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AGM Federal Agricultural Mortgage

Filed: 5 Aug 21, 4:16pm

As filed with the Securities and Exchange Commission on August 5, 2021
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, 2021
Commission File Number 001-14951 

agm-20210630_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,DC20006
(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 classTrading symbol Exchange on which registered
Class A voting common stockAGM.A New York Stock Exchange
Class C non-voting common stockAGM New York Stock Exchange
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series CAGM.PRCNew York Stock Exchange
5.700% Non-Cumulative Preferred Stock, Series DAGM.PRDNew York Stock Exchange
5.750% Non-Cumulative Preferred Stock, Series EAGM.PRENew York Stock Exchange
5.250% Non-Cumulative Preferred Stock, Series FAGM.PRFNew York Stock Exchange
4.875% Non-Cumulative Preferred Stock, Series GAGM.PRGNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Class B voting common stock
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 filerAccelerated filer
Non-accelerated filerSmaller 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 July 30, 2021, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock, and 9,234,594 shares of Class C non-voting common stock.


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PART I

Item 1.Financial Statements
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
 June 30, 2021December 31, 2020
 (in thousands)
Assets:  
Cash and cash equivalents$828,403 $1,033,941 
Investment securities:  
Available-for-sale, at fair value (amortized cost of $3,817,578 and $3,843,666, respectively)3,832,232 3,853,692 
Held-to-maturity, at amortized cost45,032 45,032 
Other investments403 
Total Investment Securities3,877,667 3,898,724 
Farmer Mac Guaranteed Securities:  
Available-for-sale, at fair value (amortized cost of $6,618,871 and $6,594,992, respectively)6,877,405 6,947,701 
Held-to-maturity, at amortized cost1,040,757 1,175,792 
Total Farmer Mac Guaranteed Securities7,918,162 8,123,493 
USDA Securities:  
Trading, at fair value5,050 6,695 
Held-to-maturity, at amortized cost2,445,718 2,473,626 
Total USDA Securities2,450,768 2,480,321 
Loans:  
Loans held for investment, at amortized cost7,796,712 7,261,933 
Loans held for investment in consolidated trusts, at amortized cost1,077,993 1,287,045 
Allowance for losses(14,000)(13,832)
Total loans, net of allowance8,860,705 8,535,146 
Financial derivatives, at fair value16,224 17,468 
Interest receivable (includes $11,197 and $16,401, respectively, related to consolidated trusts)161,282 186,429 
Guarantee and commitment fees receivable37,261 37,113 
Deferred tax asset, net10,200 18,321 
Prepaid expenses and other assets20,573 24,545 
Total Assets$24,181,245 $24,355,501 
Liabilities and Equity:  
Liabilities:  
Notes payable$21,706,254 $21,848,917 
Debt securities of consolidated trusts held by third parties1,120,293 1,323,786 
Financial derivatives, at fair value24,347 29,892 
Accrued interest payable (includes $10,126 and $14,370, respectively, related to consolidated trusts)82,060 92,738 
Guarantee and commitment obligation35,827 35,535 
Accounts payable and accrued expenses30,138 28,879 
Reserve for losses2,111 3,277 
Total Liabilities23,001,030 23,363,024 
Commitments and Contingencies (Note 6)00
Equity:  
Preferred stock:  
      Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding73,382 73,382 
Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding96,659 96,659 
Series E, par value $25 per share, 3,180,000 shares authorized, issued and outstanding77,003 77,003 
Series F, par value $25 per share, 4,800,000 shares authorized, issued and outstanding116,160 116,160 
Series G, par value $25 per share, 5,000,000 shares authorized, issued and outstanding121,327 
Common stock:  
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding1,031 1,031 
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding500 500 
Class C Non-Voting, $1 par value, no maximum authorization, 9,234,311 shares and 9,205,897 shares outstanding, respectively9,234 9,206 
Additional paid-in capital124,148 122,899 
Accumulated other comprehensive income/(loss), net of tax16,733 (13,923)
Retained earnings544,038 509,560 
Total Equity1,180,215 992,477 
Total Liabilities and Equity$24,181,245 $24,355,501 
The accompanying notes are an integral part of these consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months EndedFor the Six Months Ended
 June 30, 2021June 30, 2020June 30, 2021June 30, 2020
 (in thousands, except per share amounts)
Interest income:
Investments and cash equivalents$4,457 $10,399 $9,986 $28,140 
Farmer Mac Guaranteed Securities and USDA Securities42,414 61,792 84,818 133,309 
Loans60,214 55,430 119,708 116,026 
Total interest income107,085 127,621 214,512 277,475 
Total interest expense51,956 79,273 106,132 187,815 
Net interest income55,129 48,348 108,380 89,660 
Release of/(provision for) losses761 (451)(152)(3,889)
Net interest income after provision for losses55,890 47,897 108,228 85,771 
Non-interest income/(expense):
Guarantee and commitment fees2,997 3,140 6,027 6,336 
(Losses)/gains on financial derivatives(3,066)6,523 1,227 (2,775)
(Losses)/gains on trading securities(62)(21)(75)85 
Gains on sale of real estate owned485 
Release of reserve for losses222 400 1,166 
Other income435 1,229 1,018 2,045 
Non-interest income526 11,271 9,363 6,183 
Operating expenses:
Compensation and employee benefits9,779 8,087 21,574 18,214 
General and administrative6,349 5,295 12,685 10,658 
Regulatory fees750 725 1,500 1,450 
Operating expenses16,878 14,107 35,759 30,322 
Income before income taxes39,538 45,061 81,832 61,632 
Income tax expense8,252 9,435 17,319 13,176 
Net income31,286 35,626 64,513 48,456 
Preferred stock dividends(5,842)(3,939)(11,111)(7,370)
Net income attributable to common stockholders$25,444 $31,687 $53,402 $41,086 
Earnings per common share:
Basic earnings per common share$2.36 $2.95 $4.96 $3.83 
Diluted earnings per common share$2.35 $2.94 $4.93 $3.81 
The accompanying notes are an integral part of these consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the Three Months EndedFor the Six Months Ended
 June 30, 2021June 30, 2020June 30, 2021June 30, 2020
 (in thousands)
Net income$31,286 $35,626 $64,513 $48,456 
Other comprehensive income/(loss) before taxes:
Net unrealized (losses)/gains on available-for-sale securities(37,389)42,527 28,975 (56,789)
Net changes in held-to-maturity securities(1,653)(2,496)(3,810)(8,184)
Net unrealized (losses)/gains on cash flow hedges(5,274)(2,132)13,641 (30,388)
Other comprehensive (loss)/income before tax(44,316)37,899 38,806 (95,361)
Income tax benefit/(expense) related to other comprehensive (loss)/income9,305 (7,959)(8,150)20,025 
Other comprehensive (loss)/income net of tax(35,011)29,940 30,656 (75,336)
Comprehensive (loss)/income$(3,725)$65,566 $95,169 $(26,880)
The accompanying notes are an integral part of these consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
Accumulated
AdditionalOther
Preferred StockCommon StockPaid-InComprehensiveRetainedTotal
SharesAmountSharesAmountCapitalIncome/(Loss)EarningsEquity
(in thousands)
Balance as of December 31, 202014,980 $363,204 10,737 $10,737 $122,899 $(13,923)$509,560 $992,477 
Net Income— — — — — — 33,227 33,227 
Other comprehensive income, net of tax— — — — — 65,667 — 65,667 
Cash dividends:
Preferred stock— — — — — — (5,269)(5,269)
Common stock (cash dividend of $0.88 per share)— — — — — — (9,450)(9,450)
Issuance of Class C Common Stock— — 21 21 12 — — 33 
Stock-based compensation cost— — — — 1,665 1,665 
Other stock-based award activity— — — — (858)— — (858)
Balance as of March 31, 202114,980 $363,204 10,758 $10,758 $123,718 $51,744 $528,068 $1,077,492 
Net Income— — — — — — 31,286 31,286 
Other comprehensive loss, net of tax— — — — — (35,011)— (35,011)
Cash dividends:
Preferred stock— — — — — — (5,842)(5,842)
Common stock (cash dividend of $0.88 per share)— — — — — — (9,474)(9,474)
Issuance of Series G Preferred Stock5,000 121,327 — — — — — 121,327 
Issuance of Class C Common Stock— — 13 — — 20 
Stock-based compensation cost— — — — 891 — — 891 
Other stock-based award activity— — — — (474)— — (474)
Balance as of June 30, 202119,980 $484,531 10,765 $10,765 $124,148 $16,733 $544,038 $1,180,215 

