital, future growth opportunities may increase in Farmer Mac’s Rural Utilities line of business from deepening business relationships with eligible counterparties and exploring new types of loan products. These opportunities may be limited by sector growth, credit quality, and the competitiveness of Farmer Mac’s products.

As a result of business and product development efforts, and continued interest in the agricultural asset class from institutional investors, Farmer Mac’s customer base and product set continue to expand, which may generate more demand for Farmer Mac’s products from new sources.

Consolidation within the agricultural finance industry, coupled with Farmer Mac’s relationships with larger regional and national lenders, continue to provide opportunities that could influence Farmer Mac’s loan demand and increase the average transaction size within Farmer Mac’s Farm & Ranch line of business.

Expansion and refinancing opportunities for agricultural producers resulting from a decrease in interest rates have increased financing requirements for mergers and acquisitions, consolidation, and vertical integration across many sectors of the agricultural industry, which may also generate demand for Farmer Mac’s loan products.

The COVID-19 pandemic and related efforts to contain it continue to create disruptions to the global economy. Government stimulus programs designed to mitigate the economic impacts of the pandemic as well as significant liquidity support by the Federal Reserve to facilitate the functioning of the capital markets has endeavored to reduce volatility to the economy and the sectors we serve. However, the duration, severity, and continued spread of the pandemic and the effectiveness of government efforts taken to contain COVID-19 and mitigate public health and economic effects continue to evolve and remain uncertain. For a further discussion of the uncertainties and risks associated with the COVID-19 pandemic on Farmer Mac and its business, see the factors discussed under "Risk Factors" in Part II, Item 1A of this report,

The pandemic's effect on our growth objectives and outlook will depend on many factors, including:

How quickly and to what extent affected rural borrowers can recover from the negative economic impact of the pandemic and recession, how quickly normal economic and operating conditions can resume, and whether there are lingering effects to the economy after the COVID-19 pandemic is

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over as a result of the disruption to the global economy, the domestic agricultural economy, and recession.

Increasing borrowers' payment deferral requests and the duration of approved deferrals, including payments made to holders of Farmer Mac Guaranteed Securities to cover principal and interest shortfalls, could consume some capital which would otherwise have been available for certain planned growth initiatives. For more information about the impact of COVID-19 on Farmer Mac's payment deferral requests received to date, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees."

Stress on commodity and agriculture exports as a result of global trade disruptions caused by the COVID-19 pandemic and geopolitical trade disputes, which could create downward pressure on commodity prices and further stress borrowers’ liquidity and negatively impact loan growth opportunities.

The inability of borrowers in the pandemic to close on agricultural or renewable energy loans due to limited access to local or state administrative offices, delays in receiving equipment components, installation inefficiencies caused by social distancing among workers, and difficulties in obtaining inspections and grid interconnection on a timely basis could limit our opportunities to purchase agricultural or renewable energy loans.

Delays and postponements of planned or potential mergers and acquisitions, consolidations, and vertical integrations as a result of COVID-19 and, consequently, a potential reduction in the need for Farmer Mac’s products and services until the global economy recovers and the flow of transactions returns to pre-pandemic levels.

Disruptions in the capital markets and the widening of credit spreads could impact Farmer Mac’s funding costs and could result in higher interest rates charged for our products and services, which could adversely affect our competitiveness in the sectors we serve.

Farmer Mac’s mission is to support rural America during this pandemic, and the disruptions caused by COVID-19 may present some new and expanded opportunities for Farmer Mac to help meet the financing needs of rural America. Rural electric cooperatives financed by Farmer Mac could have an increased demand for temporary liquidity if COVID-19 related state moratoriums protecting consumers against utility providers taking actions due to non-payment of power bills continue for a significant period of time. If borrowers seek to obtain additional financing and liquidity from lenders to maintain operations and production during this time, or to make up for lost productivity due to shutdowns, delays, and social distancing requirements, these short-term funding requirements could create additional growth opportunities for Farmer Mac as other lenders look to manage lending limits and credit concentrations as short-term financing demands arise.

Financial market volatility, coupled with uncertainty regarding the long-term impacts of the pandemic, is causing some financial institutions to delay or cease capital deployment to many sectors that Farmer Mac serves. While these reductions could reduce our loan purchase opportunities, Farmer Mac could also provide a much-needed source of secondary market liquidity to help stimulate capital deployment during this time of uncertainty.


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Operating Expense. Farmer Mac continues to expand its investments in human capital, technology, and business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth opportunities and achieve its long-term strategic objectives. Accordingly, Farmer Mac expects continued increases in its operating expenses over the next several years corresponding to business and revenue growth. We expect these efforts to continue and increase through 2020 as we innovate and grow our business.

Operations. On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating uninterruptedly since then, with all of its employees working remotely from their homes. Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and business continuity plan have been functioning as designed in support of all functions of the organization with no material disruption of business. As a secondary market participant in the agricultural and rural utility lending space, Farmer Mac's business model is already based on a remote interface with its customers and vendors. We do not expect Farmer Mac's remote-working environment to have a material effect on our operations either in the near term or for the foreseeable future.

Agricultural Industry. The agricultural industry includes many diverse sectors that respond in different ways to changes in economic conditions. Those individual sectors often are affected differently, sometimes positively and sometimes negatively, by prevailing domestic and global economic factors and regional weather conditions. The interconnectedness between sectors typically results in cycles where one or more segments may be under stress while others are not.

The COVID-19 pandemic continues to impact the agricultural sector, although economic conditions improved somewhat during second quarter 2020. Sudden school and restaurant closures in March and April dramatically altered the supply and demand functions for food. U.S. Census Advance Retail Sales Data indicates that, after dropping 50 percent in April, U.S. consumer spending for food services away from home rebounded to 75 percent of normal. Much of the decline has been picked up in consumer spending at grocery stores, which was up more than 10 percent in June 2020 compared to the prior year. Farm production and food processing take a higher net margin of the food dollar spent at home, so the shift of consumer spending on food at home could offset some of the losses from sales to restaurants and schools. According to data from the U.S. Energy Information Administration, after dropping nearly 50 percent in April, ethanol production rebounded to 89 percent of pre-pandemic levels in June and July as drivers returned to the roads. Ethanol is a primary demand driver for corn. Agricultural commodity prices, although still down significantly in 2020, pared losses in May and June as markets adjusted to the economic shocks. Farm labor and food processing worker health and availability remain a top industry concern as a resurgence of COVID-19 cases could adversely affect the harvest of fresh fruit and produce as well as food processing in the second half of the year.

The decline in revenue during the first half of 2020 has multiple potential offsets to help support producers’ profitability. First, farm expenses fell for many producers during the first half of 2020. Lower energy prices improved the cost of fuel and fertilizer ahead of the planting season. Lower grain prices led to a decrease in animal feed input costs, and lower replacement animal prices improved the cost structure for many protein producers. Second, USDA issued a final $3.7 billion Market Facilitation Program (MFP) cash payment in April and May 2020 to address market losses from trade disruptions. Third, in response to the COVID-19 pandemic, Congress passed a series of measures, including the CARES Act on March 27, 2020, which provided over $2 trillion in economic stimulus to support various aspects of the U.S. economy. The CARES Act contained a $9.5 billion emergency fund for the USDA aimed toward

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providing help to livestock, dairy, and produce providers who sell locally. It also included a $14 billion replenishment of the Commodity Credit Corporation ("CCC"), a line of credit at the U.S. Treasury Department that USDA can use to help crop and livestock producers. In April 2020, the USDA announced that it would provide $19 billion of assistance through the Coronavirus Food Assistance Program ("CFAP"). CFAP used the funding and authorities provided in the CARES Act, the Families First Coronavirus Response Act, and other USDA existing authorites to provide $16 billion in direct payments to distribute to producers and $3 billion in food purchases. As of July 27, 2020, the USDA had distributed $6.6 billion in CFAP payments. Farmers and ranchers were also eligible to participate in the Small Business Administration’s Paycheck Protection Program (PPP). Through July 24, 2020, more than $7.9 billion in PPP loans had been disbursed to businesses involved in agriculture, forestry, fishing, and hunting.

Farmland values have held steady in early 2020 after rising at approximately the rate of inflation for the last two years. Data released in 2019 by the USDA indicates an average decrease in farm real estate values of 0.2% in 2019 in Corn Belt states (Illinois, Indiana, Iowa, Missouri, and Ohio), but an increase of 2.8% in Northern Plains states (Kansas, Nebraska, North Dakota, and South Dakota). In all other regions, farmland value averages are reported to be flat to increasing. The COVID-19 pandemic has slowed public auctions and sales in 2020, but transactions have progressed, and values have been largely level through the first half of the year. While regional averages for farmland values provide a good barometer for the overall movement in U.S. farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility than state or national averages indicate.

Over the past few decades, the U.S. agricultural industry has become increasingly connected to global trade, and agricultural export demand depends significantly on trading relationships in numerous foreign markets, as well as on foreign exchange rates. A prolonged decline in global economic growth or continued tightening in trade policies and agreements could adversely affect the demand for certain U.S. agricultural exports, which may result in downward pressure on commodity prices. Also, the strength of the U.S. dollar relative to trading-partner currencies has been elevated since 2016 (as measured by the U.S. Dollar Index). A strong U.S. dollar decreases the competitiveness of U.S. agricultural exports by raising U.S. prices relative to other countries’ producers. The value of the U.S. dollar weakened in June and July, providing some relief to export sales. However, the COVID-19 pandemic has the potential to disrupt global demand for U.S. agriculture into 2021 due to lower incomes and reduced economic activity. Many of the primary trading partners and the U.S. maintain good trade relations evidenced by recently-enacted free trade agreements (e.g., Canada, Mexico, and Japan). Relations have become increasingly tense with China, another top U.S. agricultural trading partner. Agricultural export sales to China are up year-to-date in 2020 compared to 2019, but there exists increasing uncertainty surrounding growth expectations for this market.

Farmer Mac has experienced higher 90-day delinquencies and substandard asset ratings in recent quarters. The increase is a function of agricultural cycles trending toward tighter industry profitability levels compared to peaks experienced from 2012 to 2015. To date, the fluctuations in 90-day delinquencies and the increase in substandard assets have not yet translated into rising credit losses. Farmer Mac believes that its portfolio is highly diversified, both geographically and by commodity and that its portfolio has been underwritten to high credit quality standards. Therefore, Farmer Mac believes that its portfolio is well-positioned to endure reasonably foreseeable volatility in commodity prices and farmland values. However, the COVID-19 pandemic and a subsequent economic downturn increases the level of uncertainty inherent in the agricultural credit sector and could alter the trajectory of the current agricultural cycle. A prolonged disruption may result in elevated loan delinquencies, and a higher

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percentage of loans rated substandard as more payments reach 90-days past their July 1 payment due date. Loan deferments approved by Farmer Mac through June 30, 2020 represent 1.1% of our total outstanding business volume, as measured by unpaid principal balance. This amount could fluctuate in future quarters based on loan performance and economic conditions in the coming months, but roughly 80 percent of Farm & Ranch and USDA loans had a payment due on July 1. For more information about the loan balances, loan-to-value ratios, 90-day delinquencies, and substandard asset rate for the Farm & Ranch loans in Farmer Mac’s portfolio as of June 30, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and Guarantees."

Under a provision of the Agricultural Improvement Act of 2018, also referred to as the "Farm Bill," Farmer Mac's charter was amended effective June 18, 2020 to expand the acreage exception to the loan amount limitation on Farm & Ranch loans (currently $13.2 million) from 1,000 acres to 2,000 acres, meaning that the statutory loan amount limitation does not apply to Farm & Ranch loans secured by 2,000 acres of agricultural real estate or less. Farmer Mac will continue to evaluate this increase in the acreage limitation to determine the potential benefits to Farmer Mac's customers and the related effects on our business. The Farm Bill also increased the authorized limit for the amount of new guarantees issued by the USDA under the Consolidated Farm and Rural Development Act (which are eligible for Farmer Mac's USDA Guarantees line of business) from $3.026 billion to $7.0 billion for each government fiscal year through September 2023. Also, the limit for the size of individual loans to which these guarantees are applied was increased from $1.399 million to $1.75 million, which thereby increases the authorized amount of the USDA-guaranteed portion for an individual loan. These higher loan limits likely contributed to additional growth in the USDA Guarantees purchased by Farmer Mac during the first half of 2020, and they could result in more increases in new business volume in our USDA Guarantees line of business in the future.

Farmer Mac also continues to monitor state legislation and regulations that could impact U.S. agriculture. For example, groundwater management regulations, including in California, may result in tighter restrictions on groundwater usage that could affect agricultural producers in the future. Farmer Mac will monitor the effects that any changes in legislation or regulation (federal or state) could have on Farmer Mac or its customers.

Rural Utilities Industry.

The rural energy industry has less cyclicality than the agricultural sector, but it does trend with conditions in the general economy. Higher levels of unemployment and adverse credit markets are typically associated with drops in energy demand (i.e., lower commercial, industrial, or residential demand) and increases in industry ratings downgrades. The economic distress caused by the COVID-19 pandemic has led to historic levels of unemployment as well as reduced demand from the commercial and industrial sectors. According to data from the U.S. Energy Information Administration, electricity sales to commercial and industrial consumers dropped 12 percent in April and May 2020 compared to 2019. However, residential sales during the same period were up nearly 7 percent compared to 2019 as residents spent more time at home during state, local, and self-imposed quarantines. Residential power sales are typically significantly more profitable than those for commercial and industrial consumers, thus some of the profitability reduction from the loss of commercial and industrial sales can be offset by the change in sales mix. Sector sales mix varies from utility to utility based on the characteristics of the region served by the utility, so the degree of profitability offset will differ. Some rural electric cooperatives participated in the Paycheck Protection Program (PPP) and received forgivable loans through that program, which are

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another potential source to offset any profitability reduction. The COVID-19 pandemic has also highlighted the greater need for and interest in access to broadband internet in rural areas, and there was more than $300 million in support authorized in the CARES Act to support healthcare industry telecommunications and rural broadband grants. Farmer Mac expects the heightened level of uncertainty surrounding the economic impacts of COVID-19 to continue throughout 2020.

During the first half of 2020, the sudden decrease of interest rates to historic lows drove a significant amount of financing activity on the part of rural electric cooperatives. Prospects for loan growth within the rural utilities industry overall appear to be moderate in the short to medium term as capital expenditures for large generation assets have decreased, although ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure are expected to continue. Farmer Mac's future growth opportunities for lending to the electrical cooperative industry may be affected by the demand for electric power in rural areas, capital expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a low interest rate environment, and competitive dynamics within the rural utilities cooperative finance industry. The retirement of coal generation assets, growth in renewable energy generation, deployment of energy storage technologies, expansion of broadband service in rural areas, and the deepening of relationships with new and existing counterparties, all may provide new business opportunities for Farmer Mac. To address some of these trends, Farmer Mac has deployed new financing products tailored to the renewable energy sector, which represents a new market opportunity for Farmer Mac. Under this new program, Farmer Mac purchased a participation interest in a solar project financing in late 2019 and additional solar project participation interests from a new counterparty during first quarter 2020. Farmer Mac anticipates further growth in this area during 2020.


Balance Sheet Review

The following table summarizes the balance sheet as of the periods indicated:

Table 23
As of Change
June 30, 2020 December 31, 2019 $ %
(in thousands)
Assets
Cash and cash equivalents $ 827,600    $ 604,381    $ 223,219    37  %
Investment securities, net of allowance 3,512,410    3,004,875    507,535    17  %
Farmer Mac Guaranteed Securities, net of allowance 9,039,105    8,590,476    448,629    %
USDA Securities 2,347,709    2,241,073    106,636    %
Loans, net of allowance 7,891,148    6,981,440    909,708    13  %
Other 314,684    287,129    27,555    10  %
Total assets $ 23,932,656    23,932,656    $ 21,709,374    $ 2,223,282    10  %
Liabilities
Notes Payable 21,421,550    19,098,648    2,322,902    12  %
Other 1,686,990    1,811,450    (124,460)   (7) %
Total liabilities $ 23,108,540    $ 20,910,098    $ 2,198,442    2198442 11  %
Total equity 824,116    799,276    24,840    %
Total liabilities and equity $ 23,932,656    $ 21,709,374    $ 2,223,282    10  %

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Assets. The increase in total assets was primarily attributable to the net growth in our outstanding business volume across all lines of business.

The increase in cash and cash equivalents and investment securities was primarily due to a decision to increase our liquidity investment portfolio due to the COVID-19 pandemic and to support our program asset growth.

Liabilities. The increase in total liabilities was primarily due to an increase in total notes payable to support our program asset growth.

Equity. The increase in total equity was primarily due to the issuance of Series E Preferred Stock and an increase in net income. These increases were partially offset by an increase in other comprehensive losses, net of tax, primarily due to decreases in the fair value of available-for-sale securities and financial derivatives designated in cash flow hedge accounting relationships.

Off-Balance Sheet Arrangements 

Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed Securities, which are available through each of the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business; and (2) LTSPCs, which are available through the Farm & Ranch and Rural Utilities lines of business. For securitization trusts where Farmer Mac is the primary beneficiary, the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet. For securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation, both of these alternatives create off-balance sheet obligations for Farmer Mac. See Note 6 to the consolidated financial statements for more information about consolidation and Farmer Mac's off-balance sheet business activities.

Risk Management

Credit Risk – Loans and Guarantees.  

COVID-19

Farmer Mac continues to monitor the effects of the COVID-19 pandemic on Farmer Mac's credit risk related to Farmer Mac's borrower exposures. Since first quarter 2020, Farmer Mac has seen an increase in payment deferment requests from its network of loan servicers on behalf of borrowers in Farmer Mac's Farm & Ranch loan portfolio, although deferment requests have been below our expectations. Our early expectations for payment deferment requests were based on forecasts provided by other GSEs and other Farm Credit System institutions. To address the requests that we have received, Farmer Mac has established criteria for approval of payment deferments for borrowers impacted by the COVID-19 pandemic and have communicated these criteria to key counterparties. Farmer Mac will monitor the criteria as the impact of the pandemic continues to unfold and determine if any changes should be made. Most of the payment deferments Farmer Mac has approved and executed for loans it has purchased or securitized in its Farm & Ranch portfolio have been for up to six months, with the deferred principal and interest payments capitalized into the unpaid principal balance of the loan. The unpaid principal balance is then re-amortized over the remaining term of the loan. Approved and executed payment deferments for loans in LTSPCs have varied from three-month payment deferments for principal and interest to deferred

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interest-only payments for up to twelve months, depending on the applicable LTSPC lender's deferment policy. As of June 30, 2020, we have executed payment deferments in the Farm & Ranch and USDA Securities portfolios related to an aggregate of $241.7 million of unpaid principal balances, which represents 1.10% of our total outstanding business volume. The period of time covered by the payment deferments is typically in the range of three to six months. At the end of each payment deferment, the principal and interest related to the approved deferments will be re-capitalized into the outstanding unpaid principal balance and re-amortized over the remaining life of the loan.

In addition, FCA has issued regulatory guidance encouraging Farmer Mac to work with its lending and servicing partners in approving and executing servicing actions for borrowers impacted by COVID-19. The table below presents a summary of COVID-19 payment deferments through June 30, 2020 in the Farm & Ranch line of business. Farmer Mac has not received any payment deferment requests in the Rural Utilities line of business. For more information about FCA's regulatory guidance related to the COVID-19 pandemic, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters."

Table 24
Farm & Ranch COVID-19 Deferments Summary
As of June 30, 2020(1)
Unpaid Principal Balance
Requested, but not yet Approved Approved, but not yet Executed Not Approved Approved and Executed
Farm & Ranch: (in thousands)
On-balance sheet:
Loans held for investment $ 2,547    $ 32,292    $ —    $ 44,434   
Loans held in consolidated trusts 4,927    5,249    —    37,734   
On-balance sheet total $ 7,474    $ 37,541    $ —    $ 82,168   
Off-balance sheet:
LTSPCs 2,716    49,696    —    109,475   
Farm & Ranch Total $ 10,190    $ —    $ 87,237    $ —    $ 191,643   
USDA:
USDA Securities $ 14,310    $ 10,378    $ 3,387    $ 48,005   
Farmer Mac Guaranteed USDA Securities 864    1,015    385    2,087   
USDA Total $ 15,174    $ 11,393    $ 3,772    $ 50,092   
Farm & Ranch and USDA Total Deferments $ 25,364    $ 98,630    $ 3,772    $ 241,735   

(1) Loans under a COVID-19 deferment are not considered to be past due.

Farm & Ranch

Farmer Mac's direct credit exposure to Farm & Ranch loans held and loans underlying Farm & Ranch Guaranteed Securities and LTSPCs as of June 30, 2020 was $8.0 billion across 48 states. For more information about Farmer Mac's underwriting and collateral valuation standards for Farm & Ranch loans, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Valuation (Appraisal) Standards" in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020.


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Farmer Mac has indirect credit exposure to the Farm & Ranch loans that secure AgVantage securities included in the Institutional Credit line of business. As of June 30, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities.

Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss severity. Loan-to-value ratios depend on the market value of a property, as determined in accordance with Farmer Mac's collateral valuation standards.  As of June 30, 2020 and December 31, 2019, the average unpaid principal balances for loans outstanding in the Farm & Ranch line of business was $702,000 and $683,000, respectively. Farmer Mac calculates the "original loan-to-value" ratio of a loan by dividing the original loan principal balance by the original appraised property value. This calculation does not reflect any amortization of the original loan balance or any adjustment to the original appraised value to provide a current market value. The original loan-to-value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-loan basis. The weighted-average original loan-to-value ratio for Farm & Ranch loans purchased during second quarter 2020 was 41%, compared to 53% for loans purchased during second quarter 2019. The weighted-average original loan-to-value ratio for all Farm & Ranch loans held and all loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 51% as of both June 30, 2020 and December 31, 2019. The weighted-average original loan-to-value ratio for all 90-day delinquencies was 51% and 53% as of June 30, 2020 and December 31, 2019, respectively.

The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value and current outstanding loan amount adjusted to reflect amortization) for Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs was 45% as of both June 30, 2020 and December 31, 2019.

For more information about the credit quality of Farmer Mac's Farm & Ranch portfolio and the associated allowance for losses please refer to Note 5 to the consolidated financial statements. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses."

Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in foreclosure and non-performing loans where the borrower is in bankruptcy. As of June 30, 2020, Farmer Mac's 90-day delinquencies were $68.7 million (0.86% of the Farm & Ranch portfolio), compared to $79.7 million (1.02% of the Farm & Ranch portfolio) as of March 31, 2020 and $61.0 million (0.78% of the Farm & Ranch portfolio) as of December 31, 2019. Those 90-day delinquencies were comprised of 54 delinquent loans as of June 30, 2020, compared to 72 delinquent loans as of March 31, 2020 and 57 delinquent loans as of December 31, 2019. The sequential decrease in 90-day delinquencies is primarily due to the seasonal payment pattern associated with loans that have annual (January 1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio. Farmer Mac's 90-day delinquencies have historically fluctuated from quarter to quarter, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio, with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of the second and fourth quarters of each year as a result of the annual (January 1st) and semi-annual (January 1st and July 1st) payment terms of most Farm & Ranch loans. In addition, the sequential decrease was driven by two commodity groups – permanent plantings and crops. The other commodity groups either

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experienced decreases or remained constant. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day delinquencies as of June 30, 2020. Loans under COVID-19 deferment are not considered past due and are not included in our delinquent loan statistics. Farmer Mac believes that it remains adequately collateralized on its delinquent loans.

Our 90-day delinquency rate as of June 30, 2020 approximated Farmer Mac's historical average. In the near-term, our delinquency rate is expected to exceed our historical average (which it did in third quarter 2017) due to the expected impact of the COVID-19 pandemic on the agricultural economy. Farmer Mac's average 90-day delinquency rate as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 1%. The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol loan portfolio that Farmer Mac no longer holds.