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Accumulated
AdditionalOther
Preferred StockCommon StockPaid-InComprehensiveRetainedTotal
SharesAmountSharesAmountCapitalIncome/(Loss)EarningsEquity
(in thousands)
Balance as of December 31, 20199,400 $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)
Balances as of January 1, 20209,400 $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, 20209,400 $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 Stock3,180 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, 202012,580 $305,377 10,733 $10,733 $120,856 $(91,497)$478,647 $824,116 
The accompanying notes are an integral part of these consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
 June 30, 2021June 30, 2020
 (in thousands)
Cash flows from operating activities: 
Net income$64,513 $48,456 
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 Securities9,619 1,095 
Amortization of debt premiums, discounts, and issuance costs3,602 14,769 
Net change in fair value of trading securities, hedged assets, and financial derivatives178,314 (401,002)
Gain on sale of real estate owned(485)
Total (release)/provision for allowance for losses(1,014)3,882 
Excess tax benefits related to stock-based awards292 (475)
Deferred income taxes(27)(2,254)
Stock-based compensation expense2,557 2,012 
Proceeds from repayment of loans purchased as held for sale30,062 35,351 
Net change in:
Interest receivable24,025 24,139 
Guarantee and commitment fees receivable144 292 
Other assets3,680 (23,446)
Accrued interest payable(10,678)(6,825)
Other liabilities684 (2,453)
Net cash provided by/(used in) operating activities305,773 (306,944)
Cash flows from investing activities: 
Purchases of available-for-sale investment securities(893,754)(1,591,501)
Purchases of other investment securities(403)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities(1,168,827)(1,361,109)
Purchases of loans held for investment(1,417,958)(1,502,920)
Purchases of defaulted loans(8,713)(6,272)
Proceeds from repayment of available-for-sale investment securities884,489 1,097,237 
Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities1,305,719 1,029,718 
Proceeds from repayment of loans purchased as held for investment1,014,805 712,238 
Proceeds from sale of available-for-sale investment securities25,573 
Proceeds from sale of Farmer Mac Guaranteed Securities49,133 28,050 
Proceeds from sale of real estate owned2,191 
Net cash used in investing activities(209,936)(1,592,368)
Cash flows from financing activities: 
Proceeds from issuance of discount notes31,775,475 34,376,593 
Proceeds from issuance of medium-term notes6,578,677 7,791,406 
Payments to redeem discount notes(31,895,655)(34,075,014)
Payments to redeem medium-term notes(6,574,370)(5,847,765)
Payments to third parties on debt securities of consolidated trusts(276,089)(175,004)
Proceeds from common stock issuance25 36 
Proceeds from preferred stock issuance, net of stock issuance costs121,327 77,003 
Tax payments related to share-based awards(1,305)(471)
Purchases of common stock(235)
Dividends paid on common and preferred stock(29,460)(24,018)
Net cash (used in)/provided by financing activities(301,375)2,122,531 
Net change in cash and cash equivalents(205,538)223,219 
Cash and cash equivalents at beginning of period1,033,941 604,381 
Cash and cash equivalents at end of period$828,403 $827,600 
Non-cash activity:
Loans acquired and securitized as Farmer Mac Guaranteed Securities49,133 28,050 
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 parties49,133 28,050 
Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment23,463 7,414 
Capitalized interest1,037 
Purchases of securities - traded, not yet settled4,588 
  The accompanying notes are an integral part of these consolidated financial statements.

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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, 2020 consolidated balance sheet presented in this report has been derived
from Farmer Mac's audited 2020 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 2020 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, 2020, as filed with the SEC
on February 25, 2021. 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, 2021.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its 2 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.


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Table 1.1
Consolidation of Variable Interest Entities
As of June 30, 2021
Farm & RanchUSDA GuaranteesCorporateTotal
(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost$1,077,993 $$$1,077,993 
Debt securities of consolidated trusts held by third parties (1)
1,120,293 1,120,293 
   Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Carrying value (2)
28,798 28,798 
      Maximum exposure to loss (3)
28,756 28,756 
   Investment securities:
        Carrying value (4)
2,084,486 2,084,486 
        Maximum exposure to loss (3) (4)
2,075,774 2,075,774 
Off-Balance Sheet:
 Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Maximum exposure to loss (3) (5)
66,008 270,652 336,660 
(1)Includes borrower remittances of $42.3 million. The borrower remittances had not been passed through to third party investors as of June 30, 2021.
(2)Includes $41,000 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, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments.
(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.

Consolidation of Variable Interest Entities
As of December 31, 2020
Farm & RanchUSDA GuaranteesCorporateTotal
(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost$1,287,045 $$$1,287,045 
Debt securities of consolidated trusts held by third parties (1)
1,323,786 1,323,786 
   Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Carrying value (2)
34,537 34,537 
      Maximum exposure to loss (3)
34,456 34,456 
   Investment securities:
        Carrying value (4)
1,918,672 1,918,672 
        Maximum exposure to loss (3) (4)
1,909,535 1,909,535 
Off-Balance Sheet:
 Unconsolidated VIEs:
   Farmer Mac Guaranteed Securities:
      Maximum exposure to loss (3) (5)
79,312 299,298 378,610 
(1)Includes borrower remittances of $36.7 million. The borrower remittances had not been passed through to third party investors as of December 31, 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.

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(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.

(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, 2021 and 2020:

Table 1.2
For the Three Months Ended
June 30, 2021June 30, 2020
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$25,444 10,763 $2.36 $31,687 10,730 $2.95 
Effect of dilutive securities(1)
SARs and restricted stock— 75 (0.01)— 46 (0.01)
Diluted EPS$25,444 10,838 $2.35 $31,687 10,776 $2.94 
(1)For the three months ended June 30, 2021 and 2020, SARs and restricted stock of 29,043 and 83,297, 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, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680, 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, 2021June 30, 2020
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$53,402 10,751 $4.96 $41,086 10,721 $3.83 
Effect of dilutive securities(1)
SARs and restricted stock— 78 (0.03)— 58 (0.02)
Diluted EPS$53,402 10,829 $4.93 $41,086 10,779 $3.81 
(1)For the six months ended June 30, 2021 and 2020, SARs and restricted stock of 64,364 and 85,223, 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, 2021 and 2020, contingent shares of unvested restricted stock of 18,183 and 12,680, 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.


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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, 2021 and 2020.

Table 1.3
As of June 30, 2021As of June 30, 2020
Available-for-Sale SecuritiesHeld-to-Maturity SecuritiesCash Flow HedgesTotalAvailable-for-Sale SecuritiesHeld-to-Maturity SecuritiesCash Flow HedgesTotal
(in thousands)
For the Three Months Ended:
Beginning Balance$38,491 $21,125 $(7,872)$51,744 $(121,858)$28,351 $(27,930)$(121,437)
Other comprehensive (loss)/income before reclassifications(28,751)(5,570)(34,321)34,374 (2,920)31,454 
Amounts reclassified from AOCI(786)(1,306)1,402 (690)(777)(1,972)1,235 (1,514)
Net comprehensive (loss)/income(29,537)(1,306)(4,168)(35,011)33,597 (1,972)(1,685)29,940 
Ending Balance$8,954 $19,819 $(12,040)$16,733 $(88,261)$26,379 $(29,615)$(91,497)
For the Six Months Ended:
Beginning Balance$(13,937)$22,829 $(22,815)$(13,923)$(43,397)$32,845 $(5,609)$(16,161)
Other comprehensive income/(loss) before reclassifications24,459 7,993 32,452 (43,310)(25,588)(68,898)
Amounts reclassified from AOCI(1,568)(3,010)2,782 (1,796)(1,554)(6,466)1,582 (6,438)
Net comprehensive income/(loss)22,891 (3,010)10,775 30,656 (44,864)(6,466)(24,006)(75,336)
Ending Balance$8,954 $19,819 $(12,040)$16,733 $(88,261)$26,379 $(29,615)$(91,497)


12





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, 2021 and 2020:

Table 1.4

For the Three Months Ended
June 30, 2021June 30, 2020
Before TaxProvision (Benefit)After TaxBefore TaxProvision (Benefit)After Tax
(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding (losses)/gains on available-for-sale securities$(36,395)$(7,644)$(28,751)$43,512 $9,138 $34,374 
Less reclassification adjustments included in:
Net interest income(1)
(987)(207)(780)(971)(204)(767)
Other income(2)
(7)(1)(6)(14)(4)(10)
Total$(37,389)$(7,852)$(29,537)$42,527 $8,930 $33,597 
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)
(1,653)(347)(1,306)(2,496)(524)(1,972)
Total$(1,653)$(347)$(1,306)$(2,496)$(524)$(1,972)
Cash flow hedges
Unrealized losses on cash flow hedges$(7,050)$(1,480)$(5,570)$(3,695)$(775)$(2,920)
Less reclassification adjustments included in:
Net interest income(4)
1,776 374 1,402 1,563 328 1,235 
Total$(5,274)$(1,106)$(4,168)$(2,132)$(447)$(1,685)
Other comprehensive (loss)/income$(44,316)$(9,305)$(35,011)$37,899 $7,959 $29,940 
(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.