The following table presents historical information about Farmer Mac's 90-day delinquencies in the Farm & Ranch line of business compared to the unpaid principal balance of all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs:

Table 25
Farm & Ranch Line of Business 90-Day
Delinquencies
Percentage
  (dollars in thousands)
As of:      
June 30, 2020 $ 8,017,850    $ 68,682    0.86  %
March 31, 2020 7,811,594    79,722    1.02  %
December 31, 2019 7,776,950    60,954    0.78  %
September 30, 2019 7,393,728    59,691    0.81  %
June 30, 2019 7,291,352    28,045    0.38  %
March 31, 2019 7,215,585    52,366    0.73  %
December 31, 2018 7,233,971    26,881    0.37  %
September 30, 2018 7,072,018    37,545    0.53  %
June 30, 2018 7,045,397    43,076    0.61  %

Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.31% of total outstanding business volume as of June 30, 2020, compared to 0.29% as of December 31, 2019 and 0.14% as of June 30, 2019. The following table presents outstanding Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities and 90-day delinquencies as of June 30, 2020 by year of origination, geographic region, commodity/collateral type, original loan-to-value ratio, and range in the size of borrower exposure:


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Table 26
Farm & Ranch 90-Day Delinquencies as of June 30, 2020
  Distribution of Farm & Ranch Line of Business Farm & Ranch Line of Business
90-Day Delinquencies(1)
Percentage
  (dollars in thousands)
By year of origination:        
2010 and prior % $ 670,088    $ 2,425    0.36  %
2011 % 150,148    —    —  %
2012 % 370,422    966    0.26  %
2013 % 577,515    1,961    0.34  %
2014 % 462,788    4,185    0.90  %
2015 % 633,114    6,688    1.06  %
2016 12  % 964,303    27,263    2.83  %
2017 13  % 1,062,965    22,877    2.15  %
2018 11  % 920,834    2,317    0.25  %
2019 16  % 1,249,509    —    —  %
2020 12  % 956,164    —    —  %
Total 100  % $ 8,017,850    $ 68,682    0.86  %
By geographic region(2):
       
Northwest 12  % $ 982,409    $ 12,194    1.24  %
Southwest 33  % 2,652,211    10,055    0.38  %
Mid-North 30  % 2,395,304    23,036    0.96  %
Mid-South 13  % 1,019,365    15,525    1.52  %
Northeast % 354,724    3,936    1.11  %
Southeast % 613,837    3,936    0.64  %
Total 100  % $ 8,017,850    $ 68,682    0.86  %
By commodity/collateral type:      
Crops 51  % $ 4,107,839    $ 30,667    0.75  %
Permanent plantings 23  % 1,827,060    9,050    0.50  %
Livestock 19  % 1,486,061    15,699    1.06  %
Part-time farm % 502,738    401    0.08  %
Ag. Storage and Processing % 86,979    12,865    14.79  %
Other —    7,173    —    —  %
Total 100  % $ 8,017,850    $ 68,682    0.86  %
By original loan-to-value ratio:
0.00% to 40.00% 18  % $ 1,413,947    $ 2,017    0.14  %
40.01% to 50.00% 26  % 2,066,788    35,338    1.71  %
50.01% to 60.00% 34  % 2,757,099    28,409    1.03  %
60.01% to 70.00% 18  % 1,449,386    2,808    0.19  %
70.01% to 80.00%(3)
% 313,883    —    —  %
80.01% to 90.00%(3)
—  % 16,747    110    0.66  %
Total 100  % $ 8,017,850    $ 68,682    0.86  %
By size of borrower exposure(4):
Less than $1,000,000 31  % $ 2,448,289    $ 10,433    0.43  %
$1,000,000 to $4,999,999 36  % 2,907,722    32,982    1.13  %
$5,000,000 to $9,999,999 14  % 1,149,996    6,272    0.55  %
$10,000,000 to $24,999,999 11  % 838,074    18,995    2.27  %
$25,000,000 and greater % 673,769    —    —  %
Total 100  % $ 8,017,850    $ 68,682    0.86  %
(1)Includes loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.
(2)Geographic regions:  Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN).
(3)Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance.
(4)Includes aggregated loans to single borrowers or borrower-related entities.

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Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio. Assets categorized as "substandard" have a well-defined weakness or weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of June 30, 2020, Farmer Mac's substandard assets were $304.9 million (3.8% of the Farm & Ranch portfolio), compared to $312.3 million (4.0% of the Farm & Ranch portfolio) as of March 31, 2020 and $310.0 million (4.0% of the Farm & Ranch portfolio) as of December 31, 2019. Those substandard assets were comprised of 368 loans as of June 30, 2020, 355 loans as of March 31, 2020, and 353 loans as of December 31, 2019.

The decrease of $7.4 million in substandard assets during second quarter 2020 was primarily driven by repayments during the quarter on loans that had been classified as substandard as of the first quarter, partially offset by credit downgrades during the quarter. Substandard assets decreased as a percentage of the total on- and off-balance sheet portfolio not only because of repayments but also because the overall portfolio grew by $206.3 million. The percentage of substandard assets within the portfolio closely approximates the historical average.

Farmer Mac's average substandard assets as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 4%. Due to the COVID-19 pandemic, we believe that the substandard rate may rise above that historical average in the short-term. The full extent of the impact of the COVID-19 pandemic remains to be seen, and we will continue to monitor its impact on our substandard asset rate. The highest substandard asset rate observed during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in substandard loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds. If Farmer Mac's substandard asset rate increases from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase.

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

The following table presents the current loan-to-value ratios for the Farm & Ranch portfolio, as disaggregated by internally assigned risk ratings:

Table 27
Farm & Ranch current loan-to-value ratio by internally assigned risk rating as of June 30, 2020
Acceptable Special Mention Substandard Total
(in thousands)
Current loan-to-value ratio(1):
0.00% to 40.00% $ 2,512,711    $ 98,178    $ 96,330    $ 2,707,219   
40.01% to 50.00% 1,989,690    129,814    83,954    2,203,458   
50.01% to 60.00% 1,633,872    102,664    73,391    1,809,927   
60.01% to 70.00% 890,407    80,917    29,662    1,000,986   
70.01% to 80.00% 217,471    35,690    6,787    259,948   
80.01% and greater 17,883    3,689    14,740    36,312   
Total $ 7,262,034    $ 450,952    $ 304,864    $ 8,017,850   
(1)The current loan-to-value ratio is based on original appraised value (or most recently obtained appraisal, if available) and current outstanding loan amount adjusted to reflect loan amortization.

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The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original balance for all Farm & Ranch loans purchased and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of June 30, 2020 by year of origination, geographic region, and commodity/collateral type.  The purpose of this information is to present information about realized losses relative to original Farm & Ranch purchases, guarantees, and commitments.

Table 28
Farm & Ranch Credit Losses Relative to Cumulative
Original Loans, Guarantees, and LTSPCs as of June 30, 2020
Cumulative Original Loans, Guarantees and LTSPCs  Cumulative Net Credit Losses/(Recoveries)  Cumulative Loss Rate
  (dollars in thousands)
By year of origination:      
2010 and prior $ 15,329,678    $ 30,103    0.20  %
2011 780,402    3,661    0.47  %
2012 1,159,716    —    —  %
2013 1,450,157    —    —  %
2014 1,026,726    —    —  %
2015 1,183,420    (516)   (0.04) %
2016 1,478,669    —    —  %
2017 1,553,646    —    —  %
2018 1,267,020    —    —  %
2019 1,461,128    —    —  %
2020 1,007,172    —  %
Total $ 27,697,734    $ 33,248    0.12  %
By geographic region(1):
     
Northwest $ 3,611,959    $ 11,191    0.31  %
Southwest 9,774,321    8,520    0.09  %
Mid-North 6,962,016    12,855    0.18  %
Mid-South 3,366,198    (613)   (0.02) %
Northeast 1,562,479    323    0.02  %
Southeast 2,420,761    972    0.04  %
Total $ 27,697,734    $ 33,248    0.12  %
By commodity/collateral type:      
Crops $ 12,739,384    $ 2,887    0.02  %
Permanent plantings 6,172,827    9,762    0.16  %
Livestock 6,299,930    3,836    0.06  %
Part-time farm 1,589,997    1,090    0.07  %
Ag. Storage and Processing 740,551    15,673    2.12  %
Other 155,045    —    —  %
Total $ 27,697,734    $ 33,248    0.12  %
(1)Geographic regions:  Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN).



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Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer Mac's exposure to loss on a given loan. The following tables present concentrations of Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities by commodity type within geographic region and cumulative credit losses by origination year and commodity type:

Table 29
As of June 30, 2020
Farm & Ranch Concentrations by Commodity Type within Geographic Region
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Other Total
(dollars in thousands)
By geographic region(1):
Northwest $ 454,289    $ 168,634    $ 274,876    $ 79,462    $ 5,089    $ 59    $ 982,409   
5.7  % 2.1  % 3.4  % 1.0  % 0.1  % —  % 12.3  %
Southwest 614,432    1,367,620    519,738    98,387    47,541    4,493    2,652,211   
7.7  % 17.1  % 6.5  % 1.2  % 0.6  % 0.1  % 33.2  %
Mid-North 2,027,533    11,542    210,861    124,673    18,522    2,173    2,395,304   
25.3  % 0.1  % 2.6  % 1.6  % 0.2  % —  % 29.8  %
Mid-South 622,465    44,791    286,076    58,831    7,179    23    1,019,365   
7.7  % 0.6  % 3.6  % 0.7  % 0.1  % —  % 12.7  %
Northeast 154,876    59,872    64,852    71,520    3,604    —    354,724   
1.9  % 0.7  % 0.8  % 0.9  % —  % —  % 4.3  %
Southeast 234,244    174,601    129,658    69,865    5,044    425    613,837   
2.9  % 2.2  % 1.6  % 0.9  % 0.1  % —  % 7.7  %
Total $ 4,107,839    $ 1,827,060    $ 1,486,061    $ 502,738    $ 86,979    $ 7,173    $ 8,017,850   
51.2  % 22.8  % 18.5  % 6.3  % 1.1  % 0.1  % 100.0  %
(1)Geographic regions:  Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN).


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Table 30
As of June 30, 2020
Farm & Ranch Cumulative Credit Losses by Origination Year and Commodity Type
Crops Permanent
Plantings
Livestock Part-time
Farm
Ag. Storage and
Processing
Total
(in thousands)
By year of origination:
2010 and prior $ 3,427    $ 9,762    $ 3,836    $ 1,066    $ 12,012    $ 30,103   
2011 —    —    —    —    3,661    3,661   
2012 —    —    —    —    —    —   
2013 —    —    —    —    —    —   
2014 —    —    —    —    —    —   
2015 (540)   —    —    24    —    (516)  
2016 —    —    —    —    —    —   
2017 —    —    —    —    —    —   
2018 —    —    —    —    —    —   
2019 —    —    —    —    —    —   
2020 —    —    —    —    —    —   
Total $ 2,887    $ 9,762    $ 3,836    $ 1,090    $ 15,673    $ 33,248   

Rural Utilities

Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of June 30, 2020 was $2.7 billion across 43 states. For more information about Farmer Mac's underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting" in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020. As of June 30, 2020, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.

Farmer Mac has indirect credit exposure to Rural Utilities loans that secure AgVantage securities included in the Institutional Credit line of business. As of June 30, 2020, Farmer Mac had not experienced any credit losses on any AgVantage securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Institutional" for more information about Farmer Mac's credit risk on AgVantage securities.

Farmer Mac has never experienced a credit loss in its Rural Utilities line of business. Upon the adoption of the current expected credit loss accounting standard ("CECL") on January 1, 2020, we are now required to forecast and disclose our expected credit losses for the expected life of our Rural Utilities portfolio assets. To do this, Farmer Mac relies upon industry data purchased from ratings agencies as well as publicly available information as disclosed in the securities filings of other major lenders who serve this industry. Activity affecting the allowance for loan losses and reserve for losses is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses."

Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk characteristics. These characteristics can include (but is not limited to) financial metrics, internal risk ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the regulatory environment.


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

Table 31
Rural Utilities portfolio by internally assigned risk rating as of June 30, 2020
Acceptable Special Mention Substandard Total
(in thousands)
Distribution Cooperative $ 2,098,958    $ —    $ 5,014    $ 2,103,972   
G&T Cooperative 568,087    —    —    568,087   
Renewable Energy 19,562    —    —    19,562   
Rural Utilities Total $ 2,686,607    $ —    $ 5,014    $ 2,691,621   

For more information about the credit quality of Farmer Mac's Rural Utilities portfolio and the associated allowance for losses please refer to Notes 5 and 6 of the consolidated financial statements.

Other Considerations Regarding Credit Risk Related to Loans and Guarantees

The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA Securities, is guaranteed by the full faith and credit of the United States.  Therefore, Farmer Mac believes that we have little or no credit risk exposure in the USDA Guarantees line of business because of the USDA guarantee.  As of June 30, 2020, Farmer Mac had not experienced any credit losses on any securities under the USDA Guarantees line of business and does not expect to incur any such losses in the future. Because we do not expect credit losses on this portfolio, Farmer Mac does not provide an allowance for losses on its portfolio of USDA Guaranteed Securities. As of June 30, 2020, Farmer Mac had executed COVID-19 payment deferments on loans with unpaid principal balances of $50.1 million underlying USDA Securities.

Farmer Mac requires most approved lenders to make representations and warranties about the conformity of eligible agricultural mortgage and Rural Utilities loans to Farmer Mac's standards, the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans. Sellers who make these representations and warranties are responsible to Farmer Mac for breaches of those representations and warranties. Farmer Mac has the ability to require a seller to cure, replace, or repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the previous three years ended June 30, 2020, there have been no breaches of representations and warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan. In addition to relying on the representations and warranties of sellers, Farmer Mac also underwrites the agricultural real estate mortgage loans (other than rural housing and part-time farm mortgage loans) and Rural Utilities loans on which it has direct credit exposure. For rural housing and part-time farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans conform to Farmer Mac's specified underwriting criteria without exception. For more information about Farmer Mac's loan eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Farm & Ranch—Underwriting and Collateral Valuation (Appraisal) Standards," "Business—Farmer Mac's Lines of Business—Rural Utilities—Loan Eligibility," and "Business—Farmer Mac's Lines of Business—Rural Utilities—Underwriting" in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020.

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Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers service loans in accordance with Farmer Mac's requirements. Servicers are responsible to Farmer Mac for serious errors in the servicing of those loans. If a servicer materially breaches the terms of its servicing agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the servicing relationship for a particular loan or the entire portfolio serviced by the servicer. Farmer Mac also can proceed against the servicer in arbitration or exercise any remedies available to it under law. During the previous three years ended June 30, 2020, Farmer Mac had not exercised any remedies or taken any formal action against any servicers. For more information about Farmer Mac's servicing requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Servicing" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Servicing" in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020.

Credit Risk – Institutional.  Farmer Mac is exposed to credit risk arising from its business relationships with other institutions, which include:
 
issuers of AgVantage securities;
approved lenders and servicers; and
interest rate swap counterparties.

Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the particular counterparty type and transaction.  The required collateralization level is established when the AgVantage facility is entered into with the counterparty and does not change during the life of the AgVantage securities issued under the facility without Farmer Mac's consent. In AgVantage transactions, the corporate obligor is typically required to remove from the pool of pledged collateral any loan that becomes more than 30 days delinquent in the payment of principal or interest and to substitute an eligible loan that is current in payment to maintain the minimum required collateralization level.  Since the onset of the COVID-19 pandemic, Farmer Mac has approved and expects to continue to approve payment deferments on loans collateralizing AgVantage securities, allowing the AgVantage counterparty to keep these loans in its collateral pool without replacing them. The criteria currently in place for approving payment deferments for these loans is similar to the criteria Farmer Mac has established for loans in its Farm & Ranch portfolio that are affected by the COVID-19 pandemic.

In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest. For Farm Equity AgVantage counterparties and smaller financial funds or entities, Farmer Mac also requires that the counterparty generally (1) maintain a higher collateralization level through lower loan-to-value ratio thresholds than required for traditional AgVantage securities and (2) comply with specified financial covenants for the life of the related AgVantage security to avoid default. For a more detailed description of AgVantage securities, see "Business—Farmer Mac's Lines of Business—Institutional Credit" in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020.

The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans eligible for the Farm & Ranch line of business totaled $5.6 billion as of June 30, 2020 and $5.5 billion as of December 31, 2019. The unpaid principal balance of on-balance sheet AgVantage securities secured by

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loans eligible for the Rural Utilities line of business totaled $3.1 billion as of June 30, 2020 and $2.9 billion as of December 31, 2019. The unpaid principal balance of outstanding off-balance sheet AgVantage securities totaled $6.1 million as of June 30, 2020 and $7.6 million as of December 31, 2019. A $0.3 billion off-balance sheet AgVantage revolving line of credit facility was terminated during fourth quarter 2019.

The following table provides information about the issuers of AgVantage securities, as well as the required collateralization levels for those transactions as of June 30, 2020 and December 31, 2019:

Table 32
  As of June 30, 2020 As of December 31, 2019
Counterparty Balance Credit Rating Required Collateralization Balance Credit Rating Required Collateralization
  (dollars in thousands)
AgVantage:
CFC $ 3,062,635    A 100% $ 2,949,500    A 100%
MetLife 2,550,000    AA- 103% 2,550,000    AA- 103%
Rabo AgriFinance 2,275,000    None 110% 2,225,000    None 110%
Other(1)
494,190    None 106% to 125% 436,041    None 106% to 125%
Farm Equity AgVantage(2)
273,005    None 110% 279,705    None 110%
Total outstanding $ 8,654,830        $ 8,440,246       
(1)Consists of AgVantage securities issued by 6 and 5 different issuers as of June 30, 2020 and December 31, 2019, respectively.
(2)Consists of AgVantage securities issued by 5 different issuers as of both June 30, 2020 and December 31, 2019.

Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those institutions to meet Farmer Mac's standards for creditworthiness.  Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and bank credit rating agency reports.  For more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines of Business—Farm & Ranch—Approved Lenders" and "Business—Farmer Mac's Lines of Business—Rural Utilities—Approved Lenders" in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 25, 2020.

Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through collateralization provisions contained in each of its swap agreements that varies based on the market value of its swap portfolio with each counterparty. Farmer Mac and its interest rate swap counterparties are required to fully collateralize their derivatives positions without any minimum threshold for cleared swap transactions, as well as for non-cleared swap transactions entered into after March 1, 2017. Farmer Mac transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure concentration. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and Note 4 to the consolidated financial statements.

Credit Risk Other Investments. As of June 30, 2020, Farmer Mac had $0.8 billion of cash and cash equivalents and $3.5 billion of investment securities. The management of the credit risk inherent in these investments is governed by Farmer Mac's internal policies as well as the liquidity and investment regulations for Farmer Mac, which were issued by FCA and which establish criteria for investments that

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are eligible for Farmer Mac's investment portfolio, including limitations on asset class, dollar amount, issuer concentration, and credit quality. In addition to establishing a portfolio of highly liquid investments as an available source of cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.

Farmer Mac's liquidity and investment regulations and internal policies require that investments held in Farmer Mac's investment portfolio meet the following creditworthiness standards: (1) at a minimum, at least one obligor of the investment must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default; (2) if the obligor whose capacity to meet financial commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the investment must exhibit low credit risk and other risk characteristics consistent with the purpose or purposes for which it is held.

Farmer Mac's liquidity and investment regulations and internal policies also establish concentration limits, which are intended to limit exposure to any single entity, issuer, or obligor. Farmer Mac's liquidity and investment regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of securities to 10% of Farmer Mac's regulatory capital ($93.4 million as of June 30, 2020). However, Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($46.7 million as of June 30, 2020). These exposure limits do not apply to obligations of U.S. government agencies or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in the senior non-convertible debt securities of any one GSE.

Although the Liquidity and Investments Regulations do not establish limits on the maximum amount, expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk management framework.

Interest Rate Risk.  Farmer Mac is subject to interest rate risk on all assets retained on its balance sheet because of timing differences in the cash flows of the assets and related liabilities.  This risk is primarily related to loans, loan participation interests, Farmer Mac Guaranteed Securities, and USDA Securities due to the ability of borrowers to prepay their loans before the scheduled maturities.  Cash flow mismatches in a changing interest rate environment can reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly reduced. Alternatively, Farmer Mac could see a drop in income if assets repay more slowly than expected in a rising interest rate environment and the associated debt must be replaced by higher-cost debt.

Interest Rate Risk Management

The goal of interest rate risk management at Farmer Mac is to create and maintain a portfolio that generates stable earnings and value across a variety of interest rate environments. Recognizing that interest rate sensitivity may change with the passage of time and as interest rates change, Farmer Mac assesses this exposure regularly and, if necessary, adjusts its portfolio of assets and liabilities.

Farmer Mac's objective is to ensure exposure to interest rate risk is within appropriate limits, as approved by Farmer Mac's board of directors. Farmer Mac's management-level Asset and Liability Committee

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("ALCO") is tasked with oversight and approval of strategies to ensure interest rate risk remains within the board-established limits.

Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with liabilities that have similar duration and convexity characteristics so that they will perform in a similar fashion as interest rates change. As part of the liability issuance strategy, Farmer Mac seeks to issue a blend of liabilities across a variety of maturities to help better align the liability cashflows with the asset cashflows. Along with the liability issuance strategy, Farmer Mac uses interest rate derivatives to minimize its economic exposure to cashflow mismatches.

Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities to execute its liability issuance strategy. Callable debt is issued to minimize prepayment risk associated with assets held on balance sheet. By using a blend of liabilities that includes callable debt, the interest rate sensitivities of the liabilities tend to increase or decrease as interest rates change in a manner similar to changes in the interest rate sensitivities of the assets. Farmer Mac uses financial derivatives, primarily interest rate swaps, as another tool to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall interest rate sensitivity.

Taking into consideration the prepayment provisions and the default probabilities associated with its loan assets, Farmer Mac uses prepayment models when projecting and valuing cash flows associated with these assets.  Because borrowers' behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of future prepayment forecasts.

Changes in interest rates may affect loan prepayment rates which may, in turn, affect durations and values of the loans. Declining interest rates generally increase prepayment rates, which shortens the duration of these assets, while rising interest rates tend to slow loan prepayments, thereby extending the duration of the loans.

Farmer Mac is subject to interest rate risk on loans that Farmer Mac has committed to acquire but has not yet purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization under a forward purchase agreement).  When Farmer Mac commits to purchase these loans, it is exposed to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund the purchase of those loans. Farmer Mac manages the interest rate risk related to these loans by using futures contracts involving U.S. Treasury securities and other financial derivatives.  Farmer Mac uses U.S. Treasury futures contracts as a hedge against the level of interest rates.

Farmer Mac's $0.8 billion of cash and cash equivalents mature within three months and are funded with discount notes having similar maturities. As of June 30, 2020, $3.4 billion of the $3.5 billion of investment securities (96%) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year. Those securities are funded with effectively floating rate debt that closely matches the rate adjustment dates of the associated investments.

Interest Rate Risk Metrics

Farmer Mac regularly stress tests its portfolio for interest rate risk and uses a variety of metrics to quantify and manage its interest rate risk. These metrics include sensitivity to interest rate movements of market value of equity ("MVE") and projected net effective spread ("NES") as well as duration gap analysis.

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MVE represents management's estimate of the present value of all future cash flows from on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current interest rates and appropriate spreads. However, MVE is not indicative of the market value of Farmer Mac as a going concern because these market values are theoretical and do not reflect future business activities. MVE sensitivity analysis is used to measure the degree to which the market values of Farmer Mac's assets and liabilities change for a given change in interest rates. Because this analysis evaluates the effect of interest rate movements on the value of all future cash flows, this measure provides an evaluation of Farmer Mac's long-term interest rate risk.

Farmer Mac's NES simulation represents the difference between projected income from interest-earning assets and interest expense produced by the related funding, including associated derivatives. Farmer Mac's NES may be affected by changes in market interest rates resulting from timing differences between maturities and re-pricing characteristics of assets and liabilities. The direction and magnitude of any such effect depends on the direction and magnitude of the change in interest rates as well as the composition of Farmer Mac's portfolio. The NES forecast represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to produce over a twelve-month horizon. As a result, NES sensitivity statistics provide a short-term view of Farmer Mac's interest rate sensitivity.

Duration is a measure of a financial instrument's sensitivity to small changes in interest rates. Duration gap is the difference between the estimated durations of Farmer Mac's assets and liabilities. Because duration is a measure of market value sensitivity, duration gap summarizes the extent to which estimated market value sensitivities for assets and liabilities are matched. Duration gap provides a relatively concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio.

A positive duration gap denotes that the duration of Farmer Mac's assets is greater than the duration of its liabilities. A positive duration gap indicates that the market value of Farmer Mac's assets is more sensitive to small interest rate movements than is the market value of its liabilities. Conversely, a negative duration gap indicates that Farmer Mac's assets are less sensitive to small interest rate movements than are its liabilities.

Each of the metrics is produced using asset/liability models and is derived based on management's best estimates of factors such as projected interest rates, interest rate volatility, and prepayment speeds. Accordingly, these metrics should be understood as estimates rather than as precise measurements. Actual results may differ to the extent there are material changes to Farmer Mac's portfolio or changes in strategies undertaken to mitigate unfavorable sensitivities to interest rate changes.


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The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of June 30, 2020 and December 31, 2019 to an immediate and instantaneous uniform or "parallel" shift in the yield curve:

Table 33
  Percentage Change in MVE from Base Case
Interest Rate Scenario(1)
As of June 30, 2020 As of December 31, 2019
+100 basis points 7.0  % 2.7  %
-100 basis points (0.5) % (8.4) %

  Percentage Change in NES from Base Case
Interest Rate Scenario(1)
As of June 30, 2020 As of December 31, 2019
+100 basis points 4.0  % 0.8  %
-100 basis points (0.3) % 0.1  %
(1)The Down 100 basis points shock scenario was replaced with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the approval of the Financial Risk Committee of the Board of Directors.

As of June 30, 2020, Farmer Mac's effective duration gap was negative 3.1 months, compared to negative 2.5 months as of December 31, 2019. Interest rates decreased significantly during the first half of 2020. This rate movement reduced the duration of Farmer Mac's assets relative to its liabilities, thereby widening Farmer Mac's duration gap.

Financial Derivatives Transactions

The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap analyses.  Farmer Mac enters into the following financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of assets, future cash flows, credit exposure, and debt issuance, not for trading or speculative purposes:
 
"pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives floating rates of interest from, counterparties;
"receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and pays floating rates of interest to, counterparties; and
"basis swaps," in which Farmer Mac pays variable rates of interest based on one index to, and receives variable rates of interest based on another index from, counterparties.

As of June 30, 2020, Farmer Mac had $16.1 billion combined notional amount of interest rate swaps, with terms ranging from less than one year to thirty years, of which $6.5 billion were pay-fixed interest rate swaps, $6.0 billion were receive-fixed interest rate swaps, and $3.6 billion were basis swaps.

Farmer Mac enters into interest rate swap contracts to more closely match the cash flow and duration characteristics of its assets with those of its liabilities. Interest rate swaps paired with the issuance of short-term debt can create effectively fixed rate funding that provides a similar duration match with the corresponding assets being funded.  Farmer Mac evaluates the overall cost of using the swap market as a funding alternative and uses interest rate swaps to manage interest rate risks across the balance sheet.

Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark

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

As discussed in Note 4 to the consolidated financial statements, all financial derivatives are recorded on the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of financial derivatives are reported in "Gains/(losses) on financial derivatives" in the consolidated statements of operations. For financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of the hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the consolidated statements of operations. For financial derivatives designated in cash flow hedge accounting relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income. Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future interest payments on 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. All of Farmer Mac's financial derivatives transactions are conducted under standard collateralized agreements that limit Farmer Mac's potential credit exposure to any counterparty. As of June 30, 2020 and December 31, 2019, Farmer Mac had no uncollateralized net exposures.

Re-funding and repricing risk

In addition to being exposed to the risk of asset and liability cash flow mismatches, Farmer Mac is exposed to the risk related to changes in its cost of funds relative to floating rate market indexes (such as LIBOR) on many of the floating rate assets it holds. This exposure is referred to as "re-funding and repricing risk." Re-funding and repricing risk arises from the potential changes in funding costs when Farmer Mac funds floating rate, or synthetic floating rate, assets with floating rate liabilities with shorter maturities. Changes in Farmer Mac's funding costs relative to the benchmark rate to which the assets are indexed can cause changes to net interest income from funding those assets.

Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to contractual maturity. In addition, many of Farmer Mac's floating rate assets have the ability to prepay before the contractual maturity date. Farmer Mac is also subject to re-funding and repricing risk on some of its fixed rate assets as a result of its use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed from fixed rate to floating rate. These fixed rate assets are then effectively synthetically floating rate assets that require floating rate funding.

Farmer Mac can meet floating rate funding needs in several ways, including:

issuing short-term discount notes with maturities that match the reset period of the assets;
issuing floating rate medium-term notes with maturities and reset frequencies that match the assets being funded;
issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match the assets being funded; or
issuing non-maturity matched, fixed-rate discount notes or medium-term notes swapped to match the interest rate reset dates of the assets as an alternative source of effectively floating rate funding.

To meet floating rate funding needs, Farmer Mac frequently uses shorter-term floating-rate medium-term notes or fixed rate medium-term notes paired with an interest rate swap because these options generally

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provide a lower cost of funding while generating an effective interest rate match. As funding for these floating rate assets matures, Farmer Mac seeks to refinance the debt associated with these assets in a similar fashion to achieve an appropriate interest rate match in the context of Farmer Mac's overall liability issuance and liquidity management strategies.

However, if the funding cost of Farmer Mac’s discount notes or medium-term notes were to deteriorate relative to LIBOR (or some other market index to which the assets are being funded) during the time between when these floating rate assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be exposed to a commensurate reduction in its net effective spread on the associated assets. Conversely, if the funding cost on Farmer Mac’s discount notes or medium-term notes were to improve relative to LIBOR during that time, Farmer Mac would benefit from a commensurate increase in its net effective spread on those assets.

Farmer Mac's liability issuance strategy targets balancing liquidity risk and re-funding and repricing risk while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk tolerance. ALCO regularly reviews Farmer Mac's liability issuance strategy to ensure that re-funding and repricing risk is appropriately managed.

As of June 30, 2020, Farmer Mac held $7.0 billion of floating rate assets in its lines of business and its investment portfolio that reset based on floating rate market indexes, primarily one-month and three-month LIBOR. As of the same date, Farmer Mac also had $6.5 billion of interest rate swaps outstanding where Farmer Mac pays a fixed rate of interest and receives a floating rate of interest.

Throughout the first half of 2020, Farmer Mac's funding relative to LIBOR remained stable with spreads comparable to historical averages. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of spread variability from time to time and seeks to maintain an effective funding cost in the context of its overall liability management and liquidity management strategies.

Discontinuation of LIBOR

As described in "Risk Factors—Market Risk" in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020, Farmer Mac faces risks associated with the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an alternative benchmark interest rate. We are currently evaluating the potential effect on our business of the replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark interest rates. As of June 30, 2020, Farmer Mac held $5.8 billion of floating rate assets in its lines of business and its investment portfolio, had issued $5.2 billion of floating rate debt, and had entered into $15.9 billion notional amount of interest rate swaps, each of which reset based on LIBOR. In addition, our Non-Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024. It becomes redeemable at our option on July 18, 2024 and thereafter pays interest at a floating rate equal to three-month LIBOR plus 3.260%. The market transition away from LIBOR and towards an alternative benchmark interest rate that may be developed is expected to be complicated and may require the development of term and credit adjustments to accommodate for differences between the benchmark interest rates. The transition may also result in different financial performance for previously booked transactions, require different hedging strategies, or require renegotiation of previously booked transactions. As of June 30, 2020, we have issued $1.0 billion in medium-term notes based on the Secured Overnight Financing Rate (SOFR), a potential alternative benchmark interest rate.


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Liquidity and Capital Resources

Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities. Farmer Mac regularly accesses the capital markets for funding, and Farmer Mac has maintained access to the capital markets at favorable rates through first quarter 2020. Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt obligations of various maturities in the public capital markets. As of June 30, 2020, Farmer Mac had outstanding discount notes of $2.5 billion, medium-term notes that mature within one year of $8.4 billion, and medium-term notes that mature after one year of $10.5 billion.

Assuming continued access to the capital markets, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future. Farmer Mac also has a contingency funding plan to manage unanticipated disruptions in its access to the capital markets. That plan involves borrowing through repurchase agreement arrangements and the sale of liquid assets. Farmer Mac must maintain a minimum of 90 days of liquidity under its liquidity and investment regulations. Under the methodology for calculating available days of liquidity prescribed by those regulations, Farmer Mac maintained an average of 212 days of liquidity during second quarter 2020 and had 212 days of liquidity as of June 30, 2020. ALCO regularly reviews Farmer Mac's liquidity position and ensures the required minimums are maintained.
 
Farmer Mac maintains cash, cash equivalents (including U.S. Treasury securities and other short-term money market instruments), and other investment securities that can be drawn upon for liquidity needs.  Farmer Mac's current policies authorize liquidity investments in:
 
obligations of or fully guaranteed by the United States or a U.S. government agency;
obligations of or fully guaranteed by GSEs;
municipal securities;
international and multilateral development bank obligations;
money market instruments;
diversified investment funds;
asset-backed securities;
corporate debt securities; and
mortgage-backed securities.

The following table presents these assets as of June 30, 2020 and December 31, 2019:

Table 34
  As of June 30, 2020 As of December 31, 2019
  (in thousands)
Cash and cash equivalents $ 827,600    $ 604,381   
Investment securities:    
Guaranteed by U.S. Government and its agencies 1,816,385    1,842,640   
Guaranteed by GSEs 1,677,742    1,143,323   
Asset-backed securities 18,321    18,912   
Total $ 4,340,048    $ 3,609,256   


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The increase in the investment portfolio since December 31, 2019 was to provide a greater level of liquidity in response to the COVID-19 pandemic, to prepare for the possibility of future volatility in the debt capital markets, and to support program asset growth as the overall funding needs for the balance sheet increased.

Capital Requirements. Farmer Mac is subject to the following statutory capital requirements – minimum, critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of June 30, 2020, Farmer Mac was in compliance with its statutory capital requirements and was classified as within "level I" (the highest compliance level).

In accordance with FCA's rule on capital planning, Farmer Mac's board of directors has adopted a policy for maintaining a sufficient level of "Tier 1" capital (consisting of retained earnings, paid-in capital, common stock, and qualifying preferred stock). That policy restricts Tier 1-eligible dividends and any discretionary bonus payments if Tier 1 capital falls below specified thresholds. As of June 30, 2020 and December 31, 2019, Farmer Mac's Tier 1 capital ratio was 13.4% and 12.9%, respectively. The increase in our Tier 1 capital ratio was due to the fact that capital growth, which reflects the issuance of the Series E Preferred Stock, outpaced the growth in risk-weighted assets during second quarter 2020. As of June 30, 2020, Farmer Mac was in compliance with its capital adequacy policy. Farmer Mac does not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition.

For more information about the capital requirements applicable to Farmer Mac, its capital adequacy policy, and FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—Capital Standards" in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on February 25, 2020. See Note 8 to the consolidated financial statements for more information about Farmer Mac's capital position.

Regulatory Matters

In response to the economic effects of the COVID-19 pandemic, FCA has issued regulatory guidance to encourage Farmer Mac to work with its lending and servicing partners in approving servicing actions for borrowers impacted by COVID-19, including working with other Farm Credit System institutions on approvals for loans to which statutory borrower rights are attached (primarily in LTSPCs). FCA also provided guidance about under what circumstances loans with approved servicing actions due exclusively to the economic effects of the COVID-19 pandemic should not be classified as nonaccrual or troubled debt restructurings.

Also, In response to the COVID-19 pandemic and the related economic effects, Congress passed a series of stimulus measures, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which contained a $9.5 billion emergency fund for the USDA aimed toward providing help to livestock, dairy, and produce providers who sell locally. It also included a $14 billion replenishment of the CCC, a line of credit at the U.S. Treasury Department that USDA can use to help crop and livestock producers. On April 17, 2020, USDA announced that it would provide $19 billion of assistance through the Coronavirus Food Assistance Program ("CFAP"). CFAP used the funding and authorities provided in the CARES Act, the Families First Coronavirus Response Act, and other USDA existing authorities to provide $16 billion in direct support to farmers and ranchers based on actual losses from disruptions to prices and market supply chains and for projected impacts to marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by the coronavirus. As part of the CFAP,

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USDA also announced that it would purchase $3 billion in fresh produce, dairy, and meat. These purchases are aimed at propping up commodity prices while providing commodities to food banks, community and faith based organizations, and other non-profits serving Americans in need. Through the end of July, more than $14.5 billion in economic support has been delivered to farm businesses under the CARES Act through a combination of direct payments and loans. In addition to legislation and stimulus in response to COVID-19, Farmer Mac continues to monitor the establishment and evolution of legislation and regulations that could affect farmers, ranchers, rural lenders, and rural America in general.

Under a provision of the Agricultural Improvement Act of 2018, known as the "Farm Bill," Farmer Mac's charter was amended effective June 18, 2020 to expand the acreage exception to the loan amount limitation on Farm & Ranch loans (currently $13.2 million) from 1,000 acres to 2,000 acres, meaning that the statutory loan amount limitation does not apply to Farm & Ranch loans secured by 2,000 acres of agricultural real estate or less. Farmer Mac will continue to evaluate this increase in the acreage limitation to determine the potential benefits to Farmer Mac's customers and the related effects on our business.

Other Matters

The expected effects of recently issued accounting pronouncements on the consolidated financial statements are presented in Note 1(d) to the consolidated financial statements.

Supplemental Information

The following tables present quarterly and annual information about new business volume, repayments, and outstanding business volume:

Table 35
New Business Volume
Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit
Loans LTSPCs USDA Securities Loans LTSPCs AgVantage Total
(in thousands)
For the quarter ended:
June 30, 2020 $ 609,284    $ 85,390    $ 224,016    $ 339,366    $ 19,500    $ 430,024    $ 1,707,580   
March 31, 2020 401,853    73,674    147,906    152,668    —    560,395    1,336,496   
December 31, 2019 602,750    65,614    143,565    102,900    —    371,075    1,285,904   
September 30, 2019 309,805    125,022    113,664    117,279    —    402,611    1,068,381   
June 30, 2019 248,152    57,321    118,335    105,000    —    659,447    1,188,255   
March 31, 2019 203,156    91,215    57,223    546,198    —    825,417    1,723,209   
December 31, 2018 285,008    80,840    90,297    3,000    —    585,814    1,044,959   
September 30, 2018 192,628    64,100    116,339    —    —    1,085,953    1,459,020   
June 30, 2018 224,101    126,066    129,960    —    —    825,203    1,305,330   
For the year ended:
December 31, 2019 $ 1,363,863    $ 339,172    $ 432,787    $ 871,377    —    $ 2,258,550    $ 5,265,749   
December 31, 2018 960,848    430,071    460,121    11,645    —    3,310,307    5,172,992   



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Table 36
Repayments of Assets by Line of Business
Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit
Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total
(in thousands)
For the quarter ended:
Scheduled $ 101,264    $ 3,043    $ 39,010    $ 37,879    $ 23,589    $ 25,132    $ 471,295    $ 701,212   
Unscheduled 248,890    4,034    92,177    154,536    3,935    —    —    503,572   
June 30, 2020 $ 350,154    $ 7,077    $ 131,187    $ 192,415    $ 27,524    $ 25,132    $ 471,295    $ 1,204,784   
Scheduled $ 128,768    $ 6,132    $ 50,393    $ 43,069    $ 34,235    $ 13,593    $ 304,540    $ 580,730   
Unscheduled 191,260    3,888    60,442    78,806    —    —    —    334,396   
March 31, 2020 $ 320,028    $ 10,020    $ 110,835    $ 121,875    $ 34,235    $ 13,593    $ 304,540    $ 915,126   
Scheduled $ 57,488    $ 4,737    $ 39,878    $ 25,142    $ 10,317    $ 10,551    $ 656,095    $ 804,208   
Unscheduled 105,671    3,247    74,121    66,011    34,063    —    13,000    296,113   
December 31, 2019 $ 163,159    $ 7,984    $ 113,999    $ 91,153    $ 44,380    $ 10,551    $ 669,095    $ 1,100,321   
Scheduled $ 97,421    $ 3,095    $ 22,713    $ 27,853    $ 31,656    $ 8,692    $ 441,575    $ 633,005   
Unscheduled 129,676    2,663    76,883    39,442    —    —    1,088    249,752   
September 30, 2019 $ 227,097    $ 5,758    $ 99,596    $ 67,295    $ 31,656    $ 8,692    $ 442,663    $ 882,757   
Scheduled $ 39,879    $ 3,758    $ 58,779    $ 38,676    $ 6,951    $ 17,092    $ 612,964    $ 778,099   
Unscheduled 64,912    3,399    58,979    43,044    —    —    —    170,334   
June 30, 2019 $ 104,791    $ 7,157    $ 117,758    $ 81,720    $ 6,951    $ 17,092    $ 612,964    $ 948,433   
Scheduled $ 112,973    $ 5,843    $ 74,054    $ 41,266    $ 31,492    $ 7,660    $ 470,812    $ 744,100   
Unscheduled 67,608    1,798    50,482    46,798    24,448    —    5,587    196,721   
March 31, 2019 $ 180,581    $ 7,641    $ 124,536    $ 88,064    $ 55,940    $ 7,660    $ 476,399    $ 940,821   
Scheduled $ 36,006    $ 8,331    $ 35,682    $ 24,793    $ 6,321    $ 16,062    $ 568,277    $ 695,472   
Unscheduled 56,299    9,257    33,319    21,135    20,538    —    —    140,548   
December 31, 2018 $ 92,305    $ 17,588    $ 69,001    $ 45,928    $ 26,859    $ 16,062    $ 568,277    $ 836,020   
Scheduled $ 73,476    $ 5,677    $ 21,742    $ 28,135    $ 25,640    $ 8,286    $ 1,102,798    $ 1,265,754   
Unscheduled 77,492    4,562    47,159    35,068    3,476    —    9,760    177,517   
September 30, 2018 $ 150,968    $ 10,239    $ 68,901    $ 63,203    $ 29,116    $ 8,286    $ 1,112,558    $ 1,443,271   
Scheduled $ 33,075    $ 8,391    $ 31,067    $ 36,983    $ 353    $ 8,699    $ 759,223    $ 877,791   
Unscheduled 86,426    8,273    69,539    66,601    51,306    —    —    282,145   
June 30, 2018 $ 119,501    $ 16,664    $ 100,606    $ 103,584    $ 51,659    $ 8,699    $ 759,223    $ 1,159,936   
For the year ended:
Scheduled $ 307,761    $ 17,433    $ 195,424    $ 132,937    $ 80,416    $ 43,995    $ 2,181,446    $ 2,959,412   
Unscheduled 367,867    11,107    260,465    195,295    58,511    —    19,675    912,920   
December 31, 2019 $ 675,628    $ 28,540    $ 455,889    $ 328,232    $ 138,927    $ 43,995    $ 2,201,121    $ 3,872,332   
Scheduled $ 253,290    $ 36,484    $ 158,548    $ 130,722    $ 58,821    $ 33,047    $ 2,822,608    $ 3,493,520   
Unscheduled 293,719    27,021    231,221    165,993    90,272    120,022    9,760    938,008   
December 31, 2018 $ 547,009    $ 63,505    $ 389,769    $ 296,715    $ 149,093    $ 153,069    $ 2,832,368    $ 4,431,528   



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Table 37
Lines of Business - Outstanding Business Volume
Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit
Loans Guaranteed Securities LTSPCs USDA Securities Loans LTSPCs AgVantage Total
(in thousands)
As of:
June 30, 2020 $ 5,617,512    $ 90,225    $ 2,310,113    $ 2,677,807    $ 2,101,568    $ 590,053    $ 8,654,830    $ 22,042,108   
March 31, 2020 5,358,382    97,302    2,355,910    2,646,206    1,789,726    595,685    8,696,101    21,539,312   
December 31, 2019 5,276,557    107,322    2,393,071    2,620,175    1,671,293    609,278    8,440,246    21,117,942   
September 30, 2019 4,836,966    115,306    2,441,456    2,567,763    1,612,773    619,829    8,738,266    20,932,359   
June 30, 2019 4,754,258    121,064    2,416,030    2,521,394    1,527,150    628,521    8,778,318    20,746,735   
March 31, 2019 4,610,897    128,221    2,476,467    2,484,779    1,429,101    645,613    8,731,835    20,506,913   
December 31, 2018 4,588,322    135,862    2,509,787    2,515,620    938,843    653,273    8,382,817    19,724,524   
September 30, 2018 4,420,619    287,594    2,363,805    2,471,251    962,702    669,335    8,365,280    19,540,586   
June 30, 2018 4,378,958    297,833    2,368,606    2,418,115    991,819    677,621    8,391,885    19,524,837   


Table 38
On-Balance Sheet Outstanding Business Volume
Fixed Rate 5- to 10-Year ARMs & Resets 1-Month to 3-Year ARMs Total Held in Portfolio
(in thousands)
As of:
June 30, 2020 $ 10,793,629    $ 2,845,266    $ 5,076,445    18,715,340   
March 31, 2020 10,296,598    2,818,869    4,996,478    18,111,945   
December 31, 2019 10,045,712    2,863,199    4,702,577    17,611,488   
September 30, 2019 9,642,802    2,850,000    4,549,689    17,042,491   
June 30, 2019 9,446,117    2,825,151    4,601,917    16,873,185   
March 31, 2019 9,206,082    2,720,639    4,643,506    16,570,227   
December 31, 2018 8,325,347    2,717,505    4,705,169    15,748,021   
September 30, 2018 7,945,007    2,629,612    4,986,987    15,561,606   
June 30, 2018 7,551,149    2,594,399    5,398,021    15,543,569   



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

Table 39
Net Effective Spread by Line of Business
Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread
Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield
(dollars in thousands)
For the quarter ended:
June 30, 2020(1)
$ 16,733    1.71  % $ 4,689    0.81  % $ 5,516    1.15  % $ 18,782    0.86  % $ 749    0.08  % $ 46,469    0.89  %
March 31, 2020 14,938    1.64  % 4,625    0.81  % 4,920    1.14  % 17,702    0.84  % 1,978    0.21  % 44,163    0.89  %
December 31, 2019 16,374    1.90  % 4,363    0.78  % 4,871    1.17  % 18,008    0.85  % 2,375    0.27  % 45,991    0.95  %
September 30, 2019 13,181    1.66  % 4,314    0.79  % 4,502    1.16  % 17,807    0.84  % 2,657    0.30  % 42,461    0.90  %
June 30, 2019(1)
13,335    1.72  % 4,097    0.76  % 3,996    1.10  % 17,371    0.82  % 2,556    0.34  % 41,355    0.91  %
March 31, 2019 12,737    1.70  % 3,964    0.74  % 3,233    1.12  % 16,373    0.79  % 2,494    0.35  % 38,801    0.89  %
December 31, 2018 13,288    1.79  % 4,630    0.85  % 2,833    1.19  % 15,751    0.80  % 2,353    0.36  % 38,855    0.93  %
September 30, 2018 13,887    1.91  % 4,627    0.86  % 2,877    1.18  % 15,642    0.78  % 2,044    0.30  % 39,077    0.93  %
June 30, 2018 13,347    1.86  % 4,398    0.83  % 2,923    1.15  % 15,220    0.76  % 274    0.04  % 36,162    0.86  %
(1)See Note 10 to the consolidated financial statements for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended June 30, 2020 and 2019.





























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The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income attributable to common stockholders:

Table 40
Core Earnings by Quarter End
June 2020 March 2020 December 2019 September 2019 June 2019 March 2019 December 2018 September 2018 June 2018
(in thousands)
Revenues:
Net effective spread $ 46,469    $ 44,163    $ 45,991    $ 42,461    $ 41,355    $ 38,801    $ 38,855    $ 39,077    $ 36,162   
Guarantee and commitment fees 4,943    4,896    5,432    5,208    5,276    5,419    5,309    5,170    5,171   
Other 1,048    674    100    389    777    509    (129)   110    111   
Total revenues 52,460    49,733    51,523    48,058    47,408    44,729    44,035    44,357    41,444   
Credit related expense/(income):
Provision for/(release of) losses 51    3,831    2,851    623    420    (393)   166    (3)   582   
REO operating expenses —    —    —    —    64    —    —    —    —   
(Gains)/losses on sale of REO —    (485)   —    —    —    —    —    41    (34)  
Total credit related expense/(income) 51    3,346    2,851    623    484    (393)   166    38    548   
Operating expenses:
Compensation and employee benefits 8,087    10,127    6,732    7,654    6,770    7,606    7,167    6,777    6,936   
General and administrative 5,295    5,363    5,773    5,253    4,689    4,596    5,829    4,350    5,202   
Regulatory fees 725    725    725    688    687    688    687    625    625   
Total operating expenses 14,107    16,215    13,230    13,595    12,146    12,890    13,683    11,752    12,763   
Net earnings 38,302    30,172    35,442    33,840    34,778    32,232    30,186    32,567    28,133   
Income tax expense 8,016    6,598    7,526    7,018    7,351    6,715    6,431    6,891    5,477   
Preferred stock dividends 3,939    3,431    3,432    3,427    3,785    3,296    3,296    3,295    3,296   
Core earnings $ 26,347    $ 20,143    $ 24,484    $ 23,395    $ 23,642    $ 22,221    $ 20,459    $ 22,381    $ 19,360   
Reconciling items:
Gains/(losses) on undesignated financial derivatives due to fair value changes 8,700    (6,484)   4,469    (7,117)   10,485    2,240    (96)   3,625    6,709   
(Losses)/gains on hedging activities due to fair value changes (2,676)   (5,925)   (220)   (4,535)   (1,438)   (2,817)   (853)   1,051    1,687   
Unrealized (losses)/gains on trading assets (20)   106    172    49    61    44    57    (3)   11   
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value 35      40    (7)   (139)   (16)   67    (38)   196   
Net effects of terminations or net settlements on financial derivatives 720    (1,300)   1,339    232    (592)   110    (312)   546    232   
Issuance costs on the retirement of preferred stock —    —    —    —    (1,956)   —    —    —    —   
Income tax effect related to reconciling items (1,419)   2,856    (1,218)   2,389    (1,759)   92    238    (1,088)   (1,855)  
Net income attributable to common stockholders $ 31,687    $ 9,399    $ 29,066    $ 14,406    $ 28,304    $ 21,874    $ 19,560    $ 26,474    $ 26,340   


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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Farmer Mac is exposed to market risk from changes in interest rates.  Farmer Mac manages this market risk by entering into various financial transactions, including financial derivatives, and by monitoring and measuring its exposure to changes in interest rates.  See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" for more information about Farmer Mac's exposure to interest rate risk and its strategies to manage that risk.  For information about Farmer Mac's use of financial derivatives and related accounting policies, see Note 4 to the consolidated financial statements.