13





For the Six Months Ended
June 30, 2021June 30, 2020
Before TaxProvision (Benefit)After TaxBefore TaxProvision (Benefit)After Tax
(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding gains/(losses) on available-for-sale securities$30,961 $6,502 $24,459 $(54,822)$(11,512)$(43,310)
Less reclassification adjustments included in:
Net interest income(1)
(1,971)(415)(1,556)(1,940)(407)(1,533)
Other income(2)
(15)(3)(12)(27)(6)(21)
Total$28,975 $6,084 $22,891 $(56,789)$(11,925)$(44,864)
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)
(3,810)(800)(3,010)(8,184)(1,718)(6,466)
Total$(3,810)$(800)$(3,010)$(8,184)$(1,718)$(6,466)
Cash flow hedges
Unrealized gains/(losses) on cash flow hedges$10,118 $2,125 $7,993 $(32,390)$(6,802)$(25,588)
Less reclassification adjustments included in:
Net interest income(4)
3,523 741 2,782 2,002 420 1,582 
Total$13,641 $2,866 $10,775 $(30,388)$(6,382)$(24,006)
Other comprehensive income/(loss)$38,806 $8,150 $30,656 $(95,361)$(20,025)$(75,336)
(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)New Accounting Standards

Recently Adopted Accounting Guidance
StandardDescriptionDate of AdoptionEffect on Consolidated Financial Statements
ASU 2020-04 and 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.January 1, 2020Farmer Mac adopted optional expedients specific to discounting transition on a retrospective basis, and as a result of this election, the discounting transition did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.


14





2.INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's available-for-sale and held-to-maturity investment securities as of June 30, 2021 and December 31, 2020:
 
Table 2.1
 As of June 30, 2021
Amount OutstandingUnamortized 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 $$19,700 $(58)$$(394)$19,248 
Floating rate Government/GSE guaranteed mortgage-backed securities2,459,511 2,459,519 15,833 (652)2,474,700 
Fixed rate GSE guaranteed mortgage-backed securities28,174 807 28,981 29 29,010 
Fixed rate U.S. Treasuries1,300,208 9,170 1,309,378 204 (308)1,309,274 
Total available-for-sale3,807,593 9,985 3,817,578 (58)16,066 (1,354)3,832,232 
Held-to-maturity:
Floating rate Government/GSE guaranteed mortgage-backed securities(3)
45,032 45,032 (198)44,834 
Total held-to-maturity$45,032 $$45,032 $$$(198)$44,834 
(1)Amounts presented exclude $6.2 million of accrued interest receivable on investment securities as of June 30, 2021.
(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, 2021.

 As of December 31, 2020
Amount OutstandingUnamortized 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 $$19,700 $(36)$$(493)$19,171 
Floating rate asset-backed securities6,232 6,232 (1)6,231 
Floating rate Government/GSE guaranteed mortgage-backed securities2,350,963 (44)2,350,919 12,150 (3,043)2,360,026 
Fixed rate GSE guaranteed mortgage-backed securities279 279 34 313 
Fixed rate U.S. Treasuries1,449,408 17,128 1,466,536 1,458 (43)1,467,951 
Total available-for-sale3,826,582 17,084 3,843,666 (36)13,642 (3,580)3,853,692 
Held-to-maturity:
Floating rate Government/GSE guaranteed mortgage-backed securities(3)
45,032 45,032 1,201 46,233 
Total held-to-maturity$45,032 $$45,032 $$1,201 $$46,233 
(1)Amounts presented exclude $9.0 million of accrued interest receivable on investment securities as of December 31, 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 December 31, 2020.

During the three and six months ended June 30, 2021, Farmer Mac received proceeds of $25.6 million from the sale of securities from its available-for-sale investment portfolio, resulting in a loss of $2,900. Farmer Mac did 0t sell any securities from its available-for-sale investment portfolio during the three and six months ended June 30, 2020.

15






As of June 30, 2021 and December 31, 2020, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2
 As of June 30, 2021
 Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
 (dollars in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans$$$19,248 $(394)
Floating rate Government/GSE guaranteed mortgage-backed securities92,080 (122)47,682 (530)
Fixed rate U.S. Treasuries297,864 (308)
Total$389,944 $(430)$66,930 $(924)
Number of securities in loss position19 25 
 As of December 31, 2020
 Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
 (dollars in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans$$$19,171 $(493)
Floating rate asset-backed securities6,231 (1)
Floating rate Government/GSE guaranteed mortgage-backed securities172,842 (593)324,423 (2,450)
Fixed rate U.S. Treasuries364,320 (43)
Total$537,162 $(636)$349,825 $(2,944)
Number of securities in loss position27 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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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, 2021 that is, on average, approximately 98.6% 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.


16





The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of June 30, 2021 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, 2021
Available-for-Sale Securities
Amortized
Cost
Fair ValueWeighted-
Average
Yield
 (dollars in thousands)
Due within one year$977,778 $977,976 1.82%
Due after one year through five years711,832 712,720 0.61%
Due after five years through ten years1,362,956 1,368,656 0.52%
Due after ten years765,012 772,880 0.63%
Total$3,817,578 $3,832,232 0.89%

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, 2021 and December 31, 2020:

Table 3.1
 As of June 30, 2021
Unpaid Principal BalanceUnamortized Premium/(Discount)
Amortized
Cost(1)
Allowance for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
 (in thousands)
Held-to-maturity:
AgVantage$1,012,162 $(20)$1,012,142 $(182)$17,046 $(4,196)$1,024,810 
Farmer Mac Guaranteed USDA Securities28,756 41 28,797 561 (178)29,180 
Total Farmer Mac Guaranteed Securities1,040,918 21 1,040,939 (182)17,607 (4,374)1,053,990 
USDA Securities2,422,597 23,121 2,445,718 22,418 (1,143)2,466,993 
Total held-to-maturity$3,463,515 $23,142 $3,486,657 $(182)$40,025 $(5,517)$3,520,983 
Available-for-sale:    
AgVantage$6,617,498 $1,373 $6,618,871 $(220)$271,223 $(12,469)$6,877,405 
Trading:    
USDA Securities(3)
$4,904 $138 $5,042 $$22 $(14)$5,050 
(1)Amounts presented exclude $32.0 million, $31.2 million, and $0.1 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of June 30, 2021.
(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 5.06% as of June 30, 2021.

17





 As of December 31, 2020
Unpaid Principal BalanceUnamortized Premium/(Discount)
Amortized
Cost(1)
Allowance for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
 (in thousands)
Held-to-maturity:
AgVantage$1,141,430 $(55)$1,141,375 $(120)$23,986 $(61)$1,165,180 
Farmer Mac Guaranteed USDA Securities34,456 81 34,537 1,273 35,810 
Total Farmer Mac Guaranteed Securities1,175,886 26 1,175,912 (120)25,259 (61)1,200,990 
USDA Securities2,446,550 27,076 2,473,626 157,748 (560)2,630,814 
Total held-to-maturity$3,622,436 $27,102 $3,649,538 $(120)$183,007 $(621)$3,831,804 
Available-for-sale:    
AgVantage$6,593,518 $1,474 $6,594,992 $(310)$368,257 $(15,238)$6,947,701 
Trading:    
USDA Securities(3)
$6,413 $198 $6,611 $$84 $$6,695 
(1)Amounts presented exclude $32.3 million, $44.7 million, and $0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and trading securities, respectively, as of December 31, 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 5.05% as of December 31, 2020.

As of June 30, 2021 and December 31, 2020, 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, 2021
 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 ValueUnrealized
Loss
Fair ValueUnrealized
Loss
 (in thousands)
Held-to-maturity:
AgVantage$270,804 $(4,196)$$
Farmer Mac Guaranteed USDA Securities12,902 (178)
USDA Securities37,862 (353)16,780 (790)
Total held-to-maturity$321,568 $(4,727)$16,780 $(790)
Available-for-sale:
AgVantage$1,094,412 $(9,962)$202,492 $(2,507)


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As of December 31, 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 ValueUnrealized
Loss
Fair ValueUnrealized
Loss
 (in thousands)
Held-to-maturity:
AgVantage$49,939 $(61)$$
USDA Securities21,061 (560)
Total held-to-maturity$49,939 $(61)$21,061 $(560)
Available-for-sale:
AgVantage$133,703 $(231)$981,757 $(15,007)

The unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to June 30, 2021 and December 31, 2020, as applicable. The unrealized losses on the held-to-maturity USDA Securities as of both June 30, 2021 and December 31, 2020 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.

The unrealized losses from AgVantage securities were on 13 and 11 available-for-sale securities as of June 30, 2021 and December 31, 2020, respectively. There were 4 and 2 held-to-maturity AgVantage securities with an unrealized loss as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, 2 and 7 available-for-sale AgVantage securities, respectively, had been in a loss position for more than 12 months.