Item 4.Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures. Farmer Mac maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its periodic filings under the Securities Exchange Act of 1934 (“Exchange Act”), including this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to Farmer Mac's management on a timely basis to allow decisions about required disclosure. Management, including Farmer Mac's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Farmer Mac's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2020.
Farmer Mac carried out the evaluation of the effectiveness of its disclosure controls and procedures, required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Farmer Mac's disclosure controls and procedures were effective as of June 30, 2020.

Changes in Internal Control Over Financial Reporting. There were no changes in Farmer Mac's internal control over financial reporting during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, Farmer Mac's internal control over financial reporting.


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PART II

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

The risk factors in this section update and supplement the risk factors described in "Risk Factors" in Part I, Item 1A of Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("2019 Form 10-K"), as filed with the SEC on February 25, 2020, and as updated by Farmer Mac's Current Report on Form 8-K filed with the SEC on April 6, 2020 and Farmer Mac's Quarterly Report on Form 10-Q, as filed with the SEC on May 11, 2020. The primary risks to our business and how we seek to manage those risks are also described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management," in the 2019 Form 10-K and in this report. The risks we face could materially affect our business, operations, operating results, financial condition, liquidity, capital levels, or future results and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make.

Farmer Mac’s efforts to manage and mitigate these risk factors may be unsuccessful, and the effectiveness of these efforts and the extent to which the COVID-19 pandemic affects Farmer Mac’s business, results of operations, and financial condition will depend on factors beyond its control, including: the duration, severity, and spread of the pandemic; third-party and government actions taken to contain COVID-19 or treat its impact and mitigate public health and economic effects; the nature and extent of the deferments approved for borrowers negatively affected by COVID-19; the conduct of agricultural producer borrowers in response to the COVID-19 pandemic and how quickly and to what extent affected borrowers can recover from the negative economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future COVID-19 outbreaks interrupt economic recovery. Even after the COVID-19 pandemic is over, Farmer Mac may continue to experience material adverse effects to its business as a result of the disruption in the global economy, the domestic agricultural economy, and any resulting recession. Because there have been no comparable recent global pandemics that resulted in similar global macroeconomic impact, Farmer Mac does not yet know the full extent of the effects on its business, operations, or the global economy as a whole, but they could materially and adversely affect Farmer Mac’s business, operations, operating results, financial condition, liquidity, or capital levels as discussed in more detail below.

The effects of the COVID-19 pandemic are uncertain and could have a material adverse effect on Farmer Mac's business, operations, operating results, financial condition, liquidity, or capital levels.

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, social distancing, travel bans and restrictions, shelter in place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. The scope, duration, and full effects of COVID-19 remain uncertain, but it is clear that the pandemic and related efforts to contain it have disrupted global economic activity, altered and affected the functioning of financial markets, increased economic and market uncertainty, and disrupted trade and supply chains, and may continue to do so for the foreseeable future. Although Farmer Mac has not observed a material effect on its business from the effects of the COVID-19 pandemic, if these effects continue for a protracted period or result in

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sustained economic stress or prolonged recession, many of the risks identified in Farmer Mac’s 2019 Form 10-K could be exacerbated and could manifest in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and human capital, possibly with materially greater material adverse effect than Farmer Mac currently anticipates.

The effects of the COVID-19 pandemic may negatively affect counterparties’ profitability and ability to repay their loans and other obligations 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.

Farmer Mac assumes the ultimate credit risk of borrower defaults on its agricultural mortgage and rural utilities loan assets, including AgVantage securities, and Farmer Mac's earnings depend significantly on their performance. Farmer Mac recognizes that the COVID-19 pandemic may continue to create significant stress for agricultural and rural borrowers because of disruptions to employees, markets, transportation, and other factors important to their operations. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in Farmer Mac's portfolio or defaults by AgVantage counterparties, Farmer Mac could incur significant credit losses, particularly if conditions cause land and asset values to deteriorate and the available collateral is insufficient to cover Farmer Mac's exposure, which likely would have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

Concentrated exposure to a particular borrower or AgVantage counterparty may exacerbate the credit risk Farmer Mac faces from the effects of the COVID-19 pandemic, which could materially and adversely affect its business, operating results, or financial condition.

Farmer Mac may be subject to credit risk due to concentrated exposure to a particular borrower. Farmer Mac’s Farm & Ranch 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 due to the effects of the COVID-19 pandemic 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 counterparty defaults and the market value of the loan collateral has declined, whether due to the negative effects of the COVID-19 pandemic or otherwise. If an AgVantage counterparty experiences stress in its loan collateral portfolio due to increased borrower defaults, whether from the effects of the COVID-19 pandemic or otherwise, it may also increase the likelihood of the AgVantage counterparty defaulting. 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, particularly if those loans are experiencing default or stress due to COVID-19. Most of Farmer Mac's AgVantage exposure is concentrated in a small number of issuers. As of June 30, 2020, $7.9 billion of the $8.7 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, or financial condition.


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Disruptions in the food supply chain due to the COVID-19 pandemic could have a negative effect on borrowers' profitability and repayment capacity, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

The COVID-19 pandemic has caused and may continue to cause restrictions and closures of businesses, including agricultural producers, as employers and government authorities respond to the public health crisis. Not only could these restrictions and closures affect the profitability of the businesses experiencing them, but disruptions in the supply chain related to the pandemic may also put downward pressure on the demand for agricultural commodities and products and negatively affect the profitability of those producers. Borrowers who have loans in Farmer Mac's portfolio and who are experiencing negative effects on their profitability from restrictions or closures or from supply chain disruptions may also experience challenges in their ability to repay those loans. These effects may be exacerbated the longer these conditions continue. Widespread and prolonged restrictions, closures, and supply chain disruptions due to the COVID-19 pandemic that negatively affect agricultural producers could lead to significant delinquencies and defaults in Farmer Mac's loan portfolio, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

A large number of loan payment deferments resulting from the COVID-19 pandemic could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.

As the negative economic conditions triggered by the COVID-19 pandemic continue, Farmer Mac has observed an increase in payment deferment requests from loan servicers on behalf of borrowers to help them avoid default on their loans, and we expect those requests to continue to increase. For more information on Farmer Mac's Farm & Ranch payment deferments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans & Guarantees." Farmer Mac funds these loans through its issuance of debt in the capital markets. If Farmer Mac approves a significant volume of deferment requests for loans held in its portfolio, it will receive diminished or no income on these loans for a period of time while still having required debt payments, which could materially and adversely affect Farmer Mac's financial condition, results of operations, liquidity, or capital levels. Deferment requests may also come from borrowers whose loans collateralize securities on which Farmer Mac has guaranteed timely payment of principal and interest. If Farmer Mac approves a significant volume of deferment requests for loans collateralizing these guaranteed securities, Farmer Mac will be required to make guarantee payments to the holders of many of these securities, or may elect to repurchase the loans from the pools collateralizing these securities, either of which could materially and adversely affect Farmer Mac's financial condition, results of operations, liquidity, or capital levels. In response to the COVID-19 pandemic, Oregon enacted House Bill 4204 (effective June 30, 2020) establishing temporary prohibitions on foreclosure, events of default, late payment penalties, and loan deferrals. Other states could follow suit. If several states or the federal government enact similar legislation and Farmer Mac was required to forgive, forbear, or defer all or part of borrowers' loan payments under the new legislation, Farmer Mac's volume of payment deferments could significantly increase, which could have a material adverse effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.


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The effects of the COVID-19 pandemic may affect the demand for Farmer Mac’s secondary market, the price or marketability of Farmer Mac’s products, and Farmer Mac’s ability to offer its products and services, which could materially and adversely affect Farmer Mac's business, operating results, financial condition, or capital levels.

The success of Farmer Mac's business may be affected by a variety of external factors that may affect the price or marketability of Farmer Mac's products and services, including disruptions in the capital markets, changes in interest rates that may increase Farmer Mac's funding costs, and reduced demand for Farmer Mac’s products due to economic conditions. The increase in Farmer Mac's business volume in second quarter 2020 was primarily attributable to historically low interest rates and pent-up demand that drove strong market demand from borrowers taking advantage of low interest rates on long-term funding. Farmer Mac experienced strong demand from our two main Rural Utilities counterparties as well as widespread robust demand among our network of active Farm & Ranch sellers. Changes in interest rates and the continued effects of COVID-19 on economic activity could negatively affect the demand for or profitability of Farmer Mac’s products and services by farmers, ranchers, rural utilities, and their lenders, which could materially and adversely affect Farmer Mac’s business, operating results, financial condition, or capital levels.

Disruptions in the equity and debt capital markets from the COVID-19 pandemic could have a material adverse effect on Farmer Mac's business, operating results, financial condition, liquidity, capital levels, or its ability to offer competitive products.

Farmer Mac's ability to operate its business, meet its obligations, generate asset volume growth, and fulfill its statutory mission depends on Farmer Mac's capacity to remain adequately capitalized through the issuance of equity and debt securities at favorable rates and terms in the U.S. financial markets. Farmer Mac's potential for growth and future net income depends in part on Farmer Mac's ability to access equity markets to raise efficient capital. The issuance of debt securities is Farmer Mac's primary source for repaying or refinancing existing debt, and one of the primary sources of Farmer Mac's revenue is the net interest income earned from the difference, or "spread," between the return received on assets held and the related borrowing costs. Farmer Mac’s daily access to the debt capital markets continued to be strong through the date of this report. If the recent disruptions and volatility in the U.S. financial markets related to the COVID-19 pandemic continues or intensifies in a way that prevents Farmer Mac from accessing those markets to issue equity or debt securities at favorable rates and terms, Farmer Mac's business, operating results, or financial condition could be adversely affected.

The COVID-19 pandemic has exposed Farmer Mac to increased cybersecurity risk and operational risk, which could adversely affect Farmer Mac’s business, results of operations, or financial condition.

Farmer Mac relies on business processes that largely depend on people, technology, and the use of complex systems and models to manage its business, including access to information systems and models as well as information, applications, payment systems, and other services provided by third parties. In response to the challenges presented by the COVID-19 pandemic, Farmer Mac has modified its business practices to focus on protecting its employees and the public while continuing to fulfill its critical mission and maintaining its regular business operations in support of the farmers, ranchers, and rural utilities of America. On March 12, 2020, Farmer Mac activated its Business Continuity Plan (“BCP”) and has been operating uninterrupted since then with all of its employees working remotely from their homes. Farmer Mac has provided guidance and support to its employees to ensure that they have the tools and knowledge needed to effectively work from home, and Farmer Mac’s technology platform and BCP have been functioning as designed in support of all functions of the organization. Nonetheless, because the

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technology in employees’ homes may not be as robust as in Farmer Mac’s offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than Farmer Mac’s in-office technology, the continuation of these work-from-home measures introduces additional operational risk. These risks include but are not limited to greater cybersecurity risks, strain on the local technology networks for remote operations, and potential impairment of the ability to perform critical functions, all of which could adversely affect Farmer Mac’s business, results of operations, and financial condition. Farmer Mac regularly monitors attempts by third parties to gain unauthorized access to its network and information systems through cyber-attacks. Despite the increased cybersecurity risks presented by a workforce that is operating entirely remotely, Farmer Mac is not aware of any cyber-attacks or other privacy or data security incidents through the date of this report that negatively affected the confidentiality, integrity, or availability of Farmer Mac’s information resources.

Operational disruptions or challenges due to the COVID-19 pandemic faced by third parties upon whom Farmer Mac relies in its own business operations could have a material adverse impact on its results of operations or financial condition.

Farmer Mac relies on many third parties, including vendors that supply essential services and local and federal government agencies, offices, and courthouses, in the performance of its business operations. In light of measures undertaken as a result of the COVID-19 pandemic, many of these entities have limited and may continue to limit the access and availability of their services. For example, Farmer Mac has observed delays in loan closings related to reductions in available staff in recording offices or the closing of courthouses to walk-in traffic in some rural counties, which is slowing the established process and turnaround times for title work and mortgage and UCC filings in those counties. Reduced personnel at or closures of USDA field offices as a result of the COVID-19 pandemic could negatively affect growth in Farmer Mac’s USDA Guarantees line of business because that business depends on obtaining a valid assignment of guarantee signed by an authorized USDA official. Farmer Mac continues to closely monitor the third parties who provide the information and services required to operate its business and their ability to continue to operate effectively in the face of the nationwide challenges posed by COVID-19. These entities include loan servicers; providers of financial information, systems, and analytical tools; providers of electronic payment and settlement systems; and providers of information technology infrastructure and business continuity services. Farmer Mac had not identified any significant disruptions with these third parties that had materially affected Farmer Mac’s business operations as of the date of this report. If some of the identified limitations in the availability of some services continue for a prolonged period or if additional limitations or potential disruptions in the ability to provide services materialize (which may be caused by a third party’s own financial or operational difficulties), it may inhibit or otherwise negatively affect the normal operations and processes for Farmer Mac’s business, which could have a material adverse impact on its results of operations or financial condition.

The effects of the COVID-19 pandemic on interest rates could materially and adversely affect Farmer Mac’s net income, operating results, or financial condition.

Farmer Mac is exposed to interest rate risk that could materially and adversely affect its business, operating results, or financial condition and changes in interest rates relative to Farmer Mac’s management of interest rate risk through derivatives may cause volatility in financial results and capital levels and may adversely affect Farmer Mac’s net income, liquidity position, or operating results. Farmer Mac’s financing activities, hedging activities, net effective spread, and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19, as evidenced by the recent actions of the Federal Reserve to significantly lower the target range for the federal funds rate based on concerns about the disruption to economic activity. Farmer Mac's primary strategy for managing

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interest rate risk is to fund asset purchases with liabilities that have similar duration and convexity characteristics so that they will perform similarly as interest rates change. However, a prolonged period of extremely volatile and unstable market conditions would likely increase Farmer Mac’s hedging and funding costs while negatively affecting market risk mitigation strategies. In that scenario, Farmer Mac may adjust its funding strategy for long-term fixed rate assets. Alternative funding strategies could result in greater exposure to re-funding risk and higher income volatility from changes in interest rates and movements in re-funding terms and spreads to benchmark indices such as LIBOR, which could have a material adverse effect on Farmer Mac's net income, operating results, or financial condition.

Significant disruption in the continuity of Farmer Mac's employees or executive leaders from the COVID-19 pandemic may materially and adversely affect Farmer Mac's business performance, operations, or financial condition.

Farmer Mac relies on its employees' breadth and depth of knowledge of Farmer Mac and the industries in which it operates to run its business operations successfully. A significant percentage of Farmer Mac’s employees and executive leaders live and work in the geographic region of its main office in Washington, D.C, with about 25% of the total workforce distributed in other geographic locations in the United States. This concentration of Farmer Mac's personnel, technology, and facilities increases Farmer Mac's risk of business disruptions if the negative impacts of the COVID-19 pandemic affect the Washington, D.C. metropolitan area disproportionately compared to other regions of the country. If Farmer Mac experiences widespread cases of COVID-19 among its employees, it would place more pressure on the remaining employees to perform all functions across the organization, could require Farmer Mac to divert or expend more resources to cover key personnel functions, and could impair the company’s ability to conduct business. A significant disruption in the continuity of Farmer Mac's employees or executive leaders caused by the COVID-19 pandemic could materially and adversely affect Farmer Mac's business performance, operations, or financial condition.

Disruption in the operations of Farmer Mac’s service providers caused by the COVID-19 pandemic or from government or third-party responses to the COVID-19 pandemic could materially and adversely affect Farmer Mac’s business, operating results, or financial condition.

Farmer Mac relies on many third-party service providers to conduct its business, including loan servicers, information systems providers, software-as-a-service (SaaS) providers, cloud computing service providers, consultants on key technology initiatives, and other service providers. Although Farmer Mac has continued to operate effectively through a fully remote workforce, disruptions in the operations of Farmer Mac’s third-party service providers caused by COVID-19-related illnesses or government or third-party actions taken to mitigate the public health effects of the COVID-19 pandemic, including stay-at-home orders, could impact Farmer Mac’s operations, which could materially and adversely affect Farmer Mac’s business, operating results, or financial condition.

The trading price for Farmer Mac's Class C non-voting common stock may be volatile due to market influences, trading volume, the effects of equity awards for Farmer Mac's officers, directors, and employees, or sales of significant amounts of the stock by large holders.

The trading price of Farmer Mac's Class C non-voting common stock ("Class C stock") has at times experienced substantial price volatility and may continue to be volatile. For example, from January 2020 to July 2020, the closing price of the Class C stock ranged from $43.02 per share to $83.55 per share. The trading price may fluctuate in response to various factors, including short sales, hedging, the presence or absence of a share repurchase program, stock market influences in general that are unrelated to Farmer

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Mac's operating performance (including COVID-19), or sales of significant amounts of the stock by large holders. Farmer Mac typically grants equity awards each year that are based on the Class C stock, including grants that vest over time or upon the achievement of specified performance goals. Sales of stock acquired upon vesting or the exercise of equity awards by Farmer Mac's officers, directors, or employees, whether under an established trading plan or otherwise, could adversely affect the trading price of the Class C stock.

As to the potential effect of sales of significant amounts of the Class C stock by large holders, Farmer Mac is aware of a regulatory action that could result in significant sales by Zions Bancorporation, National Association (“Zions”), which held 803,820 shares of Class C stock (approximately 8.7% of the outstanding shares) as of June 30, 2020. In a letter granting conditional approval of a proposed merger involving Zions, the applicable federal regulator found that, although Zions had requested to maintain its ownership in Farmer Mac’s Class C stock after the merger, the continued ownership of Class C stock (held by Zions' holding company before the merger) would not be a permissible investment for the surviving national bank entity of the merger based on then-current precedent. Under the terms of the conditional approval letter, Zions was to divest its ownership of the Class C stock by September 30, 2020, however Zions has indicated in its Quarterly Report filed on Form 10-Q on May 6, 2020, that the regulator has granted approval for Zions to extend the original sale deadline from September 30, 2020 to a date which will enable an orderly sale of its Farmer Mac Class C stock. Even though the regulator has made the determination to allow Zions to sell the Class C stock over an extended period, Zions is still required to sell all or a significant amount of its remaining Class C stock, and those sales could adversely affect the trading price of Farmer Mac’s Class C stock. The merger condition related to Zions’ ownership of Class C stock does not apply to Zions’ ownership of 322,100 shares of Farmer Mac’s Class A voting common stock (approximately 31.25% of the outstanding shares of that stock as of June 30, 2020).

All of these factors may be exacerbated during periods of low trading volume for Farmer Mac's Class C stock, which has averaged approximately 50,000 shares daily during 2020, and may have a prolonged negative effect on its trading price or increase price volatility.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)Farmer Mac is a federally chartered instrumentality of the United States whose debt and equity securities are exempt from registration under Section 3(a)(2) of the Securities Act of 1933. During second quarter 2020, the following transactions occurred related to Farmer Mac's equity securities that were not registered under the Securities Act of 1933 and were not otherwise reported on a Current Report on Form 8-K:

Class C Non-Voting Common Stock. Under Farmer Mac's policy that permits directors of Farmer Mac to elect to receive shares of Class C non-voting common stock in lieu of their cash retainers, Farmer Mac issued an aggregate of 317 shares of its Class C non-voting common stock in April 2020 to the three directors who elected to receive stock in lieu of their cash retainers. Farmer Mac calculated the number of shares issued to the directors based on a price of $55.63 per share, which was the closing price of the Class C non-voting common stock on March 31, 2020 (the last trading day of the previous quarter) as reported by the New York Stock Exchange.

On April 1, 2020, Farmer Mac granted an aggregate of 19,825 shares of time-vested restricted stock units under its Amended and Restated 2008 Omnibus Incentive Plan at a grant price of $52.25 per share to 34 employees as incentive compensation. All of these shares of restricted stock units granted to each

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employee will "cliff" vest on April 15, 2023 if the employee remains employed by Farmer Mac on that date.

(b)Not applicable.

(c)None.

Item 3.Defaults Upon Senior Securities

(a) None.

(b) None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

(a) None.

(b) None.


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Item 6.Exhibits

** 3.1
* 3.2

* 4.1
* 4.2
* 4.3
* 4.4
* 4.4.1
* 4.5
* 4.5.1
* 4.6

* 4.6.1
** 4.7

* 4.7.1
** 4.8
* 10.1
* 21
** 31.1
** 31.2
** 32
** 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
** 101.SCH Inline XBRL Taxonomy Extension Schema
** 101.CAL Inline XBRL Taxonomy Extension Calculation
** 101.DEF Inline XBRL Taxonomy Extension Definition
** 101.LAB Inline XBRL Taxonomy Extension Label
** 101.PRE Inline XBRL Taxonomy Extension Presentation
** 104 Cover Page Inline Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document included as Exhibit 101

* Incorporated by reference to the indicated prior filing.
** Filed with this report.
# Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
Management contract or compensatory plan.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

          /s/ Bradford T. Nordholm   August 10, 2020
By:
Bradford T. Nordholm
  Date
  President and Chief Executive Officer    
  (Principal Executive Officer)    
          /s/ Aparna Ramesh   August 10, 2020
By:
Aparna Ramesh
  Date
  Executive Vice President - Chief Financial Officer and Treasurer    
  (Principal Financial Officer)    



129

EXHIBIT 3.1

Title VIII of the Farm Credit Act of 1971, as amended
12 U.S.C. 2279 aa et seq.
As of August 18, 2020


AGRICULTURAL MORTGAGE SECONDARY MARKET

Subtitle A — Establishment and Activities of Federal Agricultural Mortgage Corporation
12 U.S.C. 2279aa SEC. 8.0. DEFINITIONS.

For purposes of this title:
(1) AGRICULTURAL REAL ESTATE. — The term "agricultural real estate" means —
(A) a parcel or parcels of land, or a building or structure affixed to the parcel or parcels, that —
(i) is used for the production of one or more agricultural commodities or products: and
(ii) consists of a minimum acreage or is used in producing minimum annual receipts, as determined by the Corporation; or
(B)  principal residence that is a single family, moderate‑priced residential dwelling located in a rural area, excluding —
(i) any community having a population in excess of 2,500 inhabitants; and
(ii) any dwelling, excluding the land to which the dwelling is affixed, with a value exceeding $100,000 (as adjusted for inflation).
(2) BOARD. — The term "Board" means the board of directors established under section 8.2.
(3) CERTIFIED FACILITY. — The term "certified facility" means —
(A) an agricultural mortgage marketing facility that is certified under section 8.5; or
(B) the Corporation and any affiliate thereof.
(4) CORPORATION. — The term "Corporation" means the Federal Agricultural Mortgage Corporation established in section 8.1.
(5) GUARANTEE. — The term "guarantee" means the guarantee of timely payment of the principal and interest on securities representing interests in, or obligations backed by, pools of qualified loans, in accordance with this title.

(6) ORIGINATOR. — The term "originator" means any Farm Credit System institution, bank, insurance company, business and industrial development company, savings and loan association, association of agricultural producers, agricultural cooperative, commercial finance company, trust company, credit union, or other entity that originates and services agricultural mortgage loans.
(7) QUALIFIED LOAN. — The term "qualified loan" means an obligation —
(A)  (i) that is secured by a fee‑simple or leasehold mortgage with status as a first lien on agricultural real estate located in the United States that is not subject to any legal or equitable claims deriving from a preceding fee‑simple or leasehold mortgage;
(ii) of —



        



(I)  a citizen or national of the United States or an alien lawfully admitted for permanent residence in the United States; or
(II)  a private corporation or partnership whose members, stockholders, or partners holding a majority interest in the corporation or partnership are individuals described in subclause (I); and
(iii) of a person, corporation, or partnership that has training or farming experience that, under criteria established by the Corporation, is sufficient to ensure a reasonable likelihood that the loan will be repaid according to its terms;
(B)  that is the portion of a loan guaranteed by the Secretary of Agriculture pursuant to the Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et seq.), except that —
(i)  subsections (b) and (c) of section 8.6, and sections 8.8 and 8.9, shall not apply to the portion of a loan guaranteed by the Secretary or to an obligation, pool, or security representing an interest in or obligation backed by a pool of obligations relating to the portion of a loan guaranteed by the Secretary; and
(ii)  the portion of a loan guaranteed by the Secretary shall be considered to meet all standards for qualified loans for all purposes under this Act; or
(C)  that is a loan, or an interest in a loan, for an electric or telephone facility by a cooperative lender to a borrower that has received, or is eligible to receive, a loan under the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).
(8) STATE. — The term "State" has the meaning given such term in section 5.51.
12 U.S.C. 2279aa-1 SEC. 8.1. FEDERAL AGRICULTURAL MORTGAGE CORPORATION. —

(a) ESTABLISHMENT. —
(1)  IN GENERAL. — There is hereby established a corporation to be known as the Federal Agricultural Mortgage Corporation, which shall be a federally chartered instrumentality of the United States.
(2)  INSTITUTION WITHIN FARM CREDIT SYSTEM. — The Corporation shall be an institution of the Farm Credit System.
(3)  LIABILITY. —
(A)  CORPORATION. — The Corporation shall not be liable for any debt or obligation of any other institution of the Farm Credit System.
(B)  SYSTEM INSTITUTIONS. — The Farm Credit System and System institutions (other than the Corporation) shall not be liable for any debt or obligation of the Corporation.
(b)  DUTIES. — The Corporation shall —
(1)  in consultation with originators, develop uniform underwriting, security appraisal, and repayment standards for qualified loans;
         (2) determine the eligibility of agricultural mortgage marketing facilities to contract with the Corporation for the provision of guarantees for specific mortgage pools;
(3) provide guarantees for the timely repayment of principal and interest on securities representing interests in, or obligations backed by, pools of qualified loans; and








(4) purchase qualified loans and issue securities representing interests in, or obligations backed by, the qualified loans, guaranteed for the timely repayment of principal and interest.
12 U.S.C. 2279aa-2 SEC. 8.2. BOARD OF DIRECTORS. —
(a)  IN GENERAL. —
(1)  ESTABLISHMENT. — The Corporation shall be under the management of the board of directors.
(2)  COMPOSITION. — The Board shall consist of 15 members, of which —
(A)  5 members shall be elected by holders of common stock that are insurance companies, banks, or other financial institutions or entities:
(B)  5 members shall be elected by holders of common stock that are Farm Credit System institutions; and
(C)  5 members shall be appointed by the President, by and with the advice and consent of the Senate —
(i)   which members shall not be, or have been, officers or directors of any financial institutions or entities;
(ii)   which members shall be representatives of the general public;
(iii)   of which members not more than 3 shall be members of the same political party; and
(iv)   of which members at least 2 shall be experienced in farming or ranching.
(3)  VACANCY. —
(A)  ELECTED MEMBERS. — Subject to paragraph (5), a vacancy among the members elected to the Board in the manner described in subparagraph (A) or (B) of paragraph (2) shall be filled by the Board from among persons eligible for election to the position for which the vacancy exists.
(B)  APPOINTED MEMBERS. — A vacancy among the members appointed to the Board under paragraph (2)(C) shall be filled in the manner in which the original appointment was made.
(4)  CONTINUATION OF MEMBERSHIP. — If —
(A)  any member of the Board who was appointed or elected to the Board from among persons who are representatives of banks, other financial institutions or entities, insurance companies, or Farm Credit System institutions ceases to be such a representative; or
(B)  any member who was appointed from persons who are not or have not been directors or officers of any financial institution or entity becomes a director or an officer of any financial institution or entity;
        such member may continue as a member for not longer than the 45-day period beginning on the date such member ceases to be such a representative, officer, or employee or becomes such a director or officer, as the case may be.
(5)  TERMS. —
(A)  APPOINTED MEMBERS. — The members appointed by the President shall serve at the pleasure of the President.








(B)   ELECTED MEMBERS. — The members elected under subparagraphs (A) and (B) of subsection (b)(2) of this section shall each be elected annually for a term ending on the date of the next annual meeting of the common stockholders of the Corporation and shall serve until their successors are elected and qualified. Any seat on the Board that becomes vacant after the annual election of the directors shall be filled by the members of the Board from the same category of directors, but only for the unexpired portion of the term.
(C)  VACANCY APPOINTMENT. — Any member appointed to fill a vacancy occurring before the expiration of the term for which the predecessor of the member was appointed shall be appointed only for the remainder of such term.
(D)  SERVICE AFTER EXPIRATION OF TERM. — A member may serve after the expiration of the term of the member until the successor of the member has taken office.
(6)  QUORUM. — 8 members of the Board shall constitute a quorum.
(7)  NO ADDITIONAL PAY FOR FEDERAL OFFICERS OR EMPLOYEES. — Members of the Board who are full-time officers or employees of the United States shall receive no additional pay by reason of service on the Board.
(8)   CHAIRPERSON. — The President shall designate 1 of the members of the Board who are appointed by the President as the chairperson of the Board.
(9)  MEETINGS. — The Board shall meet at the call of the chairperson or a majority of its members.
(b)  OFFICERS AND STAFF. — The Board may appoint, employ, fix the pay of, and provide other allowances and benefits for such officers and employees of the Corporation as the Board determines to be appropriate.
12 U.S.C. 2279aa-3 SEC. 8.3. POWERS AND DUTIES OF CORPORATION AND BOARD. —
(a) GUARANTEES. — After the Board has been duly constituted, subject to the other provisions of this title and other commitments and requirements established pursuant to law, the Corporation may provide guarantees on terms and conditions determined by the Corporation of securities issued on the security of, or in participation in, pooled interests in qualified loans.
(b) DUTIES OF THE BOARD. —
(1)  IN GENERAL. The Board shall —
(A)  determine the general policies that shall govern the operations of the Corporation;
(B)  select, appoint, and determine the compensation of qualified persons to fill such offices as may be provided for in the bylaws of the Corporation; and
(C)  assign to such persons such executive functions, powers, and duties as may be prescribed by the bylaws of the Corporation or by the Board.
(2)  EXECUTIVE OFFICERS AND FUNCTIONS. — The persons elected or appointed under paragraph (1)(B) shall be the executive officers of the Corporation and shall discharge the executive functions, powers, and duties of the Corporation.
(c) POWERS OF THE CORPORATION. — The Corporation shall be a body corporate and shall have the following powers:








(1) To operate under the direction of its Board.
(2) To issue stock in the manner provided in section 8.4.
(3) To adopt, alter, and use a corporate seal which shall be judicially noted.
(4) To provide for a president, 1 or more vice presidents, secretary, treasurer, and such other officers, employees, and agents as may be necessary, define their duties and compensation levels, all without regard to Title 5, United States Code, and require surety bonds or make other provisions against losses occasioned by acts of such persons.
(5) To provide guarantees in the manner provided under section 8.6.
(6) To have succession until dissolved by a law enacted by the Congress.
(7) To prescribe bylaws, through the Board, not inconsistent with law, that shall provide for —
(A)  the classes of the stock of the Corporation; and
(B)  the manner in which —
(i)   the stock shall be issued, transferred, and retired;
(ii)    the officers, employees, and agents of the Corporation are selected;
(iii)   the property of the Corporation is acquired, held, and transferred;
(iv)   the commitments and other financial assistance of the Corporation are made;
(v)    the general business of the Corporation is conducted; and
(vi)   the privileges granted by law to the Corporation are exercised and enjoyed;
(8) To prescribe such standards as may be necessary to carry out this title.
(9) To enter into contracts and make payments with respect to the contracts.
(10) To sue and be sued in its corporate capacity and to complain and defend in any action brought by or against the Corporation in any State or Federal court of competent jurisdiction.
(11) To make and perform contracts, agreements, and commitments with persons and entities both inside and outside of the Farm Credit System.
(12) To acquire, hold, lease, mortgage or dispose of, at public or private sale, real and personal property, purchase or sell any securities or obligations, and otherwise exercise all the usual incidents of ownership of property necessary and convenient to the business of the Corporation.
(13) To purchase, hold, sell, or assign a qualified loan, to issue a guaranteed security, representing an interest in, or an obligation backed by, the qualified loan, and to perform all the functions and responsibilities of an agricultural mortgage marketing facility operating as a certified facility under this title.
(14) To establish, acquire, and maintain affiliates (as such term is defined in section 8.11(e)) under applicable State laws to carry out any activities that otherwise would be performed directly by the Corporation under this title.








(15) To exercise such other incidental powers as are necessary to carry out the powers, duties, and functions of the Corporation in accordance with this title.
(d)  FEDERAL RESERVE BANKS AS DEPOSITORIES AND FISCAL AGENTS. — The Federal Reserve banks shall act as depositories for, and as fiscal agents or custodians of, the Corporation.
         (e) ACCESS TO BOOK-ENTRY SYSTEM. — The Corporation shall have access to the book-entry system of the Federal Reserve System.
12 U.S.C. 2279aa-4 SEC. 8.4. STOCK ISSUANCE —
(a) VOTING COMMON STOCK. —
(1)  ISSUE. —
        (A) IN GENERAL. — The Corporation shall issue voting common stock having such par value as may be fixed by the Board from time to time.
        (B) NUMBER OF VOTES. — Each share of voting common stock shall be entitled to one vote with rights of cumulative voting at all elections of directors.
        (C) OFFERS. —
         (i) IN GENERAL. — The Board shall offer the voting common stock to banks, other financial institutions, insurance companies, and System institutions under such terms and conditions as the Board may adopt.
         (ii) REQUIREMENTS. — The voting common stock shall be fairly and broadly offered to ensure that—
(I)  no institution or institutions acquire a disproportionate share of the total quantity of the voting common stock outstanding of a class of stock; and
(II)  capital contributions and issuances of voting common stock for the contributions are fairly distributed between entities eligible to hold class A stock and class B stock.
        (D) CLASSES OF STOCK. —
         (i) IN GENERAL. — The stock shall be divided into two classes with the same par value per share.
         (ii) CLASS A STOCK. — Class A stock may be held only by entities that are not Farm Credit System institutions and that are entitled to vote for directors specified in section 8.2(a)(2)(A), including national banking associations (which shall be allowed to purchase and hold such stock).
         (iii) CLASS B STOCK. — Class B stock may be held only by Farm Credit System institutions that are entitled to vote for directors specified in section 8.2(a)(2)(B).
(2)  LIMITATION ON ISSUE. — After the date the Board first meets with a quorum of its members present, voting common stock of the Corporation may be issued only to originators and certified facilities.
(3)  AUTHORITY OF BOARD TO ESTABLISH TERMS AND PROCEDURES. — The Board shall adopt such terms, conditions, and procedures with regard to the issue of stock under this section as may be necessary, including the establishment of a maximum amount limitation on the number of shares of voting common stock that may be outstanding at any time.








(4)  TRANSFERABILITY. — Subject to such limitations as the Board may impose, any share of any class of voting common stock issued under this section shall be transferable among the institutions or entities to which shares of such class of common stock may be offered under paragraph (1), except that, as to the Corporation, such shares shall be transferable only on the books of the Corporation.
(5)  MAXIMUM NUMBER OF SHARES. — No stockholder, other than a holder of class B stock, may own, directly or indirectly, more than 33 percent of the outstanding shares of such class of the voting common stock of the Corporation.
(b) REQUIRED CAPITAL CONTRIBUTIONS.—
(1) IN GENERAL — The Corporation may require each originator and each certified facility to make, or commit to make, such nonrefundable capital contributions to the Corporation as are reasonable and necessary to meet the administrative expenses of the Corporation.
(2) STOCK ISSUED AS CONSIDERATION FOR CONTRIBUTION. — The Corporation, from time to time, shall issue to each originator or certified facility voting common stock evidencing any capital contributions made pursuant to this subsection.
(c) DIVIDENDS. —
(1) IN GENERAL. — Such dividends as may be declared by the Board, in the discretion of the Board, shall be paid by the Corporation to the holders of the voting common stock of the Corporation pro rata based on the total number of shares of both classes of stock outstanding.
(2) RESERVES REQUIREMENT. — No dividend may be declared or paid by the Board under this section unless the Board determines that adequate provision has been made for the reserve required under section 8.10(c)(1).
(3) DIVIDENDS PROHIBITED WHILE OBLIGATIONS ARE OUTSTANDING. — No dividend may be declared or paid by the Board under this section while any obligation issued by the Corporation to the Secretary of the Treasury under section 8.13 remains outstanding.
(d) NONVOTING COMMON STOCK. — The Corporation is authorized to issue nonvoting common stock having such par value as may be fixed by the Board from time to time. Such nonvoting common stock shall be freely transferable, except that, as to the Corporation, such stock shall be transferable only on the books of the Corporation. Such dividends as may be declared by the Board, in the discretion of the Board, may be paid by the Corporation to the holders of the nonvoting common stock of the Corporation, subject to paragraphs (2) and (3) of subsection (c) of this section.
(e)  PREFERRED STOCK. —
(1)  AUTHORITY OF BOARD. — The Corporation is authorized to issue nonvoting preferred stock having such par value as may be fixed by the Board from time to time. Such preferred stock issued shall be freely transferable, except that, as to the Corporation, such stock shall be transferred only on the books of the Corporation.
(2)  RIGHTS OF PREFERRED STOCK. — Subject to paragraphs (2) and (3) of subsection (c) of this section, the holders of the preferred stock shall be entitled to such rate of cumulative dividends, and such holders shall be subject to such redemption or other conversion provisions, as may be provided for at the time of issuance. No dividends shall be payable on any share of common stock at any time when any dividend is due on any share of preferred stock and has not been paid.
(3)  PREFERENCE OF TERMINATION OF BUSINESS. — In the event of any liquidation, dissolution, or winding up of the business of the Corporation, the holders of the preferred shares of stock shall be








paid in full at the par value thereof, plus all accrued dividends, before the holders of the common shares receive any payment.
12 U.S.C. 2279aa-5 SEC. 8.5. CERTIFICATION OF AGRICULTURAL MORTGAGE MARKETING      FACILITIES. —
(a)  ELIGIBILITY STANDARDS. —
(1)  ESTABLISHMENT REQUIRED. — Within 120 days after the date on which the Board first meets with a quorum present, the Corporation shall issue standards for the certification of agricultural mortgage marketing facilities (other than the Corporation), including eligibility standards in accordance with paragraph (2).
(2)  MINIMUM REQUIREMENTS. — To be eligible to be certified under the standards referred to in paragraph (1), an agricultural mortgage marketing facility (other than the Corporation) shall —
(A)  be an institution of the Farm Credit System or a corporation, association, or trust organized under the laws of the United States or of any State;
(B)  meet or exceed capital standards established by the Board;
(C)  have as one of the purposes of the facility, the sale or resale of securities representing interests in, or obligations backed by, pools of qualified loans that have been provided guarantees by the Corporation;
(D)  demonstrate managerial ability with respect to agricultural mortgage loan underwriting, servicing, and marketing that is acceptable to the Corporation;
(E)  adopt appropriate agricultural mortgage loan underwriting, appraisal, and servicing standards and procedures that meet or exceed the standards established by the Board;
(F)  for purposes of enabling the Corporation to examine the facility, agree to allow officers or employees of the Corporation to have access to all books, accounts, financial records, reports, files, and all other papers, things, or property, of any type whatsoever, belonging to or used by the Corporation that are necessary to facilitate an examination of the operations of the facility in connection with securities, and the pools of qualified loans that back securities, for which the Corporation has provided guarantees; and
(G)  adopt appropriate minimum standards and procedures relating to loan administration and disclosure to borrowers concerning the terms and rights applicable to loans for which guarantee is provided, in conformity with uniform standards established by the Corporation.
(3)  NONDISCRIMINATION REQUIREMENT. — The standard established under this subsection shall not discriminate between or against Farm Credit System and non-Farm Credit System applicants.
(b)  CERTIFICATION BY CORPORATION.  — Within 60 days after receiving an application for certification under this section, the Corporation shall certify the facility if the facility meets the standards established by the Corporation under subsection (a)(1) of this section.
(c)  MAXIMUM TIME PERIOD FOR CERTIFICATION. — Any certification by the Corporation of an agricultural mortgage marketing facility shall be effective for a period determined by the Corporation of not to exceed 5 years.
(d)  REVOCATION. —








(1)  IN GENERAL. — After notice and an opportunity for a hearing, the Corporation may revoke the certification of an agricultural mortgage marketing facility if the Corporation determines that the facility no longer meets the standards referred to in subsection (a) of this section.
(2)  EFFECT OF REVOCATION. — Revocation of a certification shall not affect any pool guarantee that has been issued by the Corporation.
(e)  AFFILIATION OF FCS INSTITUTIONS WITH FACILITY. —
(1)  ESTABLISHMENT OF AFFILIATE AUTHORIZED. — Notwithstanding any other provision of this Act, any Farm Credit System institution acting for such institution alone or in conjunction with one or more other such institutions, may establish and operate as an affiliate, an agricultural mortgage marketing facility if, within a reasonable time after such establishment, such facility obtains and thereafter retains certification under subsection (b) of this section as a certified facility.
(2)  EXCLUSIVE AGENCY AGREEMENT AUTHORIZED. — Any number of Farm Credit System institutions (other than the Corporation) may enter into an agreement with any certified facility (including an affiliate established under paragraph (1)) to sell the qualified loans of such institutions exclusively to or through the facility.
12 U.S.C. 2279aa-6 SEC. 8.6. GUARANTEE OF QUALIFIED LOANS. —
(a)  GUARANTEE AUTHORIZED FOR CERTIFIED FACILITIES. —
(1)  IN GENERAL. — Subject to the requirements of this section and on such other terms and conditions as the Corporation shall consider appropriate, the Corporation
(A)  shall guarantee the timely payment of principal and interest on the securities issued by a certified facility that represents interests solely in, or obligations fully backed by, any pool consisting solely of qualified loans which meet the applicable standards established under section 8.8 and which are held by such facility; and
(B) may issue a security, guaranteed as to the timely payment of principal and interest, that represents an interest solely in, or an obligation fully backed by, a pool consisting of qualified loans that —
(i)   meet the applicable standards established under section 8.8; and
(ii)  have been purchased and held by the Corporation.
(2)  INABILITY OF FACILITY TO PAY. — If the facility is unable to make any payment of principal or interest on any security for which a guarantee has been provided by the Corporation under paragraph (1) of this section the Corporation shall make such payment as and when due in cash and on such payment shall be subrogated fully to the rights satisfied by such payment.
(3)  POWER OF CORPORATION. — Notwithstanding any other provision of law, the Corporation is empowered, in connection with any guarantee under this subsection, whether before or after any default, to provide by contract with the facility for the extinguishment, on default by the facility, of any redemption, equitable, legal, or other right, title, or interest of the facility in any mortgage or mortgages constituting the pool against which the guaranteed securities are issued. With respect to any issue of guaranteed securities, in the event of default and pursuant otherwise to the terms of the contract, the mortgages that constitute such pool shall become the absolute








property of the Corporation subject only to the unsatisfied rights of the holder of the securities based on and backed by such pool.
(b)  OTHER RESPONSIBILITIES OF AND LIMITATIONS ON CERTIFIED FACILITIES. — As a condition for providing any guarantees under this section for securities issued by a certified facility that represent interests in, or obligations backed by, any pool of qualified loans, the Corporation shall require such facility to agree to comply with the following requirements:
(1)  LOAN DEFAULT RESOLUTION. — The facility shall act in accordance with the standards of a prudent institutional lender to resolve loan defaults.
(2)  SUBROGATION OF UNITED STATES AND CORPORATION TO INTERESTS OF FACILITY. — The proceeds of any collateral, judgments, settlements or guarantees received by the facility with respect to any loan in such pool, shall be applied, after payment of costs of collection —
(A)  first, to reduce the amount of any principal outstanding on any obligation of the Corporation that was purchased by the Secretary of the Treasury under section 8.13 to the extent the proceeds of such obligation were used to make guarantees in connection with such securities: and
(B)  second, to reimburse the Corporation for any such guarantee payments.
(3)  LOAN SERVICING. — The originator of any loan in such pool shall be permitted to retain the right to service the loan.
(4)  MINORITY PARTICIPATION IN PUBLIC OFFERINGS. — The facility shall take such steps as may be necessary to ensure that minority owned or controlled investment banking firms, underwriters, and bond counsels throughout the United States have an opportunity to participate to a significant degree in any public offering of securities.
(5)  NO DISCRIMINATION AGAINST STATES WITH BORROWERS RIGHTS. — The facility may not refuse to purchase qualified loans originating in States that have established borrowers rights laws either by statute or under the constitution of such States, except that the facility may require discounts or charge fees reasonably related to costs and expenses arising from such statutes or constitutional provisions.
(c)  ADDITIONAL AUTHORITY OF THE BOARD. — To ensure the liquidity of securities for which guarantees have been provided under this section, the Board shall adopt appropriate standards regarding —
(1)  the characteristics of any pool of qualified loans serving as collateral for such securities; and
(2)  transfer requirements.
           (d) PURCHASE OF GUARANTEED SECURITIES. —
(1)  PURCHASE AUTHORITY. — The Corporation (and affiliates) may purchase, hold, and sell any securities guaranteed under this section by the Corporation that represent interests in, or obligations backed by, pools of qualified loans. Securities issued under this section shall have maturities and bear rates of interest as determined by the Corporation.
(2) ISSUANCE OF DEBT OBLIGATIONS. — The Corporation (and affiliates) may issue debt obligations solely for the purpose of obtaining amounts for the purchase of any securities under paragraph (1), for the purchase of qualified loans (as defined in section 8.0), and for maintaining reasonable amounts for business operations (including adequate liquidity) relating to activities under this subsection.








(3) TERMS AND LIMITATIONS. —
(A)  TERMS. — The obligations issued under this subsection shall have maturities and bear rates of interest as determined by the Corporation, and may be redeemable at the option of the Corporation before maturity in the manner stipulated in the obligations.
(B)  REQUIREMENT. — Each obligation shall clearly indicate that the obligation is not an obligation of, and is not guaranteed as to principal and interest by, the Farm Credit Administration, the United States, or any other agency or instrumentality of the United States (other than the Corporation).
(C) AUTHORITY. — The Corporation may not issue obligations pursuant to paragraph (2) under this subsection while any obligation issued by the Corporation under section 8.13(a) remains outstanding.
         
12 U.S.C. 2279aa-7 SEC. 8.7. [REPEALED]

12 U.S.C. 2279aa-8 SEC. 8.8. STANDARDS FOR QUALIFIED LOANS. —
(a)  STANDARDS. —
(1)  IN GENERAL. — The Corporation shall establish underwriting, security appraisal, and repayment standards for qualified loans taking into account the nature, risk profile, and other differences between different categories of qualified loans.
(2)  SUPERVISION, EXAMINATION, AND REPORT OF CONDITION. — The standards shall be subject to the authorities of the Farm Credit Administration under section 8.11.
(3)  MORTGAGE LOANS. — In establishing standards for qualified loans, the Corporation shall confine corporate operations, so far as practicable, to mortgage loans that are deemed by the Board to be of such quality so as to meet, substantially and generally, the purchase standards imposed by private institutional mortgage investors.
(b)  MINIMUM CRITERIA. — To further the purpose of this title to provide a new source of long‑term fixed rate financing to assist farmers and ranchers to purchase agricultural real estate, the standards established by the Board pursuant to subsection (a) with respect to loans secured by agricultural real estate of this section shall, at a minimum —
(1)  provide that no agricultural mortgage loan with a loan‑to‑value ratio in excess of 80 percent may be treated as a qualified loan;
(2)  require each borrower to demonstrate sufficient cash-flow to adequately service the agricultural mortgage loan;
(3)  contain sufficient documentation standards;
(4)  contain adequate standards to protect the integrity of the appraisal process with respect to any agricultural mortgage loans;
(5)  contain adequate standards to ensure that the farmer or rancher is or will be actively engaged in agricultural production, and require the borrower to certify to the originator that the borrower intends to continue agricultural production on the farm or ranch involved;
(6)  minimize speculation in agricultural real estate for nonagricultural purposes; and
(7)  in establishing the value of agricultural real estate, consider the purpose for which the real estate is taxed.