During the three and six months ended June 30, 2021 and 2020, Farmer Mac had no sales of Farmer Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses.


19





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, 2021 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, 2021
Available-for-Sale Securities
Amortized
Cost(1)
Fair ValueWeighted-
Average
Yield
 (dollars in thousands)
Due within one year$1,581,119 $1,586,647 1.58 %
Due after one year through five years2,526,845 2,621,450 2.51 %
Due after five years through ten years922,881 959,208 2.05 %
Due after ten years1,588,026 1,710,100 2.47 %
Total$6,618,871 $6,877,405 2.21 %
(1)Amounts presented exclude $32.0 million of accrued interest receivable.

As of June 30, 2021
Held-to-Maturity Securities
Amortized
Cost(1)
Fair ValueWeighted-
Average
Yield
 (dollars in thousands)
Due within one year$329,849 $332,601 2.71 %
Due after one year through five years741,605 750,667 2.51 %
Due after five years through ten years250,695 253,347 2.75 %
Due after ten years2,164,508 2,184,368 3.11 %
Total$3,486,657 $3,520,983 2.90 %
(1)Amounts presented exclude $31.2 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, 2020, as
filed with the SEC on February 25, 2021.

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, 2021 and December 31, 2020:


20





Table 4.1
  As of June 30, 2021
  Fair ValueWeighted-
Average
Pay Rate
Weighted-
Average Receive Rate
Weighted-
Average
Forward
Price
Weighted-
Average
Remaining
Term (in years)
  Notional AmountAsset(Liability)
  (dollars in thousands)
Fair value hedges:
Interest rate swaps:
Pay fixed non-callable$5,450,448 $7,863 $(679)2.24%0.15%11.81
Receive fixed non-callable4,213,029 64 (8,191)0.20%0.97%2.24
Receive fixed callable1,067,577 1,529 (3,538)0.04%0.81%4.21
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable528,000 5,572 (5,008)1.98%0.51%5.93
No hedge designation:
Interest rate swaps:
Pay fixed non-callable338,951 (6,786)2.38%0.14%3.73
Receive fixed non-callable1,747,850 0.13%0.61%0.82
Basis swaps2,608,911 1,215 (79)0.14%0.19%2.44
Treasury futures33,600 0(88)132.24 
Credit valuation adjustment(19)22    
Total financial derivatives$15,988,366 $16,224 $(24,347)      
Collateral (held)/pledged(2,601)177,228 
Net amount$13,623 $152,881 

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  As of December 31, 2020
  Fair ValueWeighted-
Average
Pay Rate
Weighted-
Average Receive Rate
Weighted-
Average
Forward
Price
Weighted-
Average
Remaining
Term (in years)
  Notional AmountAsset(Liability)
  (dollars in thousands)
Fair value hedges:
Interest rate swaps:
Pay fixed non-callable$5,463,303 $10,157 $(2,585)2.26%0.21%11.95
Receive fixed non-callable2,611,029 (8,755)0.32%1.61%2.10
Receive fixed callable343,500 3,108 (4)0.16%1.78%3.16
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable472,000 2,584 (8,771)2.04%0.57%6.04
No hedge designation:
Interest rate swaps:
Pay fixed non-callable339,090 (9,675)2.38%0.19%4.23
Receive fixed non-callable2,359,220 0.16%0.87%1.07
Receive fixed callable200,000 (12)0.13%0.15%0.72
Basis swaps3,628,911 1,617 (43)0.18%0.23%2.03
Treasury futures30,500 (82)137.81 
Credit valuation adjustment(1)35    
Total financial derivatives$15,447,553 $17,468 $(29,892)      
Collateral (held)/pledged(1,345)212,263 
Net amount$16,123 $182,371 

As of June 30, 2021, Farmer Mac expects to reclassify $5.7 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, 2021. During the three and six months ended June 30, 2021 and 2020, there were 0 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.


















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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, 2021 and 2020:

Table 4.2
For the Three Months Ended June 30, 2021
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest IncomeNon-Interest IncomeTotal
Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA SecuritiesInterest Income LoansTotal Interest ExpenseLosses on financial derivatives
(in thousands)
Total amounts presented in the consolidated statement of operations$4,457 $42,414 $60,214 $(51,956)$(3,066)$52,063 
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives(35)(21,604)(6,704)9,811 (18,532)
Recognized on hedged items67 30,565 11,635 (12,141)30,126 
Discount amortization recognized on hedged items(257)(257)
Income/(expense) related to interest settlements on fair value hedging relationships$32 $8,961 $4,931 $(2,587)$$11,337 
Gains/(losses) on fair value hedging relationships:
Recognized on derivatives$(176)$(48,680)$(65,147)$(2,657)$$(116,660)
Recognized on hedged items188 49,878 63,978 891 114,935 
Gains/(losses) on fair value hedging relationships$12 $1,198 $(1,169)$(1,766)$$(1,725)
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives$$$$(1,776)$$(1,776)
Recognized on hedged items(643)(643)
Discount amortization recognized on hedged items(8)(8)
Expense recognized on cash flow hedges$$$$(2,427)$$(2,427)
Losses on financial derivatives not designated in hedging relationships:
Losses on interest rate swaps$$$$$(3,739)$(3,739)
Interest expense on interest rate swaps1,098 1,098 
Treasury futures(425)(425)
Losses on financial derivatives not designated in hedge relationships$$$$$(3,066)$(3,066)





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For The Three Months Ended June 30, 2020
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest IncomeNon-Interest IncomeTotal
Interest Income
Farmer Mac Guaranteed Securities and USDA Securities
Interest Income LoansTotal Interest ExpenseGains 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 items32,102 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 items9,050 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)$$(2,594)
Gains on financial derivatives not designated in hedge relationships:
Gains on interest rate swaps$$$$8,427 $8,427 
Interest expense on interest rate swaps(1,795)(1,795)
Treasury futures(109)(109)
Gains on financial derivatives not designated in hedge relationships$$$$6,523 $6,523 

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For the Six Months Ended June 30, 2021
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest IncomeNon-Interest IncomeTotal
Interest Income Investments and Cash Equivalents Interest Income Farmer Mac Guaranteed Securities and USDA SecuritiesInterest Income LoansTotal Interest ExpenseGains on financial derivatives
(in thousands)
Total amounts presented in the consolidated statement of operations$9,986 $84,818 $119,708 $(106,132)$1,227 $109,607 
Income/(expense) related to interest settlements on fair value hedging relationships:
Recognized on derivatives(35)(43,041)(13,275)19,292 (37,059)
Recognized on hedged items67 61,341 23,122 (23,949)60,581 
Discount amortization recognized on hedged items(478)(478)
Income/(expense) related to interest settlements on fair value hedging relationships$32 $18,300 $9,847 $(5,135)$$23,044 
Gains/(losses) on fair value hedging relationships:
Recognized on derivatives$(176)$119,396 $80,624 $(32,111)$$167,733 
Recognized on hedged items188 (118,922)(80,770)30,392 (169,112)
Gains/(losses) on fair value hedging relationships$12 $474 $(146)$(1,719)$$(1,379)
Expense related to interest settlements on cash flow hedging relationships:
Interest settlements reclassified from AOCI into net income on derivatives$$$$(3,523)$$(3,523)
Recognized on hedged items(1,298)(1,298)
Discount amortization recognized on hedged items(15)(15)
Expense recognized on cash flow hedges$$$$(4,836)$$(4,836)
Gains on financial derivatives not designated in hedging relationships:
Losses on interest rate swaps$$$$$(2,271)$(2,271)
Interest expense on interest rate swaps3,322 3,322 
Treasury futures176 176 
Gains on financial derivatives not designated in hedge relationships$$$$$1,227 $1,227 






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For The Six Months Ended June 30, 2020
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
Net Interest IncomeNon-Interest IncomeTotal
Interest Income
Farmer Mac Guaranteed Securities and USDA Securities
Interest Income LoansTotal Interest ExpenseLosses 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 items63,927 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 items299,430 148,445 (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)$$(5,156)
(Losses)/gains on financial derivatives not designated in hedge relationships:
Gains on interest rate swaps$$$$1,878 $1,878 
Interest expense on interest rate swaps(2,657)(2,657)
Treasury futures(1,996)(1,996)
(Losses)/gains on financial derivatives not designated in hedge relationships$$$$(2,775)$(2,775)


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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, 2021 and December 31, 2020:

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, 2021December 31, 2020June 30, 2021December 31, 2020
(in thousands)
Investment securities, Available-for-Sale, at fair value$28,815 $$188 $
Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value(1)
4,105,335 4,244,027 263,902 382,825 
Loans held for investment, at amortized cost(2)
1,608,163 1,692,609 30,562 111,333 
Notes Payable(3)
(5,065,528)(3,006,140)(22,848)(53,240)
(1)Includes $1.4 million and $1.6 million of hedging adjustments on discontinued hedging relationships as of June 30, 2021 and December 31, 2020, respectively.
(2)Includes $1.4 million of hedging adjustments on a discontinued hedging relationship as of both June 30, 2021 and December 31, 2020.
(3)Carrying amount represents amortized cost.