(c)  LOAN AMOUNT LIMITATION. —
(1)  IN GENERAL. — A loan secured by agricultural real estate may not be treated as a qualified loan if the principal amount of such loan exceeds $2,500,000, adjusted for inflation, except as provided in paragraph (2).
(2)  ACREAGE EXCEPTION. — Paragraph (1) shall not apply with respect to any agricultural mortgage loan described in such paragraph if such loan is secured by agricultural real estate that, in the aggregate, comprises not more than 2,000 acres.
(d)  NONDISCRIMINATION REQUIREMENT. — The standards established under subsection (a) shall not discriminate against small originators or small agricultural mortgage loans that are at least $50,000. The Board shall promote and encourage the inclusion of qualified loans for small farms and family farmers in the agricultural mortgage secondary market.
12 U.S.C. 2279aa-9 SEC. 8.9. EXEMPTION FROM RESTRUCTURING AND BORROWERS RIGHTS      PROVISIONS FOR POOLED LOANS. 
(a) RESTRUCTURING. — Notwithstanding any other provision of law, sections 4.14, 4.14A, 4.14B, and 4.14D and 4.36 shall not apply to any loan included in a pool of qualified loans backing securities or obligations for which the Corporation provides guarantee. The loan servicing standards established by the Corporation shall be patterned after similar standards adopted by other federally sponsored secondary market facilities.
(b) BORROWERS RIGHTS. — At the time of application for a loan, originators that are Farm Credit System institutions shall give written notice to each applicant of the terms and conditions of the loan, setting forth separately terms and conditions for pooled loans and loans that are not pooled. This notice shall include a statement, if applicable, that the loan may be pooled and that, if pooled, sections 4.14, 4.14A, 4.14B, and 4.14D and 4.36 shall not apply. This notice also shall inform the applicant that he or she has the right not to have the loan pooled. Within 3 days from the time of commitment, an applicant has the right to refuse to allow the loan to be pooled, thereby retaining rights under sections 4.14, 4.14A, 4.14B, and 4.14D and 4.36, if applicable.
12 U.S.C. 2279aa-10 SEC. 8.10. FUNDING FOR GUARANTEE; RESERVES OF CORPORATION. —
(a) GUARANTEE. — The Corporation shall provide guarantees for securities representing interests in, or obligations backed by, pools of qualified loans through commitments issued by the Corporation providing for guarantees.
(b) GUARANTEE FEES. —
(1)  INITIAL FEE. — At the time a guarantee is issued by the Corporation, the Corporation shall assess the certified facility a fee of not more than 1/2 of 1 percent of the initial principal amount of each pool of qualified loans.
(2)  ANNUAL FEES. — Beginning in the second year after the date the guarantee is issued under paragraph (1), the Corporation may, at the end of each year, assess the certified facility an annual fee of not more than 1/2 of 1 percent of the principal amount of the loans then constituting the pool.
(3)  DETERMINATION OF AMOUNT. — The Corporation shall establish such fees on the amount of risk incurred by the Corporation in providing the guarantees with respect to which such fee is assessed, as determined by the Corporation. Fees assessed under paragraphs (1) and (2) shall be established on an actuarially sound basis.
Amended by Pub. L 104-316 Title I, §106 (f) (4) ANNUAL REVIEW BY GAO. — The Comptroller General of the United States may review, and submit to the Congress a report regarding, the








actuarial soundness and reasonableness of the fees established by the Corporation under this subsection. —
(c) CORPORATION RESERVE AGAINST GUARANTEES LOSSES REQUIRED. —
(1)  IN GENERAL. — So much of the fees assessed under this section as the Board determines to be necessary shall be set aside by the Corporation in a segregated account as a reserve against losses arising out of the guarantee activities of the Corporation.
(2)  EXHAUSTION OF RESERVE REQUIRED. — The Corporation may not issue obligations to the Secretary of the Treasury under section 8.13 in order to meet the obligations of the Corporation with respect to any guarantees provided under this title until the reserve established under paragraph (1) has been exhausted.
(d) FEES TO COVER ADMINISTRATIVE COSTS AUTHORIZED. — The Corporation may impose charges or fees in reasonable amounts in connection with the administration of its activities under this title to recover its costs for performing such administration.

12 U.S.C. 2279aa-11 SEC. 8.11. SUPERVISION, EXAMINATION, AND REPORT OF CONDITION. 
(a) REGULATION. —
(1) AUTHORITY. — Notwithstanding any other provision of this Act, the Farm Credit Administration shall have the authority to provide, acting through the Office of Secondary Market Oversight —
(A)  for the examination of the Corporation and its affiliates; and
(B)  for the general supervision of the safe and sound performance of the powers, functions, and duties vested in the Corporation and its affiliates by this title, including through the use of the authorities granted to the Farm Credit Administration under —
(i)   part C of title V; and
(ii)  beginning 6 months after the date of enactment of this section, section 5.17(a)(9).
(2)  CONSIDERATIONS. — In exercising its authority pursuant to this section, the Farm Credit Administration shall consider —
(A)  the purposes for which the Corporation was created;
(B)  the practices appropriate to the conduct of secondary markets in agricultural loans; and
(C)  the reduced levels of risk associated with appropriately structured secondary market transactions.








            (3) OFFICE OF SECONDARY MARKET OVERSIGHT. —
(A)  Not later than 180 days after the date of enactment of this paragraph, the Farm Credit Administration Board shall establish within the Farm Credit Administration the Office of Secondary Market Oversight.
(B)  The Farm Credit Administration Board shall carry out the authority set forth in this section through the Office of Secondary Market Oversight.
(C)  The Office of Secondary Market Oversight shall be managed by a full-time Director who shall be selected by and report to the Farm Credit Administration Board.
(b)  EXAMINATIONS AND AUDITS. —
(1)  IN GENERAL. — The financial transactions of the Corporation shall be examined by examiners of the Farm Credit Administration in accordance with the principles and procedures applicable to commercial corporate transactions under such rules and regulations as may be prescribed by the Administration.
(2)  FREQUENCY. — The examinations shall occur at such times as the Farm Credit Administration Board may determine, but in no event less than once each year.
(3)  ACCESS. — The examiners shall —
(A)  have access to all books, accounts, financial records, reports, files, and all other papers, things, or property belonging to or in use by the Corporation and necessary to facilitate the audit; and
(B)  be afforded full access for verifying transactions with certified facilities and other entities with whom the Corporation conducts transactions.
(c)  ANNUAL REPORT OF CONDITION. — The Corporation shall make and publish an annual report of condition as prescribed by the Farm Credit Administration. Each report shall contain financial statements prepared in accordance with generally accepted accounting principles and contain such additional information as the Farm Credit Administration may by regulation prescribe. The financial statements of the Corporation shall be audited by an independent public accountant.
(d)  FCA ASSESSMENTS TO COVER COSTS. — The Farm Credit Administration shall assess the Corporation for the cost to the Administration of any regulatory activities conducted under this section, including the cost of any examination.
(e)  DEFINITION OF AFFILIATE. — As used in this title, the term "affiliate" shall mean an entity effectively controlled or owned by the Corporation, except that such term shall not include an originator (as defined in section 8.0).
(f)  The Farm Credit Administration Board shall ensure that —
(1)  the Office of Secondary Market Oversight has access to a sufficient number of qualified and trained employees to adequately supervise the secondary market activities of the Corporation; and
(2)  the supervision of the powers, functions, and duties of the Corporation is performed, to the extent practicable, by personnel who are not responsible for the supervision of the banks and associations of the Farm Credit System.
12 U.S.C. 2279aa-12 SEC. 8.12. SECURITIES IN CREDIT ENHANCED POOLS. —
(a)  FEDERAL LAWS. —








(1)  APPLICABILITY OF CERTAIN FEDERAL SECURITIES LAWS. — For purposes of section 3(a)(2) of the Securities Act of 1933, no security representing an interest in, or obligations backed by, a pool of qualified loans for which guarantees have been provided by the Corporation shall be deemed to be a security issued or guaranteed by a person controlled or supervised by, or acting as an instrumentality of, the Government of the United States. No such security shall be deemed to be a "government security" for purposes of the Securities Exchange Act of 1934 or for purposes of the Investment Company Act of 1940.
(2)  NO FULL FAITH AND CREDIT OF THE UNITED STATES. — Each security for which credit enhancement has been provided by the Corporation shall clearly indicate that the security is not an obligation of, and is not guaranteed as to principal or interest by, the Farm Credit Administration, the United States, or any other agency or instrumentality of the United States (other than the Corporation).
(b)  STATE SECURITIES LAWS. —
(1)  GENERAL EXEMPTION. — Any security or obligation that has been provided a guarantee by the Corporation shall be exempt from any law of any State with respect to or requiring registration or qualification of securities or real estate to the same extent as any obligation issued by, or guaranteed as to principal and interest by, the United States or any agency or instrumentality of the United States.
(2)  STATE OVERRIDE. — The provisions of paragraph (1) shall not be applicable to any State that, during the 8‑year period beginning on the date of the enactment of this title, enacts a law that —
(A)  specifically refers to this subsection; and
(B)  expressly provides that paragraph (1) shall not apply to the State.
(c)  AUTHORIZED INVESTMENTS. —
(1)  IN GENERAL. — Securities representing an interest in, or obligations backed by, pools of qualified loans with respect to which the Corporation has provided a guarantee shall be authorized investments of any person, trust, corporation, partnership, association, business trust, or business entity created pursuant to or existing under the laws of the United States or any State to the same extent that the person, trust, corporation, partnership, association, business trust, or business entity is authorized under any applicable law to purchase, hold, or invest in obligations issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality of the United States. Such securities or obligations may be accepted as security for all fiduciary, trust, and public funds, the investment or deposits of which shall be under the authority and control of the United States or any State or any officers of either.
(2)  STATE LIMITATIONS ON PURCHASE, HOLDING, OR INVESTMENT. — If State law limits the purchase, holding, or investment in obligations issued by the United States by the person, trust, corporation, partnership, association, business trust, or business entity, securities or obligations of a certified facility issued on which the Corporation has provided a guarantee shall be considered to be obligations issued by the United States for purposes of the limitation.
(3)  NONAPPLICABILITY OF PROVISIONS. —
(A)  SUBSEQUENT STATE LAW. — Paragraphs (1) and (2) shall not apply with respect to a particular person, trust, corporation, partnership, association, business trust, or business entity, or class thereof, in any State that, prior to the expiration of the 8‑year period beginning on the date of the enactment of this title, enacts a law that specifically refers to this section and either prohibits or provides








for a more limited authority to purchase, hold, or invest in the securities by any person, trust, corporation, partnership, association, business trust, or business entity, or class thereof, than is provided in paragraphs (1) and (2).
(B)  EFFECT OF SUBSEQUENT STATE LAW. — The enactment by any State of a law of the type described in subparagraph (A) shall not affect the validity of any contractual commitment to purchase, hold, or invest that was made prior to the effective date of the law and shall not require the sale or other disposition of any securities acquired prior to the effective date of the law.
(d) STATE USURY LAWS SUPERSEDED. — A provision of the Constitution or law of any State shall not apply to an agricultural loan made by an originator or a certified facility in accordance with this title for sale to the Corporation or to a certified facility for inclusion in a pool for which the Corporation has provided, or has committed to provide, a guarantee, if the loan, not later than 180 days after the date the loan was made, is sold to the Corporation or included in a pool for which the Corporation has provided a guarantee, if the provision —
  (1) limits the rate or amount of interest, discount points, finance charges, or other charges that may be charged, taken, received, or reserved by an agricultural lender or a certified facility; or
         (2)  limits or prohibits a prepayment penalty (either fixed or declining), yield maintenance, or make-whole payment that may be charged, taken, or received by an agricultural lender or a certified facility in connection with the full or partial payment of the principal amount due on a loan by a borrower in advance of the scheduled date for the payment under the terms of the loan, otherwise known as a prepayment of the loan principal.








12 U.S.C. 2279aa13 SEC. 8.13. AUTHORITY TO ISSUE OBLIGATIONS TO COVER GUARANTEE LOSSES OF CORPORATION.
(a)  SALE OF OBLIGATIONS TO TREASURY. —
(1)  IN GENERAL. — Subject to the limitations contained in section 8.10(c) and the requirement of paragraph (2), the Corporation may issue obligations to the Secretary of the Treasury the proceeds of which may be used by the Corporation solely for the purpose of fulfilling the obligations of the Corporation under any guarantee provided by the Corporation under this title.
(2)  CERTIFICATION. — The Secretary of the Treasury may purchase obligations of the Corporation under paragraph (1) only if the Corporation certifies to the Secretary that
           (A)  the requirements of section 8.10(c) have been fulfilled; and
           (B) the proceeds of the sale of such obligations are needed to fulfill the obligations of the Corporation under any guarantee provided by the Corporation under this title.
(b) EXPEDITIOUS TRANSACTION REQUIRED. — Not later than 10 business days after receipt by the Secretary of the Treasury of any certification by the Corporation under subsection (a)(2) of this section, the Secretary of the Treasury shall purchase obligations issued by the Corporation in an amount determined by the Corporation to be sufficient to meet the guarantee liabilities of the Corporation.
(c) LIMITATION ON AMOUNT OF OUTSTANDING OBLIGATIONS. — The aggregate amount of obligations issued by the Corporation under subsection (a)(1) of this section which may be held by the Secretary of the Treasury at any time (as determined by the Secretary) shall not exceed $1,500,000,000.
(d) TERMS OF OBLIGATION. —
(1) INTEREST. — Each obligation purchased by the Secretary of the Treasury shall bear interest at a rate determined by the Secretary, 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 such obligation.
(2)  REDEMPTION. — The Secretary of the Treasury shall require that such obligations be repurchased by the Corporation within a reasonable time.
(e)   COORDINATION WITH TITLE 31, UNITED STATES CODE. —
(1)  AUTHORITY TO USE PROCEEDS FROM SALE OF TREASURY SECURITIES. — For the purpose of purchasing obligations of the Corporation, the Secretary of the Treasury may use as a public debt transaction the proceeds from the sale by the Secretary of any securities issued under chapter 31, of title 31, United States Code, and the purposes for which securities may be issued under such chapter are extended to include such purchases.
(2)  TREATMENT OF TRANSACTIONS. — All purchases and sales by the Secretary of the Treasury of obligations issued by the Corporation under this section shall be treated as public debt transactions of the United States.
        (f) AUTHORIZATION OF APPROPRIATIONS. — There is authorized to be appropriated to the Secretary of the Treasury $1,500,000,000, without fiscal year limitation, to carry out the purposes of this title.

12 U.S.C. 2279aa-14 SEC. 8.14. FEDERAL JURISDICTION. —








Notwithstanding section 1349 of Title 28, United States Code, or any other provision of law:
(1)  The Corporation shall be considered an agency under sections 1345 and 1442 of such title.
(2)  All civil actions to which the Corporation is a party shall be deemed to arise under the laws of the United States and, to the extent applicable, shall be deemed to be governed by Federal common law. The district courts of the United States shall have original jurisdiction of all such actions, without regard to amount of value.
(3)  Any civil or other action, case, or controversy in a court of a State or any court, other than a district court of the United States, to which the Corporation is a party may at any time before trial be removed by the Corporation, without the giving of any bond or security —
(A)  to the District Court of the United States for the district and division embracing the place where the same is pending; or
(B)  if there is no such district court, to the District Court of the United States for the district in which the principal office of the Corporation is located, by following any procedure for removal for causes in effect at the time of such removal.
(4)  No attachment or execution shall be issued against the Corporation or any of the property of the Corporation before final judgment in any Federal, State, or other court.

         Subtitle B — Regulation of Financial Safety and Soundness of Federal Agricultural Mortgage Corporation

12 U.S.C. 2279bb SEC. 8.31. DEFINITIONS.









For purposes of this subtitle:
(1) COMPENSATION. — The term 'compensation' means any payment of money or the provision of any other thing of current or potential value in connection with employment.
(2) CORE CAPITAL. — The term 'core capital' means, with respect to the Corporation, the sum of the following (as determined in accordance with generally accepted accounting principles):
(A) The par value of outstanding common stock.
(B) The par value of outstanding preferred stock.
(C) Paid-in capital.
(D) Retained earnings.
(3) DIRECTOR. — The term 'Director' means the Director of the Office of Secondary Market Oversight of the Farm Credit Administration, selected under section 8.11(a)(3).
(4) OFFICE. — The term 'Office' means the Office of Secondary Market Oversight of the Farm Credit Administration, established in section 8.11(a).
(5) REGULATORY CAPITAL. — The term 'regulatory capital' means, with respect to the Corporation, the core capital of the Corporation plus an allowance for losses and guarantee claims, as determined in accordance with generally accepted accounting principles.
(6) STATE. — The term 'State' means the States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, the Virgin Islands, American Samoa, the Trust Territory of the Pacific Islands, and any other territory or possession of the United States.
12 U.S.C. 2279bb -1 SEC. 8.32. RISK-BASED CAPITAL LEVELS.
(a)  RISK-BASED CAPITAL TEST. — The Director of the Office of Secondary Market Oversight shall, by regulation, establish a risk-based capital test under this section for the Corporation. When applied to the Corporation, the risk-based capital test shall determine the amount of regulatory capital for the Corporation that is sufficient for the Corporation to maintain positive capital during a 10-year period in which both of the following circumstances occur.
(1)  CREDIT RISK. —
(A)  IN GENERAL. — With respect to securities representing an interest in, or obligations backed by, a pool of qualified loans owned or guaranteed by the Corporation and other obligations of the Corporation, losses on the underlying qualified loans occur throughout the United States at a rate of default and severity (based on any measurements of default reasonably related to prevailing industry practice in determining capital adequacy) reasonably related to the rate and severity that occurred in contiguous areas of the United States containing an aggregate of not less than 5 percent of the total population of the United States that, for a period of not less than 2 years (as established by the Director), experienced the highest rates of default and severity of agricultural mortgage losses, in comparison with such rates of default and severity of agricultural mortgage losses in other such areas for any period of such duration, as determined by the Director.
(B)  RURAL UTILITY LOANS. — With respect to securities representing an interest in, or obligation backed by, a pool of qualified loans described in section 8.0(7)(C) owned or guaranteed by the Corporation, losses occur at a rate of default and severity








reasonably related to risks in electric and telephone facility loans (as applicable), as determined by the Director.
(2)  INTEREST RATE RISK. — Interest rates on Treasury obligations of varying terms increase or decrease over the first 12 months of such 10-year period by not more than the lesser of (A) 50 percent (with respect to the average interest rates on such obligations during the 12-month period preceding the 10-year period), or (B) 600 basis points, and remain at such level for the remainder of the period. This paragraph may not be construed to require the Director to determine interest rate risk under this paragraph based on the interest rates for various long-term and short-term obligations all increasing or all decreasing concurrently.
(b)  CONSIDERATIONS. —
(1)  ESTABLISHMENT OF TEST. — In establishing the risk-based capital test under subsection (a) —
(A)  the Director shall take into account appropriate distinctions based on various types of agricultural mortgage products, varying terms of Treasury obligations, and any other factors the Director considers appropriate;
(B)  the Director shall conform loan data used in determining credit risk to the minimum geographic and commodity diversification standards applicable to pools of qualified loans eligible for guarantee;
(C)  the Director may take into account retained subordinated participating interests under section 8.6(b)(2) (as in effect before the date of the enactment of the Farm Credit System Reform Act of 1996);
(D)  the Director may take into account other methods or tests to determine credit risk developed by the Corporation before the date of the enactment of this section; and
(E)  the Director shall consider any other information submitted by the Corporation in writing during the 180-day period beginning on the date of the enactment of such Act.
(2)  REVISING TEST. — Upon the expiration of the 8-year period beginning on the date of the enactment of this section, the Director shall examine the risk-based capital test under subsection (a) and may revise the test. In making examinations and revisions under this paragraph, the Director shall take into account that, before the date of the enactment of this section, the Corporation has not issued guarantees for pools of qualified loans. To the extent that the revision of the risk-based capital test causes a change in the classification of the corporation within the enforcement levels established under section 8.35, the Director shall waive the applicability of any additional enforcement actions available because of such change for a reasonable period of time, to permit the Corporation to increase the amount of regulatory capital of the Corporation accordingly.
(c)  RISK-BASED CAPITAL LEVEL. — For purposes of this subtitle, the risk-based capital level for the Corporation shall be equal to the sum of the following amounts:
(1)  CREDIT AND INTEREST RATE RISK. — The amount of regulatory capital determined by applying the risk-based capital test under subsection (a) to the Corporation, adjusted to account for foreign exchange risk.
(2)  MANAGEMENT AND OPERATIONS RISK. — To provide for management and operations risk, 30 percent of the amount of regulatory capital determined by applying the risk-based capital test under subsection (a) to the Corporation.








(d)  SPECIFIED CONTENTS. —
(1) In General. — The regulations establishing the risk-based capital test under this section shall—
(A) be issued by the Director for public comment in the form of a notice of proposed rulemaking, to be first published after the expiration of the period referred to in subsection (a); and
(B) contain specific requirements, definitions, methods, variables, and parameters used under the risk-based capital test and in implementing the test (such as loan loss severity, float income, loan-to-value ratios, taxes, yield curve slopes, default experience, prepayment rates, and performance of pools of qualified loans).
(2) SPECIFICITY. — The regulations referred to in paragraph (1) shall be sufficiently specific to permit an individual other than the Director to apply the test in the same manner as the Director.
(e)  AVAILABILITY OF MODEL. — The Director shall make copies of the statistical model or models used to implement the risk-based capital test under this section available for public acquisition and may charge a reasonable fee for such copies.
12 U.S.C. 2279bbSEC. 8.33. MINIMUM CAPITAL LEVEL.
        (a) IN GENERAL. — Except as provided in subsection (b), for purposes of this subtitle, the minimum capital level for the Corporation shall be an amount of core capital equal to the sum of —
(1)  2.75 percent of the aggregate on-balance sheet assets of the Corporation, as determined in accordance with generally accepted accounting principles; and
(2)  0.75 percent of the aggregate off-balance sheet obligations of the Corporation, which, for the purposes of this subtitle, shall include —
(A)  the unpaid principal balance of outstanding securities that are guaranteed by the Corporation and backed by pools of qualified loans;
(B) instruments that are issued or guaranteed by the Corporation and are substantially equivalent to instruments described in subparagraph (A); and
(C) other off-balance sheet obligations of the Corporation.
(b) TRANSITION PERIOD. —
(1) IN GENERAL.— For purposes of this subtitle, the minimum capital level for the Corporation —
(A) prior to January 1, 1997, shall be the amount of core capital equal to the sum of—
(i)  0.45 percent of the aggregate off-balance sheet obligations of the Corporation;
(ii) 0.45 percent of designated on-balance sheet assets of the Corporation, as determined under paragraph (2); and
(iii) 2.50 percent of on-balance sheet assets of the Corporation other than assets designated under paragraph (2);
(B) during the 1-year period ending December 31, 1997, shall be the amount of core capital equal to the sum of —








(i) 0.55 percent of aggregate off-balance sheet obligations of the Corporation;
(ii)  1.20 percent of designated on-balance sheet assets of the Corporation, as determined under paragraph (2); and
(iii)  2.55 percent of on-balance sheet assets of the Corporation other than assets designated under paragraph (2);
(C) during the 1-year period ending December 31, 1998, shall be the amount of core capital equal to —
(i)  if the Corporation’s core capital is not less than $25,000,000 on January 1, 1998, the sum of —
(I)  0.65 percent of aggregate off-balance sheet obligations of the Corporation;
(II)  1.95 percent of designated on-balance sheet assets of the Corporation, as determined under paragraph (2); and
(III)  2.65 percent of on-balance sheet assets of the Corporation other than assets designated under paragraph (2); or
(ii)  if the Corporation’s core capital is less than $25,000,000 on January 1, 1998, the amount determined under subsection (a); and
(D)  on and after January 1, 1999, shall be the amount determined under subsection (a). 
(2) DESIGNATED ON-BALANCE SHEET ASSETS.— For purposes of this subsection, the designated on-balance sheet assets of the Corporation shall be —
(A) the aggregate on-balance sheet assets of the Corporation acquired under section 8.6(d); and
(B) the aggregate amount of qualified loans purchased and held by the Corporation under section 8.3(c)(13).
12 U.S.C. 2279bb3   SEC. 8.34. CRITICAL CAPITAL LEVEL.
        For purposes of this subtitle, the critical capital level for the Corporation shall be an amount of core capital equal to 50 percent of the total minimum capital amount determined under section 8.33.
12 U.S.C. 2279bb-4 SEC. 8.35. ENFORCEMENT LEVELS.
(a)  IN GENERAL. — The Director shall classify the Corporation, for purposes of this subtitle, according to the following enforcement levels:
(1)  LEVEL I. — The Corporation shall be classified as within level I if the Corporation —
(A)  maintains an amount of regulatory capital that is equal to or exceeds the risk-based capital level established under section 8.32; and
(B)  equals or exceeds the minimum capital level established under section 8.33.
(2)  LEVEL II. — The Corporation shall be classified as within level II if —
(A)  the Corporation —
(i)  maintains an amount of regulatory capital that is less than the risk-based capital level; and








(ii)  equals or exceeds the minimum capital level; or
(B)  the Corporation is otherwise classified as within level II under subsection (b) of this section.
(3)  LEVEL III. — The Corporation shall be classified as within level III if —
(A)  the Corporation —
(i)  does not equal or exceed the minimum capital level; and
(ii)  equals or exceeds the critical capital level established under section 8.34; or
(B)  the Corporation is otherwise classified as within level III under subsection (b) of this section.
(4)  LEVEL IV. — The Corporation shall be classified as within level IV if the Corporation —
(A)  does not equal or exceed the critical capital level; or
(B)  is otherwise classified as within level IV under subsection (b) of this section.
(b)  DISCRETIONARY CLASSIFICATION. — If at any time the Director determines in writing (and provides written notification to the Corporation and the Farm Credit Administration) that the Corporation is taking any action not approved by the Director that could result in a rapid depletion of core capital or that the value of the property subject to mortgages securitized by the Corporation or property underlying securities guaranteed by the Corporation, has decreased significantly, the Director may classify the Corporation —
(1)  as within level II, if the Corporation is otherwise within level I;
(2)  as within level III, if the Corporation is otherwise within level II; or
(3)  as within level IV, if the Corporation is otherwise within level III.
(c)  QUARTERLY DETERMINATION. — The Director shall determine the classification of the Corporation for purposes of this subtitle on not less than a quarterly basis (and as appropriate under subsection (b)). The first such determination shall be made for the quarter ending March 31, 1992.
(d)  NOTICE. — Upon determining under subsection (b) or (c) that the Corporation is within level II or III, the Director shall provide written notice to the Congress and to the Corporation —
(1)  that the Corporation is within such level;
(2)  that the Corporation is subject to the provisions of section 8.36 or 8.37, as applicable; and
(3)  stating the reasons for the classification of the Corporation within such level.