The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of June 30, 2021 and December 31, 2020:

Table 4.4
June 30, 2021
Gross Amount Recognized(1)
Counterparty NettingNet Amount Presented in the Consolidated Balance Sheet
(in thousands)
Assets:
Derivatives
Interest rate swap$112,398 $110,893 $1,505 
Liabilities:
Derivatives
Interest rate swap$442,121 $419,842 $22,279 
(1)Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.


December 31, 2020
Gross Amount Recognized(1)
Counterparty NettingNet Amount Presented in the Consolidated Balance Sheet
(in thousands)
Assets:
Derivatives
Interest rate swaps$112,287 $111,761 $526 
Liabilities:
Derivatives
Interest rate swaps$620,236 $595,867 $24,369 

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(1)Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.

As of June 30, 2021, Farmer Mac held $2.6 million of cash and 0 investment securities as collateral for its derivatives in net asset positions, compared to $1.3 million of cash and 0 investment securities as collateral for its derivatives in net asset positions as of December 31, 2020.

Farmer Mac posted $8.4 million cash and $168.8 million of investment securities as of June 30, 2021 and posted $11.2 million cash and $201.1 million investment securities as of December 31, 2020.  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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, there were 0 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 $16.0 billion notional amount of interest rate swaps outstanding as of June 30, 2021, $13.6 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $15.4 billion notional amount of interest rate swaps outstanding as of December 31, 2020, $12.8 billion were cleared through the CME. During the first half of 2021, Farmer Mac continued the use of non-cleared basis swaps to prepare for the transition away from the use of LIBOR as a reference rate.

5.LOANS

Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled
basis. As of both June 30, 2021, and December 31, 2020, Farmer Mac had 0 loans held for sale.

The following table includes loans held for investment and displays the composition of the loan balances as of June 30, 2021 and December 31, 2020:

Table 5.1
As of June 30, 2021As of December 31, 2020
UnsecuritizedIn Consolidated TrustsTotalUnsecuritizedIn Consolidated TrustsTotal
(in thousands)
Farm & Ranch$5,523,212 $1,077,993 $6,601,205 $4,889,393 $1,287,045 $6,176,438 
Rural Utilities2,246,568 2,246,568 2,260,412 2,260,412 
Total unpaid principal balance(1)
7,769,780 1,077,993 8,847,773 7,149,805 1,287,045 8,436,850 
Unamortized premiums, discounts, fair value hedge basis adjustment, and other cost basis adjustments26,932 26,932 112,128 112,128 
Total loans7,796,712 1,077,993 8,874,705 7,261,933 1,287,045 8,548,978 
Allowance for losses(13,290)(710)(14,000)(12,943)(889)(13,832)
Total loans, net of allowance$7,783,422 $1,077,283 $8,860,705 $7,248,990 $1,286,156 $8,535,146 
(1)Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business.

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Allowance for Losses

The following table is a summary, by asset type, of the allowance for losses as of June 30, 2021 and December 31, 2020:

Table 5.2
June 30, 2021December 31, 2020
Allowance for LossesAllowance for Losses
(in thousands)
Loans:
Farm & Ranch$3,092 $3,745 
Rural Utilities10,908 10,087 
Total$14,000 $13,832 

The following is a summary of the changes in the allowance for losses for the three and six month period ended June 30, 2021 and 2020:

Table 5.3
For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Allowance for LossesAllowance for LossesAllowance for LossesAllowance for Losses
(in thousands)
Farm & Ranch:
Beginning Balance$3,718 $7,353 $3,745 $10,454 
Cumulative effect adjustment from adoption of current expected credit loss standard(3,909)
Adjusted Beginning Balance3,718 7,353 3,745 6,545 
Release of losses(626)(920)(653)(112)
Charge-offs(394)(394)
Ending Balance(1)
$3,092 $6,039 $3,092 $6,039 
Rural Utilities:
Beginning Balance$11,089 $7,503 $10,087 $
Cumulative effect adjustment from adoption of current expected credit loss standard5,378 
Adjusted Beginning Balance11,089 7,503 10,087 5,378 
(Release of)/provision for losses(181)1,397 821 3,522 
Charge-offs
Ending Balance(2)
$10,908 $8,900 $10,908 $8,900 
(1)As of June 30, 2021 and 2020, allowance for losses for Farm & Ranch includes 0 allowance and $1.8 million, respectively, for collateral dependent assets secured by agricultural real estate.
(2)As of both June 30, 2021 and 2020, allowance for losses for Rural Utilities includes 0 allowance for collateral dependent assets.

The release from the allowance for Rural Utilities loan losses of $0.2 million recorded during second quarter 2021 was primarily attributable to the impact of improving economic factor forecasts, specifically expectations for unemployment. The $0.6 million release from the allowance for the Farm & Ranch portfolio during second quarter 2021 was primarily attributable to improving economic factor forecasts, particularly agricultural commodity prices.

29






The small net provision recorded to the allowance for the six months ended June 30, 2021, was primarily a result of the impact of the Texas Arctic Freeze on the Rural Utilities portfolio, partially offset by improving economic factor forecasts.

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 following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans and non-performing assets as of June 30, 2021 and December 31, 2020:

Table 5.4
As of June 30, 2021
Accruing
Current30-59 Days60-89 Days
90 Days and Greater(2)
Total Past Due
Nonaccrual loans(3)(4)
Total Loans
(in thousands)
Loans(1):
Farm & Ranch$6,475,467 $1,501 $525 $5,418 $7,444 $118,294 $6,601,205 
Rural Utilities2,236,568 10,000 10,000 2,246,568 
Total$8,712,035 $11,501 $525 $5,418 $17,444 $118,294 $8,847,773 
(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 $58.4 million of nonaccrual loans for which there was no associated allowance. During the three and six months ended June 30, 2021, Farmer Mac received $1.9 million and $3.0 million, respectively, in interest on nonaccrual loans.

As of December 31, 2020
Accruing
Current30-59 Days60-89 Days
90 Days and Greater(2)
Total Past Due
Nonaccrual loans(3)(4)
Total Loans
(in thousands)
Loans(1):
Farm & Ranch$6,055,154 $4,582 $632 $1,072 $6,286 $114,998 $6,176,438 
Rural Utilities2,260,412 2,260,412 
Total$8,315,566 $4,582 $632 $1,072 $6,286 $114,998 $8,436,850 
(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.

30





(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 $44.2 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2020, Farmer Mac received $4.4 million in interest on nonaccrual loans.


Credit Quality Indicators

The following tables present credit quality indicators related to Farm & Ranch loans and Rural Utilities loans held as of June 30, 2021 and December 31, 2020, by year of origination:

Table 5.5
As of June 30, 2021
Year of Origination:
20212020201920182017PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Farm & Ranch(1):
Internally Assigned Risk Rating:
Acceptable$1,085,630 $1,873,579 $704,749 $409,047 $364,489 $1,232,910 $511,353 $6,181,757 
Special mention(2)
43,076 92,886 33,544 14,643 3,809 16,706 8,826 213,490 
Substandard(3)
3,614 26,119 30,481 49,801 84,508 11,435 205,958 
Total$1,128,706 $1,970,079 $764,412 $454,171 $418,099 $1,334,124 $531,614 $6,601,205 
For the Three Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(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.


31





As of June 30, 2021
Year of Origination:
20212020201920182017PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Rural Utilities(1):
Internally Assigned Risk Rating:
Acceptable$21,022 $635,342 $792,333 $8,180 $89,488 $648,818 $28,185 $2,223,368 
Special mention(2)
Substandard(3)
23,200 23,200 
Total$21,022 $658,542 $792,333 $8,180 $89,488 $648,818 $28,185 $2,246,568 
For the Three Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Rural Utilities net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(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.


32





As of December 31, 2020
Year of Origination:
20202019201820172016PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Farm & Ranch(1):
Internally Assigned Risk Rating:
Acceptable$1,947,618 $774,315 $484,345 $500,768 $465,277 $1,068,693 $535,742 $5,776,758 
Special mention(2)
70,171 79,744 18,317 8,530 13,111 21,328 7,656 218,857 
Substandard(3)
3,400 5,821 21,879 52,709 37,173 50,582 9,259 180,823 
Total$2,021,189 $859,880 $524,541 $562,007 $515,561 $1,140,603 $552,657 $6,176,438 
For the Three Months Ended June 30, 2020:
Current period charge-offs$$$$$$394 $$394 
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$394 $$394 
For the Six Months Ended June 30, 2020:
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.

33





As of December 31, 2020
Year of Origination:
20202019201820172016PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Rural Utilities(1):
Internally Assigned Risk Rating:
Acceptable$667,489 $809,921 $8,260 $89,842 $31,275 $641,145 $12,480 $2,260,412 
Special mention(2)
Substandard(3)
Total$667,489 $809,921 $8,260 $89,842 $31,275 $641,145 $12,480 $2,260,412 
For the Three Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Rural Utilities net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(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.

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, 2021 and December 31, 2020, 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, 2021As of December 31, 2020
  (in thousands)
Farm & Ranch:  
Farmer Mac Guaranteed Securities$66,008 $79,312 
USDA Guarantees:
Farmer Mac Guaranteed USDA Securities270,652 299,298 
Institutional Credit:  
AgVantage Securities4,412 4,412 
Total off-balance sheet Farmer Mac Guaranteed Securities$341,072 $383,022 


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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, 2021June 30, 2020
  (in thousands)
Proceeds from new securitizations$49,133 $28,050 
Guarantee fees received669 894 

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, 2021As of December 31, 2020
(dollars in thousands)
Guarantee and commitment obligation$1,411 $1,625 
Weighted average remaining maturity:
  Farmer Mac Guaranteed Securities9.3 years9.5 years
  AgVantage Securities3.5 years4.0 years

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, 2021As of December 31, 2020
(dollars in thousands)
Guarantee and commitment obligation(1)
$34,416 $33,909 
Maximum principal amount2,922,398 2,881,856 
Weighted-average remaining maturity15.6 years15.3 years
(1) Relates to LTSPCs issued or modified on or after January 1, 2003.


35





Reserve for Losses

The following table is a summary, by asset type, of the reserve for losses as of June 30, 2021 and December 31, 2020:

Table 6.5
June 30, 2021December 31, 2020
Reserve for LossesReserve for Losses
(in thousands)
Farm & Ranch:
LTSPCs and Farmer Mac Guaranteed Securities$1,194 $2,097 
Rural Utilities
LTSPCs917 1,180 
Total$2,111 $3,277 


The following is a summary of the changes in the reserve for losses for the three and six month period ended June 30, 2021 and 2020:

Table 6.6
For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Reserve for LossesReserve for LossesReserve for LossesReserve for Losses
(in thousands)
Farm & Ranch:
Beginning Balance$1,366 $2,020 $2,097 $2,164 
Cumulative effect adjustment from adoption of current expected credit loss standard(148)
Adjusted Beginning Balance1,366 2,020 2,097 2,016 
Release of losses(172)(370)(903)(366)
Charge-offs
Ending Balance$1,194 $1,650 $1,194 $1,650 
Rural Utilities:
Beginning Balance$967 $1,400 $1,180 $
Cumulative effect adjustment from adoption of current expected credit loss standard1,011 
Adjusted Beginning Balance967 1,400 1,180 1,011 
(Release of)/provision for losses(50)(30)(263)359 
Charge-offs
Ending Balance$917 $1,370 $917 $1,370 

The release from the reserve for losses in the Rural Utilities LTSPC portfolio recorded during the three and six months ended June 30, 2021 was primarily due to improving economic factor forecasts and ratings upgrades. The release in the Farm & Ranch LTSPC portfolio was primarily due to ratings upgrades and updated loss-given-default assumptions.

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, 2021 and December 31, 2020:

Table 6.7
As of June 30, 2021
Current30-59 Days60-89 Days
90 Days and Greater(1)
Total Past DueTotal Loans
(in thousands)
Farm and Ranch:
LTSPCs and Farmer Mac Guaranteed Securities$2,440,348 $3,853 $4,459 $6,287 $14,599 $2,454,947 
Rural Utilities:
LTSPCs$533,459 $$$$$533,459 
(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.

As of December 31, 2020
Current30-59 Days60-89 Days
90 Days and Greater(1)
Total Past DueTotal Loans
(in thousands)
Farm and Ranch:
LTSPCs and Farmer Mac Guaranteed Securities$2,389,777 $2,189 $1,344 $11,433 $14,966 $2,404,743 
Rural Utilities:
LTSPCs$556,425 $$$$$556,425 
(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.

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, 2021 and December 31, 2020, by year of origination:


37





Table 6.8
As of June 30, 2021
Year of Origination:
20212020201920182017PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities:
Internally Assigned Risk Rating:
Acceptable$176,513 $270,877 $198,404 $181,287 $217,421 $1,040,596 $201,691 $2,286,789 
Special mention(1)
3,920 343 2,117 433 60,494 7,683 74,990 
Substandard(2)
242 731 11,568 14,273 62,511 3,843 93,168 
Total$176,513 $275,039 $199,478 $194,972 $232,127 $1,163,601 $213,217 $2,454,947 
For the Three Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(1)Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.  
(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.

38





As of June 30, 2021
Year of Origination:
2021202020201920182017PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Rural Utilities LTSPCs:
Internally Assigned Risk Rating:
Acceptable$$$$$$520,145 $13,314 $533,459 
Special mention(1)
Substandard(2)
Total$$$$$$520,145 $13,314 $533,459 
For the Three Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Rural Utilities net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2021:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(1)Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.  
(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.

39





As of December 31, 2020
Year of Origination:
20202019201820172016PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities:
Internally Assigned Risk Rating:
Acceptable$178,213 $213,620 $183,948 $237,042 $207,296 $969,860 $211,620 $2,201,599 
Special mention(1)
3,920 1,742 1,502 5,603 19,644 50,004 10,058 92,473 
Substandard(2)
264 10,250 12,611 14,578 7,841 60,602 4,525 110,671 
Total$182,397 $225,612 $198,061 $257,223 $234,781 $1,080,466 $226,203 $2,404,743 
For the Three Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(1)Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.  
(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.

40





As of December 31, 2020
Year of Origination:
20202019201820172016PriorRevolving Loans - Amortized Cost BasisTotal
(in thousands)
Rural Utilities LTSPCs:
Internally Assigned Risk Rating:
Acceptable$$$$$$549,405 $7,020 $556,425 
Special mention(1)
Substandard(2)
Total$$$$$$549,405 $7,020 $556,425 
For the Three Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries— 
Current period Rural Utilities net charge-offs$$$$$$$$
For the Six Months Ended June 30, 2020:
Current period charge-offs$$$$$$$$
Current period recoveries
Current period Farm & Ranch net charge-offs$$$$$$$$
(1)Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.  
(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.


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 25.0 years.


41





The following tables set forth information related to Farmer Mac's borrowings as of June 30, 2021 and December 31, 2020:

Table 7.1
 June 30, 2021
 Outstanding as of June 30Average Outstanding During the Quarter
  AmountWeighted- Average RateAmountWeighted- Average Rate
  (dollars in thousands)
Due within one year:    
Discount notes$1,677,800 0.04 %$1,720,263 0.09 %
Medium-term notes2,081,520 0.09 %2,522,888 0.14 %
Current portion of medium-term notes4,565,257 0.72 %
 Total due within one year$8,324,577 0.43 %  
Due after one year:   
Medium-term notes due in:   
Two years$3,469,814 0.86 %  
Three years2,547,497 0.91 %  
Four years1,463,668 1.14 %  
Five years2,109,668 0.85 %
Thereafter3,768,182 1.76 %  
Total due after one year$13,358,829 1.15 %  
Total principal net of discounts$21,683,406 0.87 %  
Hedging adjustments22,848 
Total$21,706,254 


 December 31, 2020
 Outstanding as of December 31Average Outstanding During the Year
  AmountWeighted- Average RateAmountWeighted- Average Rate
  (dollars in thousands)
Due within one year:    
Discount notes$1,797,175 0.11 %$2,343,702 0.63 %
Medium-term notes2,645,146 0.19 %1,593,253 0.60 %
Current portion of medium-term notes6,304,061 0.90 %
 Total due within one year$10,746,382 0.59 %  
Due after one year:    
Medium-term notes due in:    
Two years$3,004,203 1.00 %  
Three years2,809,551 1.24 %  
Four years927,119 1.67 %  
Five years1,342,250 1.03 %
Thereafter2,966,172 1.92 %  
Total due after one year$11,049,295 1.37 %  
Total principal net of discounts$21,795,677 0.98 %  
Hedging adjustments53,240 
Total$21,848,917 

42






The maximum amount of Farmer Mac's discount notes outstanding at any month end during the six months ended June 30, 2021 and 2020 was $1.9 billion and $2.6 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 2021 as of June 30, 2021:

Table 7.2
Debt Callable in 2021 as of June 30, 2021, by Maturity
AmountWeighted-Average Rate
(dollars in thousands)
Maturity:
2022$147,480 0.12 %
2023245,831 0.90 %
2024159,393 0.77 %
2025192,827 0.75 %
Thereafter845,922 1.47 %
 Total$1,591,453 1.10 %

The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total borrowings outstanding as of June 30, 2021, including callable and non-callable medium-term notes, assuming callable notes are redeemed at the initial call date:

Table 7.3
Earliest Interest Rate Reset Date, or Debt Maturities, of Borrowings Outstanding
AmountWeighted-Average Rate
  (dollars in thousands)
Debt with interest rate resets, or debt maturities in:  
2021$8,179,536 0.29 %
20223,187,154 0.90 %
20232,896,525 1.08 %
20241,650,373 1.05 %
20251,483,928 0.94 %
Thereafter4,285,890 1.73 %
Total principal net of discounts$21,683,406 0.87 %

During the six months ended June 30, 2021 and 2020, Farmer Mac called $1.6 billion and $1.9 billion of callable medium-term notes, respectively.