12 U.S.C. 2279bb5  SEC. 8.36. MANDATORY ACTIONS APPLICABLE TO LEVEL II.
(a) CAPITAL RESTORATION PLAN. — If the Corporation is classified as within level II, the Corporation shall, within the time period determined by the Director, submit to the Director a capital restoration plan and, after approval, carry out the plan.
(b) RESTRICTION OF DIVIDENDS. — If the Corporation is classified as within level II, the Corporation may not make any payment of dividends that would result in the Corporation being reclassified as within level III or IV.
(c) RECLASSIFICATION FROM LEVEL II TO LEVEL III. — The Director shall immediately reclassify the Corporation as within level III (and the Corporation shall be subject to the provisions of section 8.37), if —
(1)  the Corporation is within level II; and
(2)  (A) the Corporation does not submit a capital restoration plan that is approved by the Director; or
          (B) the Director determines that the Corporation has failed to make, in good faith, reasonable efforts necessary to comply with such a capital restoration plan and fulfill the schedule for the plan approved by the Director.
        (d) EFFECTIVE DATE. — This section shall take effect upon the expiration of the 30-month period beginning on the date of the enactment of this section.
12 U.S.C. 2279bb6  SEC. 8.37. SUPERVISORY ACTIONS APPLICABLE TO LEVEL III.
(a) MANDATORY SUPERVISORY ACTIONS. —
(1)  CAPITAL RESTORATION PLAN. — If the Corporation is classified as within level III, the Corporation shall, within the time period determined by the Director, submit to the Director a capital restoration plan and, after approval, carry out the plan.
(2)  RESTRICTIONS ON DIVIDENDS. —
(A)  PRIOR APPROVAL. — If the Corporation is classified as within level III, the Corporation —
(i)  may not make any payment of dividends that would result in the Corporation being reclassified as within level IV; and
(ii)  may make any other payment of dividends only if the Director approves the payment before the payment.
(B)  STANDARD FOR APPROVAL. — If the Corporation is classified as within level III, the Director may approve a payment of dividends by the Corporation only if the Director determines that the payment (i) will enhance the ability of the Corporation to meet the risk-based capital level and the minimum capital level promptly, (ii) will contribute to the long-term safety and soundness of the Corporation, or (iii) is otherwise in the public interest.
(3)  RECLASSIFICATION FROM LEVEL III TO LEVEL IV. — The Director shall immediately reclassify the Corporation as within level IV if —
(A)  the Corporation is classified as within level III; and
(B)  (i) the Corporation does not submit a capital restoration plan that is approved by the Director; or
           (ii) the Director determines that the Corporation has failed to make, in good faith, reasonable efforts necessary to








comply with such a capital restoration plan and fulfill the schedule for the plan approved by the Director.
(b) DISCRETIONARY SUPERVISORY ACTIONS. — In addition to any other actions taken by the Director (including actions under subsection (a)), the Director may, at any time, take any of the following actions if the Corporation is classified as within level III;
(1) LIMITATION ON INCREASE IN OBLIGATIONS. — Limit any increase in, or order the reduction of, any obligations of the Corporation, including off-balance sheet obligations.
(2) LIMITATION ON GROWTH. — Limit or prohibit the growth of the assets of the Corporation or require contraction of the assets of the Corporation.
(3) PROHIBITION ON DIVIDENDS. — Prohibit the Corporation from making any payment of dividends.
(4)  ACQUISITION OF NEW CAPITAL. — Require the Corporation to acquire new capital in any form and in any amount sufficient to provide for the reclassification of the Corporation as within level II.
(5)  RESTRICTION OF ACTIVITIES. — Require the Corporation to terminate, reduce, or modify any activity that the Director determines creates excessive risk to the Corporation.
(6)  CONSERVATORSHIP. — Appoint a conservator for the Corporation consistent with this Act.
(c) EFFECTIVE DATE. — This section shall take effect on January 1, 1992.
12 U.S.C. 2279bb7  SEC. 8.38 [REPEALED]
        12 U.S.C. 2279cc  SEC. 8.41. CONSERVATORSHIP; LIQUIDATION; RECEIVERSHIP.
(a) VOLUNTARY LIQUIDATION.— The Corporation may voluntarily liquidate only with the consent of, and in accordance with a plan of liquidation approved by, the Farm Credit Administration Board.
(b) INVOLUNTARY LIQUIDATION.—
(1) IN GENERAL.— The Farm Credit Administration Board may appoint a conservator or receiver for the Corporation under the circumstances specified in section 4.12(b).
(2) APPLICATION.— In applying section 4.12(b) to the Corporation under paragraph (1)—
(A) the Corporation shall also be considered insolvent if the Corporation is unable to pay its debts as they fall due in the ordinary course of business;
(B) a conservator may also be appointed for the Corporation if the authority of the Corporation to purchase qualified loans for issue or guarantee loan-backed securities is suspended; and
(C) a receiver may also be appointed for the Corporation if—
(i)(I)  the authority of the Corporation to purchase qualified loans or issue or guarantee loan-backed securities is suspended; or
        (II)  the Corporation is classified under section 8.35 as within level III or IV and the alternative actions available under subtitle B are not satisfactory; and








(ii)  the Farm Credit Administration determines that the appointment of a conservator would not be appropriate.
(3) NO EFFECT ON SUPERVISORY ACTIONS.— The grounds for appointment of a conservator for the Corporation under this subsection shall be in addition to those in section 8.37.
(c) APPOINTMENT OF A CONSERVATOR OR RECEIVER.—
        (1) QUALIFICATIONS.— Notwithstanding section 4.12(b), if a conservator or receiver is appointed for the Corporation, the conservator or receiver shall be—
(A) The Farm Credit Administration or any other governmental entity or employee, including the Farm Credit System Insurance Corporation; or
         (B) Any person that—
(i)  has no claim against, or financial interest in, the Corporation or other basis for a conflict of interest as the conservator or receiver; and
(ii) has the financial and management expertise necessary to direct the operations and affairs of the Corporation and, if necessary, to liquidate the Corporation.
         (2) COMPENSATION.—
        (A) IN GENERAL.— A conservator or receiver for Corporation and professional personnel (other than a Federal employee) employed to represent or assist the conservator or receiver may be compensated for activities conducted as, or for, a conservator or receiver.
        (B) LIMIT ON COMPENSATION.— Compensation may not be provided in amounts greater than the compensation paid to employees of the Federal Government for similar services, except that the Farm Credit Administration may provide compensation at higher rates that are not in excess of rates prevailing in the private sector if the Farm Credit Administration determines that compensation at higher rates is necessary in order to recruit and retain competent personnel.
        (C) CONTRACTUAL ARRANGEMENTS.— The conservator or receiver may contract with any governmental entity, including the Farm Credit System Insurance Corporation, to make personnel, services, and facilities of the entity available to the conservator or receiver on such terms and compensation arrangements as shall be mutually agreed, and each entity may provide the same to the conservator or receiver.
(3) EXPENSES.— A valid claim for expenses of the conservatorship or receivership (including compensation under paragraph (2)) and a valid claim with respect to a loan made under subsection (f) shall—
         (A) be paid by the conservator or receiver from funds  of the Corporation before any other valid claim against the  Corporation; and
         (B)  may be secured by a lien, on such property of the  Corporation as the conservator or receiver may determine, that  shall have priority over any other liens.
(4) LIABILITY.— If the conservator or receiver for the Corporation is not a Federal entity, or an officer or employee for the Federal Government, the conservator or receiver shall not be personally liable for damages in tort or otherwise for an act or omission performed pursuant to and in the course of the conservatorship or receivership, unless the act or omission








constitutes gross negligence or any form of intentional tortuous conduct or criminal conduct.
(5) INDEMNIFICATION.— The Farm Credit Administration may allow indemnification of the conservator or receiver from the asset of the conservatorship or receivership on such terms as the Farm Credit Administration considers appropriate.
(d) JUDICIAL REVIEW OF APPOINTMENT.—
        (1) IN GENERAL.— Notwithstanding subsection (i)(1), not later than 30 days after a conservator or receiver is appointed under subsection (b), the Corporation may bring an action in the United States District court for the District of Columbia for an order requiring the Farm Credit Administration Board to remove the conservator or receiver. The court shall, on the merits,  dismiss the action or direct the Farm Credit Administration Board to remove the conservator or receiver.
        (2) STAY OF OTHER ACTIONS.— On the commencement of an action under paragraph (1), any court having jurisdiction of any other action or enforcement proceeding authorized under this Act to which the Corporation is party shall stay the action or proceeding during the pendency of the action for removal of the conservator or receiver.
(e) GENERAL POWERS OF CONSERVATOR OR RECEIVER.— The conservator or receiver for the Corporation shall have such powers to conduct the conservatorship or receivership as shall be provided pursuant to regulations adopted by the Farm Credit Administration Board. Such powers shall be comparable to the powers available to a conservator or receiver appointed pursuant section 4.12(b).
(f) BORROWINGS FOR WORKING CAPITAL.—
        (1) IN GENERAL.— If the conservator or receiver of the Corporation determines that it is likely that there will be insufficient funds to pay the ongoing administrative expenses of the conservatorship or receivership or that there will be insufficient liquidity to fund maturing obligations of the conservatorship or receivership, the conservator or receiver may borrow funds in such amounts, from such sources, and at such rates of interest as the conservator or receiver considers necessary or appropriate to meet the administrative expenses or liquidity needs of the conservatorship or receivership.
        (2) WORKING CAPITAL FROM FARM CREDIT BANKS.— A Farm Credit bank may loan funds to the conservator or receiver for a loan authorized under paragraph (1) or, in the event of receivership, a Farm Credit bank may purchase assets of the Corporation.
(g) AGREEMENTS AGAINST INTERESTS OF CONSERVATOR OR RECEIVER.— No agreement that tends to diminish or defeat the right, title, or interest of the conservator or receiver for the Corporation in any asset acquired by the conservator or receiver as conservator or receiver for the Corporation shall be valid against the conservator or receiver unless the agreement—
        (1) is in writing;
        (2) is executed by the Corporation and any person claiming an adverse interest under the agreement, including the obligor, contemporaneously with the acquisition of the asset by the Corporation;
        (3) is approved by the Board or an appropriate committee of the Board, which approval shall be reflected in the minutes of the Board or committee; and
        (4) has been, continuously, from the time of the agreement's execution, an official record of the Corporation.
(h) REPORT TO THE CONGRESS.— On a determination by the receiver for the Corporation that there are insufficient assets of the receivership to pay all valid claims against the receivership, the receiver shall submit to the Secretary of the Treasury, the Committee on Agriculture of the House of Representatives, and the Committee on








Agriculture, Nutrition, and Forestry of the Senate a report on the financial condition of the receivership.
(i) TERMINATION OF AUTHORITIES.—
        (1) CORPORATION.— The charter of the Corporation shall be canceled and the authority provided to the Corporation by this title shall terminate, on such date as the Farm Credit Administration Board determines is appropriate following the placement of the Corporation in receivership, but not later than the conclusion of the receivership and discharge of the receiver.
        (2) OVERSIGHT.— The Office of Secondary Market Oversight established under section 8.11 shall be abolished, and section 8.11(a) and subtitle B shall have no force or effect, on such date as the Farm Credit Administration Board determines is appropriate following the placement of the Corporation in receivership, but not later than the conclusion of the receivership and discharge of the receiver.






Exhibit 4.7
Established under the Laws of the United States Pursuant to an Act of Congress

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
Series E
Certificate No.
No. of Series E Shares
3,000,000
1

CUSIP No.: 313148850
5.750% Non-Cumulative Preferred Stock, Series E

         THIS CERTIFIES THAT Cede & Co. is the registered holder of 3,000,000 fully paid and non-assessable shares, par value $25.00 per share, of 5.750% Non-Cumulative Preferred Stock, Series E of the Federal Agricultural Mortgage Corporation (hereinafter and on the reverse hereof referred to as the “Corporation”) transferable on the books and records of the Continental Stock Transfer & Trust Company (the “Transfer Agent”) in accordance with the applicable procedures of the Transfer Agent and the Depository Trust Company, a New York corporation (“DTC”).

         IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its duly authorized officers this 20th day of May, 2020.
____SPECIMEN__________________
___SPECIMEN_______________________
President and Chief Executive Officer Executive Vice President – General Counsel and Secretary
        THE PREFERRED STOCK IS NOT A DEBT OR OBLIGATION OF, AND IS NOT GUARANTEED BY, THE UNITED STATES, THE FARM CREDIT ADMINISTRATION, THE FARM CREDIT SYSTEM OR ANY FEDERAL AGENCY OR INSTRUMENTALITY OR ANY INDIVIDUAL INSTITUTION OF THE FARM CREDIT SYSTEM OTHER THAN THE FEDERAL AGRICULTURAL MORTGAGE CORPORATION.
THE INFORMATION CONTAINED IN THIS CERTIFICATE IS A SUMMARY OF CERTAIN PROVISIONS OF TITLE VIII OF THE FARM CREDIT ACT OF 1971, AS AMENDED (THE “ACT”), WHICH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE THERETO.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND ARE BEING ISSUED PURSUANT TO THE EXEMPTION AFFORDED BY SECTION 3(a)(2) OF THE SECURITIES ACT. THEREFORE, THE SECURITIES ARE NOT RESTRICTED SECURITIES AND ARE FREELY TRANSFERABLE.
THE HOLDER OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE IS ENTITLED TO CERTAIN RIGHTS AND SUBJECT TO CERTAIN OBLIGATIONS, INCLUDING PROVISIONS RELATING TO REDEMPTION, LIQUIDATION PREFERENCES AND DIVIDEND RATE, AS SET FORTH IN THE CERTIFICATE OF DESIGNATION OF TERMS AND CONDITIONS OF 5.750% NON-CUMULATIVE



PREFERRED STOCK, SERIES E. THE SECURITIES EVIDENCED BY THIS CERTIFICATE SHALL NOT HAVE ANY PREEMPTIVE RIGHTS TO PURCHASE UNISSUED OR TREASURY SHARES OF THE CORPORATION.
THIS CERTIFICATE AND SHARES REPRESENTED HEREBY ARE ISSUED AND SHALL BE SUBJECT TO THE PROVISIONS OF THE ACT, AND THE BYLAWS, RULES AND REGULATIONS OF THE CORPORATION, AND ALL AMENDMENTS THERETO, TO ALL OF WHICH THE HOLDER HEREOF BY ACCEPTANCE OF THIS CERTIFICATE ASSENTS.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK, INCLUDING ADDITIONAL PREFERRED STOCK DESIGNATED AS 5.750% NON-CUMULATIVE PREFERRED STOCK, SERIES E. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, TO THE CORPORATION OR THE TRANSFER AGENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.





REVERSE OF SECURITY
1. Designation, Par Value, Number of Shares, and Seniority
The class of preferred stock of Farmer Mac created hereby (the “Preferred Stock”) shall be designated “5.750% Non-Cumulative Preferred Stock, Series E,” shall have a par value of $25.00 per share and a liquidation preference of $25.00 per share and shall consist of 3,000,000 shares. The Board of Directors, or a duly authorized committee thereof, shall be permitted to increase the authorized number of such shares at any time and from time to time. The Preferred Stock shall rank senior to the Class A Voting Common Stock, Class B Voting Common Stock, and Class C Non-Voting Common Stock of Farmer Mac (collectively, the “Common Stock”), and on parity with the outstanding 5.875% Non-Cumulative Preferred Stock, Series A, the outstanding 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C and the outstanding 5.700% Non-Cumulative Preferred Stock, Series D of Farmer Mac (collectively, the “Outstanding Parity Preferred Stock”), in each case to the extent provided in this Certificate.
2. Dividends
(a) Subject to paragraphs (2) and (3) of Section 8.4(c) of the Farm Credit Act of 1971, as amended (12 U.S.C. §§ 2279aa-4(c)), holders of outstanding shares of the Preferred Stock shall be entitled to receive, ratably, when, as, and if declared by the Board of Directors, in its sole discretion, out of funds legally available for dividend payments, on a non-cumulative basis, quarterly cash dividends at the annual rate of 5.750% of the liquidation preference of the Preferred Stock, or $1.4375 per share per year of Preferred Stock. Dividends on the Preferred Stock shall be payable when, as, and if declared by the Board of Directors, on January 17, April 17, July 17 and October 17 of each year (each, a “Dividend Payment Date”), beginning on July 17, 2020. If a Dividend Payment Date is not a “Business Day,” the related dividend (if declared) shall be paid on the next Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. For these purposes, “Business Day” means a day other than (i) a Saturday or Sunday, (ii) a day on which New York City banks are closed, or (iii) a day on which the offices of Farmer Mac are closed. The “Dividend Period” relating to a Dividend Payment Date shall be the period from, but not including, the preceding Dividend Payment Date (or from, but not including, May 20, 2020 in the case of the first Dividend Payment Date) (regardless of whether or not a dividend was declared and paid for such previous Dividend Period) through and including the related Dividend Payment Date. If declared, the dividend payable in respect of a Dividend Period shall be $0.359375 per share, or such lesser amount as the Board of Directors may determine; provided, however, that the dividend, when, as, and if declared by the Board of Directors, for the first Dividend Period shall be $0.2276 per share, or such lesser amount as the Board of Directors may determine. The amount of dividends payable for any period shorter than a full quarterly Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends shall be paid to holders of record of outstanding shares of the Preferred Stock as they appear in the books and records of Farmer Mac on the record date fixed by the Board of Directors, not to be earlier than 45 days nor later than 10 days preceding the applicable Dividend Payment Date. Notwithstanding any other



provision hereof to the contrary, dividends on the Preferred Stock shall not be declared, paid, or set aside for payment to the extent such act would cause Farmer Mac to fail to comply with laws or regulations applicable thereto, including any applicable capital adequacy requirements.
(b) No dividends shall be declared or paid or set apart for payment on the Common Stock or any other class or series of stock ranking junior to the Preferred Stock unless full dividends have been declared and paid for the then-current Dividend Period or set apart or ordered by our Board of Directors to be set apart for payment on the outstanding Preferred Stock in respect of the then-current Dividend Period. The foregoing dividend preference shall not in any way create any claim or right in favor of the holders of the Preferred Stock in the event that Farmer Mac shall not have declared or paid or set apart or the Board of Directors shall not have ordered to be set apart dividends on the Preferred Stock in respect of any prior Dividend Period. In the event that Farmer Mac shall not declare any one or more dividends or any part thereof on the Preferred Stock, the holders of the Preferred Stock shall not have any claim in respect of such non-payment.
(c) Full dividends will not be declared or paid or set apart for payment on any outstanding class or series of stock issued by Farmer Mac of equal priority as to dividends as the Preferred Stock, including the Outstanding Parity Preferred Stock, unless dividends on the Preferred Stock for the then-current Dividend Period are declared and paid or set apart for payment in full. The Board of Directors may, in its discretion, choose to declare and pay less than a full dividend on the Preferred Stock. In the event that the Board of Directors declares less than a full dividend on the Preferred Stock and/or any other outstanding class or series of stock of equal priority as to dividends, including the Outstanding Parity Preferred Stock, the Board of Directors shall declare dividends on the Preferred Stock and such other outstanding stock, as applicable, on a proportional basis such that the amount of such dividends declared per share shall bear to each other the same ratio that full dividends per share for the then-current Dividend Period on the Preferred Stock and full dividends per share on any such other outstanding stock of equal priority as to dividends, bear to each other; provided, that, solely for purposes of calculating the ratio set forth in the foregoing sentence, the amount of full dividends per share for the then-current Dividend Period on the Preferred Stock and/or the full dividends per share on any such other outstanding stock of equal priority, as applicable, shall be increased by the amount per share of dividends that have been declared but not paid in respect of such stock, if any.
(d) Notwithstanding any other provision of this Certificate, the Board of Directors, in its sole discretion, may choose to pay dividends on the Preferred Stock without the payment of any dividends on the Common Stock or any other outstanding class or series of stock ranking junior to the Preferred Stock with respect to the payment of dividends.
(e) No dividend shall be declared or paid or set apart for payment on any shares of the Preferred Stock if at the same time any arrears or default exists in the payment of dividends on the Preferred Stock or on any outstanding class or series of stock of Farmer Mac ranking senior to or (except as provided herein) on parity with the Preferred Stock with respect to the payment of dividends, including the Outstanding Parity Preferred Stock. If and whenever dividends, having been declared, shall not have been paid in full, as aforesaid, on shares of the Preferred



Stock and on the shares of any other class or series of stock of Farmer Mac ranking on parity with the Preferred Stock with respect to the payment of dividends, all such dividends that have been declared on shares of the Preferred Stock and on the shares of any such other class or series shall be paid pro rata, so that the respective amounts of dividends paid per share on the Preferred Stock and on such other class or series shall in all cases bear to each other the same ratio that the respective amounts of dividends declared but unpaid per share on the shares of the Preferred Stock and on the shares of such other class or series bear to each other.
(f) Holders of shares of the Preferred Stock shall not be entitled to any dividends, whether payable in cash or in property, other than as herein provided and shall not be entitled to interest, or any sum in lieu of interest, on or in respect of any dividend payment.
(g) If Farmer Mac defaults on the payment of the equivalent of six quarters of declared dividends (regardless of whether such quarters are consecutive quarters), then the holders of the Preferred Stock will have the right to elect two observers to the Board of Directors.
3. Optional Redemption
(a) The Preferred Stock shall not be redeemable before July 17, 2025. On that date and on any Dividend Payment Date thereafter, subject to the notice provisions set forth in Section 3(b) below and to any further limitations that may be imposed by law, Farmer Mac may redeem the Preferred Stock, in whole or in part, out of funds legally available therefor, at the redemption price of $25.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of any declared and unpaid dividends through and including the date of redemption. If less than all of the outstanding shares of the Preferred Stock are to be redeemed, Farmer Mac shall select shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible).
(b) In the event Farmer Mac shall redeem any or all of the Preferred Stock, Farmer Mac shall give notice of such redemption by first class mail, postage prepaid, mailed neither less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares of the Preferred Stock being redeemed, at such holder’s address as the same appears in the books and records of Farmer Mac; provided, that, if the Preferred Stock is held in book-entry form through DTC, Farmer Mac may give such notice in any manner permitted by DTC. Each such notice shall state the number of shares to be redeemed, the redemption price, the redemption date, and the procedures a holder must follow to submit its shares of Preferred Stock for redemption. Failure to duly give notice, or any defect in the notice, to any holder of the Preferred Stock shall not affect the validity of the proceedings for the redemption of shares of any other holder of the Preferred Stock being redeemed.
(c) If any redemption date is not a Business Day, payment of the redemption price may be made on the next Business Day with the same force and effect as if made on the redemption date, and no interest, additional dividends or other sums will accrue on the amount payable from the redemption date to the next Business Day.