Authority to Borrow from the U.S. Treasury

Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $1.5 billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill Farmer Mac's guarantee obligations.  Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the

43





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, 2021, Farmer Mac had not used this borrowing authority.

Gains on Repurchase of Outstanding Debt

NaN outstanding debt repurchases were made in the six months ended June 30, 2021 or 2020.

8.EQUITY

Preferred Stock

In May 2021, Farmer Mac issued 5.0 million shares of 4.875% non-cumulative perpetual Series G
preferred stock, par value $25.00 per share. Farmer Mac incurred direct costs of $3.7 million related to
the issuance of the Series G preferred stock. The dividend rate on the Series G preferred stock will remain
at a non-cumulative, fixed rate of 4.875% per year, when, as, and if a dividend is declared by the Board of
Directors of Farmer Mac, for so long as the Series G preferred stock remains outstanding. The Series G
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, 2026.

Common Stock

During first and second quarter 2021, Farmer Mac paid a quarterly dividend of $0.88 per share on all classes of its common stock. For each quarter in 2020, Farmer Mac paid a quarterly dividend of $0.80 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. In March 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous terms (with a remaining authorization of up to $9.8 million in stock repurchases) and extended the expiration date of the program to March 2023. Farmer Mac did 0t repurchase any shares of its Class C non-voting common stock during the first half of 2021. As of June 30, 2021, 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.

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, 2021 and December 31, 2020, 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.


44





As of June 30, 2021, Farmer Mac's minimum capital requirement was $680.8 million and its core capital level was $1.2 billion, which was $482.6 million above the minimum capital requirement as of that date. As of December 31, 2020, Farmer Mac's minimum capital requirement was $680.9 million and its core capital level was $1.0 billion, which was $325.5 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.

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, 2021 and December 31, 2020, 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, 2021
 Level 1Level 2
Level 3(1)
Total
 (in thousands)
Recurring: 
Assets:    
Investment Securities:    
Available-for-sale:    
Floating rate auction-rate certificates backed by Government guaranteed student loans$$$19,248 $19,248 
Floating rate Government/GSE guaranteed mortgage-backed securities2,474,700 2,474,700 
Fixed rate GSE guaranteed mortgage-backed securities29,010 29,010 
Fixed rate U.S. Treasuries1,309,274 1,309,274 
Total Available-for-sale Investment Securities1,309,274 2,503,710 19,248 3,832,232 
Farmer Mac Guaranteed Securities:    
Available-for-sale:    
AgVantage6,877,405 6,877,405 
Total Farmer Mac Guaranteed Securities6,877,405 6,877,405 
USDA Securities:    
Trading5,050 5,050 
Total USDA Securities5,050 5,050 
Financial derivatives16,224 16,224 
Total Assets at fair value$1,309,274 $2,519,934 $6,901,703 $10,730,911 
Liabilities:    
Financial derivatives$88 $24,259 $$24,347 
Total Liabilities at fair value$88 $24,259 $$24,347 
(1) Level 3 assets represent 29% of total assets and 64% of financial instruments measured at fair value.

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Assets and Liabilities Measured at Fair Value as of December 31, 2020
 Level 1Level 2
Level 3(1)
Total
 (in thousands)
Recurring: 
Assets:    
Investment Securities:    
Available-for-sale:    
Floating rate auction-rate certificates backed by Government guaranteed student loans$$$19,171 $19,171 
Floating rate asset-backed securities6,231 6,231 
Floating rate Government/GSE guaranteed mortgage-backed securities2,360,026 2,360,026 
Fixed rate GSE guaranteed mortgage-backed securities313 313 
Fixed rate U.S. Treasuries1,467,951 1,467,951 
Total Available-for-sale Investment Securities1,467,951 2,366,570 19,171 3,853,692 
Farmer Mac Guaranteed Securities:    
Available-for-sale:    
AgVantage6,947,701 6,947,701 
Total Farmer Mac Guaranteed Securities6,947,701 6,947,701 
USDA Securities:    
Trading6,695 6,695 
Total USDA Securities6,695 6,695 
Financial derivatives17,468 17,468 
Total Assets at fair value$1,467,951 $2,384,038 $6,973,567 $10,825,556 
Liabilities:    
Financial derivatives$82 $29,810 $$29,892 
Total Liabilities at fair value$82 $29,810 $$29,892 
(1) Level 3 assets represent 29% of total assets and 65% 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, 2021 or December 31, 2020.

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 six months ended June 30, 2021 and 2020, 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.

46





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, 2021 and 2020.

Table 9.2
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2021
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized 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$19,146 $$$$$$99 $19,248 
Total available-for-sale19,146 99 19,248 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,763,209 417,500 (310,403)(93)49,939 (42,747)6,877,405 
Total available-for-sale6,763,209 417,500 (310,403)(93)49,939 (42,747)6,877,405 
USDA Securities:
Trading5,578 (467)(61)5,050 
Total USDA Securities5,578 (467)0(61)5,050 
Total Assets at fair value$6,787,933 $417,500 $$(310,870)$(90)$49,878 $(42,648)$6,901,703 


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Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2020
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized gains/(losses) included
in Income
Unrealized gains
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$16,721 $$$$(15)$$1,577 $18,283 
Total available-for-sale16,721 (15)1,577 18,283 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage7,587,186 351,896 (85,261)(69)9,050 35,585 7,898,387 
Total available-for-sale7,587,186 351,896 (85,261)(69)9,050 35,585 7,898,387 
USDA Securities:
Trading8,408 (602)(20)7,786 
Total USDA Securities8,408 (602)0(20)7,786 
Total Assets at fair value$7,612,315 $351,896 $$(85,863)$(84)$9,030 $37,162 $7,924,456 


Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2021
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized losses included
in Income
Unrealized gains
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,171 $$$$(22)$$99 $19,248 
Total available-for-sale19,171 (22)99 19,248 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,947,701 578,115 (554,235)89 (118,803)24,538 6,877,405 
Total available-for-sale6,947,701 578,115 (554,235)89 (118,803)24,538 6,877,405 
USDA Securities:
Trading6,695 (1,570)(75)5,050 
Total USDA Securities6,695 (1,570)0(75)5,050 
Total Assets at fair value$6,973,567 $578,115 $$(555,805)$67 $(118,878)$24,637 $6,901,703 


48





Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2020
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized gains included
in Income
Unrealized losses
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$18,912 $$$$(38)$$(591)$18,283 
Total available-for-sale18,912 (38)(591)18,283 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage7,143,025 835,476 (312,516)(234)299,429 (66,793)7,898,387 
Total available-for-sale7,143,025 835,476 (312,516)(234)299,429 (66,793)7,898,387 
USDA Securities:
Trading8,913 (1,213)86 7,786 
Total USDA Securities8,913 (1,213)086 7,786 
Total Assets at fair value$7,170,850 $835,476 $$(313,729)$(272)$299,515 $(67,384)$7,924,456 

49





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, 2021 and December 31, 2020:

Table 9.3
As of June 30, 2021
Financial InstrumentsFair ValueValuation TechniqueUnobservable InputRange (Weighted-Average)
(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,248 Indicative bidsRange of broker quotes98.0% - 98.0% (98.0%)
Farmer Mac Guaranteed Securities:
AgVantage$6,877,405 Discounted cash flowDiscount rate0.8% - 3.9% (1.5%)
USDA Securities$5,050 Discounted cash flowDiscount rate2.0% - 2.3% (2.2%)
CPR25% - 45% (35%)
As of December 31, 2020
Financial InstrumentsFair ValueValuation TechniqueUnobservable InputRange (Weighted-Average)
(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,171 Indicative bidsRange of broker quotes97.5% - 97.5% (97.5%)
Farmer Mac Guaranteed Securities:
AgVantage$6,947,701 Discounted cash flowDiscount rate0.8% - 2.3% (1.3%)
USDA Securities$6,695 Discounted cash flowDiscount rate0.9% - 1.9% (1.4%)
CPR25% - 49% (44%)

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 do not prepay.

The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates.


50





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, 2021 and December 31, 2020:

Table 9.4
 As of June 30, 2021As of December 31, 2020
 Fair ValueCarrying
Amount
Fair ValueCarrying
Amount
 (in thousands)
Financial assets:    
Cash and cash equivalents$828,403 $828,403 $1,033,941 $1,033,941 
Investment securities3,877,470 3,877,667 3,899,925 3,898,724 
Farmer Mac Guaranteed Securities7,931,395 7,918,162 8,148,691 8,123,493 
USDA Securities2,472,043 2,450,768 2,637,509 2,480,321 
Loans9,057,544 8,860,705 9,167,525 8,535,146 
Financial derivatives16,224 16,224 17,468 17,468 
Guarantee and commitment fees receivable34,525 37,261 34,115 37,113 
Financial liabilities:
Notes payable21,839,641 21,706,254 22,130,263 21,848,917 
Debt securities of consolidated trusts held by third parties1,121,731 1,120,293 1,390,330 1,323,786 
Financial derivatives24,347 24,347 29,892 29,892 
Guarantee and commitment obligations33,091 35,827 32,537 35,535 

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.


51





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, 2021 and 2020:

Table 10.1
Core Earnings by Business Segment
For the Three Months Ended June 30, 2021
Farm & RanchUSDA Guarantees
Rural 
Utilities
Institutional CreditCorporateReconciling
Adjustments
Consolidated Net Income
 (in thousands)
Net interest income$24,057 $6,089 $5,328 $16,894 $2,761 $ $55,129 
Less: reconciling adjustments(1)(2)(3)
(79)893 1,287 (763)84 (1,422)
Net effective spread23,978 6,982 6,615 16,131 2,845 (1,422)
Guarantee and commitment fees(2)
3,839 173 317 (1,337)2,997 
Other income/(expense)(3)
309 120 (128)(2,994)(2,693)
Non-interest income/(loss)4,148 293 317 (128)(4,331)304 
Release of/(provision for) losses626 181 (49) 761 
Release of reserve for losses172 50  222 
Other non-interest expense(5,855)(2,263)(1,838)(2,316)(4,606) (16,878)
Non-interest expense(4)
(5,683)(2,263)(1,788)(2,316)(4,606) (16,656)
Core earnings before income taxes23,069 5,012 5,325 13,771 (1,886)(5,753)(5)39,538 
Income tax (expense)/benefit(4,844)(1,053)(1,118)(2,892)444 1,211 (8,252)
Core earnings before preferred stock dividends18,225 3,959 4,207 10,879 (1,442)(4,542)(5)31,286 
Preferred stock dividends(5,842) (5,842)
Segment core earnings/(losses)$18,225 $3,959 $4,207 $10,879 $(7,284)$(4,542)(5)$25,444 
Total assets at carrying value$6,716,880 $2,506,410 $2,272,425 $7,926,520 $4,759,010 $ $24,181,245 
Total on- and off-balance sheet program assets at principal balance$9,056,152 $2,726,909 $2,780,027 $7,634,073 $$ $22,197,161 
(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 "(Losses)/gains 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 Three Months Ended June 30, 2020
Farm & RanchUSDA GuaranteesRural 
Utilities
Institutional CreditCorporate
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 spread16,733 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 losses920 (1,397)41 (15) (451)
Provision for reserve for losses370 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 taxes17,748 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 dividends14,021 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 "(Losses)/gains 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, 2021
Farm & RanchUSDA Guarantees
Rural 
Utilities
Institutional CreditCorporateReconciling
Adjustments
Consolidated Net Income
 (in thousands)
Net interest income$45,912 $11,778 $12,977 $32,417 $5,296 $ $108,380 
Less: reconciling adjustments(1)(2)(3)
(480)1,571 312 387 240 (2,030)
Net effective spread45,432 13,349 13,289 32,804 5,536 (2,030)
Guarantee and commitment fees(2)
7,572 356 636 10 (2,547)6,027 
Other income/(expense)(3)
713 289 (251)1,418 2,170 
Non-interest income/(loss)8,285 645 637 10 (251)(1,129)8,197 
Release of/(provision for) losses653 (821)38 (22) (152)
Release of reserve for losses903 263  1,166 
Other non-interest expense(12,404)(4,796)(3,895)(4,906)(9,758) (35,759)
Non-interest expense(4)
(11,501)(4,796)(3,632)(4,906)(9,758) (34,593)
Core earnings before income taxes42,869 9,198 9,473 27,946 (4,495)(3,159)(5)81,832 
Income tax (expense)/benefit(9,002)(1,932)(1,989)(5,869)809 664 (17,319)
Core earnings before preferred stock dividends33,867 7,266 7,484 22,077 (3,686)(2,495)(5)64,513 
Preferred stock dividends(11,111) (11,111)
Loss on retirement of preferred stock
Segment core earnings/(losses)$33,867 $7,266 $7,484 $22,077 $(14,797)$(2,495)(5)$53,402 
Total assets at carrying value$6,716,880 $2,506,410 $2,272,425 $7,926,520 $4,759,010 $ $24,181,245 
Total on- and off-balance sheet program assets at principal balance$9,056,152 $2,726,909 $2,780,027 $7,634,073 $$ $22,197,161 
(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 "(Losses)/gains 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 & RanchUSDA GuaranteesRural 
Utilities
Institutional CreditCorporate
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 spread31,671 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 losses112 (3,522)(450)(29) (3,889)
Provision for reserve for losses366 (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 taxes31,363 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 dividends24,777 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 "(Losses)/gains 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

The objective of this section of the report is to provide a discussion and analysis, from management’s perspective, of the material information necessary to assess Farmer Mac's financial condition and results of operations for the quarter ended June 30, 2021. 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, 2020, as filed with the SEC on February 25, 2021 (the "2020 Annual Report").


Updates to Critical Accounting Estimates

None.


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 the COVID-19 pandemic and its impact 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 effect 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;
assessment of economic and market trends;
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.

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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 Item 1A of this report and of the 2020 Annual Report, as well as uncertainties about:
 
the duration, spread, and severity of the COVID-19 pandemic and its effects on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations;
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 any further outbreaks, regulatory measures or voluntary actions to limit the spread of COVID-19, and the duration and efficacy of any restrictions that may be imposed;
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 agricultural or rural infrastructure 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 hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather or 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.



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Overview

Farmer Mac is a mission-focused, purpose-driven company determined to improve the economic opportunity in rural America by increasing the availability and affordability of credit. As the nation’s secondary market for agricultural and rural infrastructure loans, we provide a broad array of financial solutions to lenders that support flexible low-cost financing to farmers, ranchers, agribusinesses, renewable energy projects, rural utilities, and other institutions. Farmer Mac also serves as a critical investment tool for states, counties, municipalities, pension funds, banks, public trust funds, and credit unions by providing diversification in their investment portfolios, issuance structure flexibility, and a safe, competitive return on their investment dollars.

During second quarter 2021:

we continued to operate effectively while nearly all employees worked remotely;
we provided $1.5 billion in liquidity and lending capacity to lenders serving rural America;
we maintained uninterrupted access to the debt capital markets and a strong capital position; and
we maintained strong liquidity in our investment portfolio well above regulatory requirements.

Farmer Mac’s performance during second quarter 2021 described in more detail in this report reflects the success of our continued focus on pursuing new channels and innovative ways to further our mission to help build a strong and vital rural America. The discussion below of Farmer Mac's financial information includes "non-GAAP measures," which are measures of financial performance not presented in accordance with generally accepted accounting principles in the United States ("GAAP"). For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

Net Income and Core Earnings

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

Table 1
For the Three Months Ended
June 30, 2021March 31, 2021June 30, 2020
(in thousands)
Net income attributable to common stockholders$25,444 $27,958 $31,687 
Core earnings29,986 25,911 26,347 

The $2.5 million sequential decrease in net income attributable to common stockholders was primarily due to a $5.8 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, which was partially offset by a $1.5 million after-tax increase in net interest income, and a $1.6 million after-tax decrease in operating expenses.


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The $6.2 million year-over-year decrease in net income attributable to common stockholders was due to a $7.6 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $2.2 million after-tax increase in operating expenses, and a $1.9 million increase in preferred stock dividends. These factors were partially offset by a $5.4 million after-tax increase in net interest income.

The $4.1 million sequential increase in core earnings was primarily due to a $2.1 million after-tax increase in net effective spread and a $1.6 million after-tax decrease in operating expenses.

The $3.6 million year-over-year increase in core earnings was primarily due to a $8.0 million after-tax increase in net effective spread. This increase was partially offset by a $2.2 million after-tax increase in operating expenses and a $1.9 million increase in preferred stock dividends.

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

Net Interest Income and Net Effective Spread

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

Table 2