(d) Notice having been mailed as aforesaid, from and after the redemption date specified therein and upon payment of the consideration set forth in Section 3(a) above, said shares of the Preferred Stock shall no longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Preferred Stock shall cease, with respect to shares so redeemed.
(e) Any shares of the Preferred Stock so redeemed shall, after such redemption, no longer have the status of issued or outstanding shares.
(f) The Preferred Stock shall not be subject to any mandatory redemption, sinking fund, or other similar provisions. In addition, holders of the Preferred Stock shall have no right to require redemption of any shares of the Preferred Stock.
4. No Voting Rights
Except as set forth in Section 9, the shares of the Preferred Stock shall not have any voting powers, either general or special, or have any consent rights.
5. No Conversion or Exchange Rights
The holders of shares of the Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of Farmer Mac.
6. No Preemptive Rights
No holder of the Preferred Stock shall, as such holder, be entitled as a matter of right to subscribe for or purchase, or have any preemptive right with respect to, any new or additional issue of other shares, rights, options, or other securities of any class of Farmer Mac whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
7. Liquidation Rights and Preference
(a) Except as otherwise set forth herein, upon the voluntary or involuntary dissolution, liquidation, or winding up of Farmer Mac, after payment of or provision for the liabilities of Farmer Mac and the expenses of such dissolution, liquidation, or winding up, the holders of the outstanding shares of the Preferred Stock shall be entitled to receive out of the assets of Farmer Mac available for distribution to stockholders, before any payment or distribution shall be made on the Common Stock or any other class or series of stock of Farmer Mac ranking junior to the Preferred Stock upon liquidation, the amount of $25.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of any declared and unpaid dividends through and including the date of payment in respect of such dissolution, liquidation, or winding up. The holders of the outstanding shares of any class or series of stock of Farmer Mac ranking on parity with the Preferred Stock upon liquidation, including the Outstanding Parity Preferred Stock, shall be entitled to receive out of the assets of Farmer Mac available for distribution to stockholders, before any such payment or distribution shall be made on the Common Stock or



any other class or series of stock of Farmer Mac ranking junior to the Preferred Stock and to such parity stock upon dissolution, liquidation, or winding up, any corresponding preferential amount to which the holders of such parity stock may, by the terms thereof, be entitled; provided, however, that if the assets of Farmer Mac available for distribution to stockholders shall be insufficient for the payment in full of the aggregate amount to which the holders of the outstanding shares of the Preferred Stock and the holders of the outstanding shares of such parity stock shall be entitled to receive upon such dissolution, liquidation, or winding up of Farmer Mac as aforesaid, then, subject to paragraph (b) of this Section 7, all of the assets of Farmer Mac available for distribution to stockholders shall be distributed to the holders of outstanding shares of the Preferred Stock and to the holders of outstanding shares of such parity stock pro rata, so that the amounts so distributed to holders of the Preferred Stock and to holders of such classes or series of such parity stock, respectively, shall bear to each other the same ratio that the respective distributive amounts to which they are so entitled bear to each other. After the payment of the aforesaid amounts to which they are entitled, the holders of outstanding shares of the Preferred Stock and the holders of outstanding shares of any such parity stock shall not be entitled to any further participation in any distribution of assets of Farmer Mac. Solely for purposes of Section 8.4(e)(3) of the Farm Credit Act of 1971, as amended, the Preferred Stock shall be deemed to have a par value of $25.00 per share.
(b) Notwithstanding the foregoing, upon the dissolution, liquidation, or winding up of Farmer Mac, the holders of shares of the Preferred Stock then outstanding shall not be entitled to be paid any amounts to which such holders are entitled pursuant to paragraph (a) of this Section 7 unless and until the holders of any classes or series of stock of Farmer Mac ranking senior to the Preferred Stock upon liquidation shall have been paid all amounts to which such classes or series are entitled pursuant to their respective terms.
(c) Neither the sale, lease, or exchange of all or substantially all of the property or business of Farmer Mac, nor the merger, consolidation, or combination of Farmer Mac into or with any other corporation or entity, shall be deemed to be a dissolution, liquidation, or winding up for the purpose of this Section 7.
8. Additional Preferred Stock and Additional Classes or Series of Stock
The Board of Directors shall have the right at any time in the future to authorize, create, and issue, by resolution or resolutions, additional Preferred Stock or one or more additional classes or series of stock of Farmer Mac, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank senior to, on parity with, or junior to the Preferred Stock as to dividends, upon liquidation, or otherwise.
9. Amendments
Farmer Mac, by or under the authority of the Board of Directors, may amend, alter, supplement, or repeal any provision of this Certificate pursuant to the following terms and conditions:



(a) Without the consent of the holders of the Preferred Stock, Farmer Mac may amend, alter, supplement, or repeal any provision of this Certificate to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Certificate, provided that such action shall not materially and adversely affect the powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms, or conditions of the Preferred Stock.
(b) The consent of the holders of at least two-thirds of all of the shares of the Preferred Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Preferred Stock shall vote together as a class, shall be necessary for authorizing, effecting, or validating the amendment, alteration, supplementation, or repeal of the provisions of this Certificate if such amendment, alteration, supplementation, or repeal would materially and adversely affect the powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms, or conditions of the Preferred Stock. Notwithstanding the foregoing sentence, the 5.750% annual dividend rate, the redemption price, or the liquidation preference of the Preferred Stock shall not be reduced without the unanimous consent of the holders of all shares of the Preferred Stock. Any increase in the amount of authorized or issued Preferred Stock, or the creation and issuance of any other class or series of stock of Farmer Mac, or the issuance of additional shares of any existing class or series of stock of Farmer Mac, whether ranking senior to, on parity with, or junior to the Preferred Stock as to dividends, liquidation rights, or otherwise, shall be deemed not to constitute such an amendment, alteration, supplementation, or repeal.
(c) Holders of the Preferred Stock shall be entitled to one vote per share on matters on which their consent is required pursuant to subparagraph (b) of this Section 9. Consents shall be effective when duly executed and delivered to Farmer Mac in accordance with the applicable procedures of DTC. In connection with any meeting of such holders, the Board of Directors shall fix a record date, neither earlier than 60 days nor later than 10 days prior to the date of such meeting, and holders of record of shares of the Preferred Stock on such record date shall be entitled to notice of and to vote at any such meeting and any adjournment. The Board of Directors, or such person or persons as it may designate, may establish reasonable rules and procedures as to the solicitation of the consent of holders of the Preferred Stock at any such meeting or otherwise, which rules and procedures shall conform to the requirements of any national securities exchange on which the Preferred Stock may be listed at such time.
10. Priority
Any stock of any class or series of Farmer Mac shall be deemed to rank:
(a) senior to the shares of the Preferred Stock, either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of Farmer Mac, as the case may be, in preference or priority to the holders of shares of the Preferred Stock;



(b) on parity with shares of the Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates or amounts, dividend payment dates, or redemption or liquidation prices per share, if any, be different from those of the Preferred Stock, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of Farmer Mac, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other, as between the holders of such class or series and the holders of shares of the Preferred Stock; and
(c) junior to shares of the Preferred Stock, either as to dividends or upon liquidation, if such class or series shall be Common Stock, or if the holders of shares of the Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation, or winding up of Farmer Mac, as the case may be, in preference or priority to the holders of shares of such class or series.
11. Notices
Any notice, demand, or other communication that by any provision of this Certificate is required or permitted to be given or served to or upon Farmer Mac shall be given or served in writing addressed (unless and until another address shall be published by Farmer Mac) to the Federal Agricultural Mortgage Corporation, 1999 K Street, N.W., 4th Floor, Washington, D.C. 20006, Attention: Executive Vice President—General Counsel and Secretary. Such notice, demand, or other communication to or upon Farmer Mac shall be deemed to have been sufficiently given or made only upon actual receipt of a writing by Farmer Mac. Any notice, demand, or other communication that by any provision of this Certificate is required or permitted to be given or served by Farmer Mac hereunder may be given or served by being deposited first class, postage prepaid, in the United States mail addressed (1) to the holder as such holder’s name and address may appear at such time in the books and records of Farmer Mac or (2) if to a person or entity other than a holder of record of the Preferred Stock, to such person or entity at such address as appears to Farmer Mac to be appropriate at such time; provided that if the Preferred Stock is held in book-entry form through DTC, Farmer Mac may give such notice in any manner permitted by DTC. Such notice, demand, or other communication shall be deemed to have been sufficiently given or made, for all purposes, upon mailing.
12. Miscellaneous
(a) Farmer Mac and any agent of Farmer Mac may deem and treat the holder of a share or shares of Preferred Stock, as shown in Farmer Mac’s books and records, as the absolute owner of such share or shares of Preferred Stock for the purpose of receiving payment of dividends in respect of such share or shares of Preferred Stock and for all other purposes whatsoever, and neither Farmer Mac nor any agent of Farmer Mac shall be affected by any notice to the contrary. All payments made to or upon the order of any such person shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge liabilities for moneys payable by Farmer Mac on or with respect to any such share or shares of Preferred Stock.



(b) The shares of the Preferred Stock, when duly issued, shall be fully paid and non-assessable.
(c) Farmer Mac may at its option issue shares of Preferred Stock without certificates.
(d) For purposes of this Certificate, the term “Farmer Mac” means the Federal Agricultural Mortgage Corporation and any successor thereto by operation of law or by reason of a merger, consolidation, or combination.
(e) This Certificate and the respective rights and obligations of Farmer Mac and the holders of the Preferred Stock with respect to such Preferred Stock shall be construed in accordance with and governed by the laws of the United States, provided that the law of the District of Columbia shall serve as the federal rule of decision in all instances except where such law is inconsistent with Farmer Mac’s enabling legislation, its public purposes or any provision of this Certificate.
(f) RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN FARMER MAC AND THE HOLDER (AND ALL SUCH OTHERS).



ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer ____________ Shares evidenced by the within Certificate unto:
         
        (Insert assignee’s soc. sec. or tax I.D. no.)
         
         
         
         
(Print or type assignee’s name, address and zip code)

, and does hereby irrevocably constitute and irrevocably appoints:
         
         
         

agent to transfer the said Shares on the books of the Transfer Agent, with full power of substitution in the premises.

Dated: __________________
Signature: _______________________
Signature Guarantee*: _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Transfer Agent).



Exhibit 4.8
Description of Registrant’s Securities

Class A voting common stock
Farmer Mac’s Class A voting common stock has a par value of $1.

Farmer Mac’s statutory charter restricts ownership of Farmer Mac's Class A voting common stock to banks, insurance companies, and other financial institutions or similar entities that are not institutions of the Farm Credit System. Shares of Class A voting common stock may only be transferred to other banks, insurance companies, and other financial institutions or similar entities that are not institutions of the Farm Credit System.

The charter also provides that five members of Farmer Mac's 15-member board of directors (the “Board”) are elected by a plurality of the votes of the Class A stockholders each year. Each share of Class A voting common stock shall be entitled to one vote for each of the five seats eligible to be elected by holders of Class A voting common stock, with rights of cumulative voting at all elections of directors.

The charter limits the amount of Class A voting common stock that any one holder may own to no more than 33% of the outstanding shares of Class A voting common stock.

Except for voting rights with respect to Farmer Mac’s Board and transfer rights (in each case, as described above), there are no other provisions in Farmer Mac’s charter or bylaws permitting a change of control of Farmer Mac absent action on the part of Congress (or the Farm Credit Administration, in the event of a conservatorship).

Dividends as may be declared by the Board, in the discretion of the Board, shall be paid by Farmer Mac to holders of the Class A voting common stock pro rata based on at minimum the total number of shares of both the Class A voting common stock and the Class B voting common stock outstanding. Declaration and payment of dividends are subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter;
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter; and
all dividends due on preferred stock have been paid.

The Class A voting common stock does not contain any conversion terms, sinking fund provisions, redemption provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

1


Exhibit 4.8
In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares (including Class A voting common stock) receive any payment. Shares of Class A voting common stock have equal liquidation preference to all other classes of Farmer Mac’s common stock and would receive pro rata distribution of any funds remaining after full liquidation of outstanding preferred stock.

The rights of holders may be modified otherwise than by a vote of a majority or more of the shares outstanding, voting as a class, under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Class A voting common stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Class A voting common stock.

The rights of holders of Class A voting common stock are materially limited or qualified by the rights of holders of Farmer Mac’s outstanding series of preferred stock in dividend payment and liquidation preference (in each case as described above). The rights of holders of Class A voting common stock are otherwise not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.

Class B voting common stock
Farmer Mac’s Class B voting common stock has a par value of $1.

Farmer Mac’s statutory charter restricts ownership of Farmer Mac's Class B voting common stock to institutions of the Farm Credit System. Shares of Class B voting common stock may only be transferred to other institutions of the Farm Credit System.

The charter also provides that five members of Farmer Mac's 15-member board of directors (the “Board”) are elected by a plurality of the votes of the Class B stockholders each year. Each share of Class B voting common stock shall be entitled to one vote for each of the five seats eligible to be elected by holders of Class B voting common stock, with rights of cumulative voting at all elections of directors.
The charter does not prescribe a limit for the amount of Class B voting common stock that any one holder may own.

Except for voting rights with respect to Farmer Mac’s Board and transfer rights (in each case, as described above), there are no other provisions in Farmer Mac’s charter or bylaws permitting a change of control of Farmer Mac absent action on the part of Congress (or the Farm Credit Administration, in the event of a conservatorship).

2


Exhibit 4.8
Dividends as may be declared by the Board, in the discretion of the Board, shall be paid by Farmer Mac to holders of the Class B voting common stock pro rata based on at minimum the total number of shares of both the Class A voting common stock and the Class B voting common stock outstanding. Declaration and payment of dividends are subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter;
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter; and
all dividends due on preferred stock have been paid.

The Class B voting common stock does not contain any conversion terms, sinking fund provisions, redemption provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares (including Class B voting common stock) receive any payment. Shares of Class B voting common stock have equal liquidation preference to all other classes of Farmer Mac’s common stock and would receive pro rata distribution of any funds remaining after full liquidation of outstanding preferred stock.

The rights of holders may be modified otherwise than by a vote of a majority or more of the shares outstanding, voting as a class, under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Class B voting common stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Class B voting common stock.

The rights of holders of Class B voting common stock are materially limited or qualified by the rights of holders of Farmer Mac’s outstanding series of preferred stock in dividend payment and liquidation preference (in each case as described above). The rights of holders of Class B voting common stock are otherwise not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.

Class C non-voting common stock
Farmer Mac’s Class C non-voting common stock has a par value of $1.

3


Exhibit 4.8
The charter does not impose any ownership restrictions on Farmer Mac's Class C non-voting common stock, and shares of this class are freely transferable.  Holders of the Class C non-voting common stock do not vote on the election of directors or any other matter, including any right to a change of control of Farmer Mac.  

Dividends as may be declared by the Board, in the discretion of the Board, shall be paid by Farmer Mac to holders of the Class C non-voting common stock, subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter;
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter; and
all dividends due on preferred stock have been paid.

The Class C non-voting common stock does not contain any conversion terms, sinking fund provisions, redemption provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares (including Class C non-voting common stock) receive any payment. Shares of Class C non-voting common stock have equal liquidation preference to all other classes of Farmer Mac’s common stock and would receive pro rata distribution of any funds remaining after full liquidation of outstanding preferred stock.

The rights of holders may be modified under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Class C non-voting common stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Class C non-voting common stock.

The rights of holders of Class C non-voting common stock are materially limited or qualified by the rights of holders of Farmer Mac’s outstanding series of preferred stock in dividend payment and liquidation preference (in each case as described above). The rights of holders of Class C non-voting common stock are otherwise not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.

4


Exhibit 4.8
5.875% Non-Cumulative Preferred Stock, Series A
Farmer Mac’s 5.875% Non-Cumulative Preferred Stock, Series A (the “Series A Preferred Stock”) has a par value of $25, an initial liquidation preference of $25 per share, and an annualized (non-cumulative) dividend rate of 5.875%. Each series of outstanding preferred stock (including the Series A Preferred Stock) ranks senior to Farmer Mac’s outstanding classes of common stock.

The charter does not impose any ownership restrictions on Farmer Mac's Series A Preferred Stock, and shares of this stock are freely transferable.  Holders of the Series A Preferred Stock do not vote on the election of directors or any other matter, including any right to a change of control of Farmer Mac.  

Dividends as may be declared by the Board, in the discretion of the Board, are paid quarterly to holders of the Series A Preferred Stock. Dividends on the Series A Preferred Stock are non-cumulative, so if the Board has not declared a dividend before the dividend payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will not be obligated to pay dividends for that dividend period, whether or not dividends on the Series A Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends on the Series A Preferred Stock without paying dividends on any class or series of stock Farmer Mac may issue in the future that ranks junior to the Series A Preferred Stock. Dividends on the Series A Preferred Stock are also subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter; and
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter.

The Series A Preferred Stock does not contain any conversion terms, sinking fund provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and outstanding shares of Series A Preferred Stock on and any time after January 17, 2018, at a price equal to the then-applicable liquidation preference. If Farmer Mac chooses to redeem the Series A Preferred Stock, Farmer Mac will provide notice of the redemption between 30 and 60 days prior to the redemption date, by mail or in any manner permitted by the Depository Trust Company, which holds the shares of Series A Preferred Stock in book-entry form. There are no restrictions on redemption if there is any arrearage in the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par
5


Exhibit 4.8
value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares receive any payment. The shares of Series A Preferred Stock have equal liquidation preference to all other classes of Farmer Mac’s preferred stock. If assets available for distribution to Farmer Mac’s stockholders are insufficient to pay in full the aggregate amount of the par value for all shares of all series of Farmer Mac’s preferred stock (including the Series A Preferred Stock), the assets will be distributed to the holders of shares of the Series A Preferred Stock on a pro rata basis with all other shares of Farmer Mac’s outstanding preferred stock.

The rights of holders may be modified under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Series A Preferred Stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Series A Preferred Stock.

The rights of holders of Series A Preferred Stock are not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.

6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C
Farmer Mac’s 6.000% Fixed-to-Floating Non-Cumulative Preferred Stock, Series C (the “Series C Preferred Stock”) has a par value of $25, an initial liquidation preference of $25 per share, and an annualized (non-cumulative) dividend rate of 5.875% from the date of issuance to and including the quarterly payment date on July 17, 2024 and thereafter a floating rate equal to three-month LIBOR plus 3.260%. Each series of outstanding preferred stock (including the Series C Preferred Stock) ranks senior to Farmer Mac’s outstanding classes of common stock.

The charter does not impose any ownership restrictions on Farmer Mac's Series C Preferred Stock, and shares of this stock are freely transferable.  Holders of the Series C Preferred Stock do not vote on the election of directors or any other matter, including any right to a change of control of Farmer Mac.  

Dividends as may be declared by the Board, in the discretion of the Board, are paid quarterly to holders of the Series C Preferred Stock. Dividends on the Series C Preferred Stock are non-cumulative, so if the Board has not declared a dividend before the dividend payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will not be obligated to pay dividends for that dividend period, whether or not dividends on the Series C Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends on the Series C Preferred Stock without paying dividends on any class or series of stock Farmer Mac may issue in the future that ranks junior to the Series C Preferred Stock. Dividends on the Series C Preferred Stock are also subject to:

6


Exhibit 4.8
the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter; and
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter.

The Series C Preferred Stock does not contain any conversion terms, sinking fund provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and outstanding shares of Series C Preferred Stock on and any time after July 18, 2024, at a price equal to the then-applicable liquidation preference. If Farmer Mac chooses to redeem the Series C Preferred Stock, Farmer Mac will provide notice of the redemption between 30 and 60 days prior to the redemption date, by mail or in any manner permitted by the Depository Trust Company, which holds the shares of Series C Preferred Stock in book-entry form. There are no restrictions on redemption if there is any arrearage in the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares receive any payment. The shares of Series C Preferred Stock have equal liquidation preference to all other classes of Farmer Mac’s preferred stock. If assets available for distribution to Farmer Mac’s stockholders are insufficient to pay in full the aggregate amount of the par value for all shares of all series of Farmer Mac’s preferred stock (including the Series C Preferred Stock), the assets will be distributed to the holders of shares of the Series C Preferred Stock on a pro rata basis with all other shares of Farmer Mac’s outstanding preferred stock.

The rights of holders may be modified under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Series C Preferred Stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Series C Preferred Stock.

The rights of holders of Series C Preferred Stock are not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.
5.700% Non-Cumulative Preferred Stock, Series D
Farmer Mac’s 5.700% Non-Cumulative Preferred Stock, Series D (the “Series D Preferred Stock”) has a par value of $25, an initial liquidation preference of $25 per share, and an
7


Exhibit 4.8
annualized (non-cumulative) dividend rate of 5.700%. Each series of outstanding preferred stock (including the Series D Preferred Stock) ranks senior to Farmer Mac’s outstanding classes of common stock.

The charter does not impose any ownership restrictions on Farmer Mac's Series D Preferred Stock, and shares of this stock are freely transferable.  Holders of the Series D Preferred Stock do not vote on the election of directors or any other matter, including any right to a change of control of Farmer Mac.  

Dividends as may be declared by the Board, in the discretion of the Board, are paid quarterly to holders of the Series D Preferred Stock. Dividends on the Series D Preferred Stock are non-cumulative, so if the Board has not declared a dividend before the dividend payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will not be obligated to pay dividends for that dividend period, whether or not dividends on the Series D Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends on the Series D Preferred Stock without paying dividends on any class or series of stock Farmer Mac may issue in the future that ranks junior to the Series D Preferred Stock. Dividends on the Series D Preferred Stock are also subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter; and
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter.

The Series D Preferred Stock does not contain any conversion terms, sinking fund provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and outstanding shares of Series D Preferred Stock on any scheduled dividend payment date on or after July 17, 2024, at a price equal to the then-applicable liquidation preference. If Farmer Mac chooses to redeem the Series D Preferred Stock, Farmer Mac will provide notice of the redemption between 30 and 60 days prior to the redemption date, by mail or in any manner permitted by the Depository Trust Company, which holds the shares of Series D Preferred Stock in book-entry form. There are no restrictions on redemption if there is any arrearage in the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares receive any payment. The shares of Series D Preferred Stock have equal liquidation preference to all other classes of Farmer Mac’s preferred stock. If assets available for distribution to Farmer Mac’s stockholders are insufficient to pay in full the
8


Exhibit 4.8
aggregate amount of the par value for all shares of all series of Farmer Mac’s preferred stock (including the Series D Preferred Stock), the assets will be distributed to the holders of shares of the Series D Preferred Stock on a pro rata basis with all other shares of Farmer Mac’s outstanding preferred stock.

The rights of holders may be modified under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Series D Preferred Stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Series D Preferred Stock.

The rights of holders of Series D Preferred Stock are not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.
5.750% Non-Cumulative Preferred Stock, Series E
Farmer Mac’s 5.750% Non-Cumulative Preferred Stock, Series E (the “Series E Preferred Stock”) has a par value of $25, an initial liquidation preference of $25 per share, and an annualized (non-cumulative) dividend rate of 5.750%. Each series of outstanding preferred stock (including the Series E Preferred Stock) ranks senior to Farmer Mac’s outstanding classes of common stock.

The charter does not impose any ownership restrictions on Farmer Mac's Series E Preferred Stock, and shares of this stock are freely transferable.  Holders of the Series E Preferred Stock do not vote on the election of directors or any other matter, including any right to a change of control of Farmer Mac.  

Dividends as may be declared by the Board, in the discretion of the Board, are paid quarterly to holders of the Series E Preferred Stock. Dividends on the Series E Preferred Stock are non-cumulative, so if the Board has not declared a dividend before the dividend payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will not be obligated to pay dividends for that dividend period, whether or not dividends on the Series E Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends on the Series E Preferred Stock without paying dividends on any class or series of stock Farmer Mac may issue in the future that ranks junior to the Series E Preferred Stock. Dividends on the Series E Preferred Stock are also subject to:

the Board’s determination that adequate provision has been made for Farmer Mac’s reserve against guarantee losses prescribed by section 8.10(c)(1) of its charter; and
there being no outstanding obligations of Farmer Mac to the U.S. Treasury Department under section 8.13 of Farmer Mac’s charter.

9


Exhibit 4.8
The Series E Preferred Stock does not contain any conversion terms, sinking fund provisions, or preemption rights, and the holders of these shares do not face liability to further calls or assessment by Farmer Mac for any reason. There are no provisions discriminating against any existing or prospective holder as a result of such holder owning a substantial amount of shares or other securities of Farmer Mac.

Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and outstanding shares of Series E Preferred Stock on any scheduled dividend payment date on or after July 17, 2025, at a price equal to the then-applicable liquidation preference. If Farmer Mac chooses to redeem the Series E Preferred Stock, Farmer Mac will provide notice of the redemption between 30 and 60 days prior to the redemption date, by mail or in any manner permitted by the Depository Trust Company, which holds the shares of Series E Preferred Stock in book-entry form. There are no restrictions on redemption if there is any arrearage in the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the business of Farmer Mac, the holders of all series of Farmer Mac’s preferred stock shall be paid in full at the par value of that preferred stock, plus all accrued dividends, before the holders of any class of common shares receive any payment. The shares of Series E Preferred Stock have equal liquidation preference to all other classes of Farmer Mac’s preferred stock. If assets available for distribution to Farmer Mac’s stockholders are insufficient to pay in full the aggregate amount of the par value for all shares of all series of Farmer Mac’s preferred stock (including the Series E Preferred Stock), the assets will be distributed to the holders of shares of the Series E Preferred Stock on a pro rata basis with all other shares of Farmer Mac’s outstanding preferred stock.

The rights of holders may be modified under the following circumstances:

Congress may modify Farmer Mac’s charter at any time and in any manner, which could affect the rights of any of Farmer Mac’s securityholders, including holders of Series E Preferred Stock; and
Farmer Mac’s charter prescribes that the Board may adopt and amend bylaws not inconsistent with Farmer Mac’s charter or other laws or regulations, which may have the effect of modifying the rights of holders of Series E Preferred Stock.

The rights of holders of Series E Preferred Stock are not materially limited or qualified by the rights of any other holders of Farmer Mac’s outstanding securities.
10


Exhibit 31.1
 
CERTIFICATION
 
I, Bradford T. Nordholm, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation for the fiscal quarter ended June 30, 2020;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date: August 10, 2020
 

/s/ Bradford T. Nordholm
Bradford T. Nordholm
Chief Executive Officer




Exhibit 31.2
 
CERTIFICATION
 
I, Aparna Ramesh, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation for the fiscal quarter ended June 30, 2020;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date: August 10, 2020
 

/s/ Aparna Ramesh
Aparna Ramesh
Chief Financial Officer



Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation (the “Corporation”) for the quarterly period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Bradford T. Nordholm, Chief Executive Officer of the Corporation, and Aparna Ramesh, Chief Financial Officer of the Corporation, each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.



/s/ Bradford T. Nordholm
Bradford T. Nordholm
Chief Executive Officer
/s/ Aparna Ramesh
Aparna Ramesh
Chief Financial Officer
Date:
August 10, 2020