FEDERAL AGRICULTURAL MORTGAGE CORP

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

Table 6

(1)Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 10 for a reconciliation of net interest income to net effective spread.

(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Table 7

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

1. Gains/(losses) on financial derivatives due to fair value changes are presented by two reconciling items in Table 6 above: (a) Gains/(losses) on undesignated financial derivatives due to fair value changes; and (b) (Losses)/gains on hedging activities due to fair value changes.

2. Unrealized gains/(losses) on trading securities. The unrealized gains/(losses) on trading securities are reported on Farmer Mac's consolidated statements of operations, which represent changes during the period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the reporting period.

3. The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or deferred gain amortization during the reporting period on those assets for which the premium, discount, or deferred gain was based on the application of an accounting principle (e.g., consolidation of variable interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount).

4. The net effects of terminations or net settlements on financial derivatives. These terminations or net settlements relate to:

•Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities. These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP purposes, realized gains or losses on settlements of these contracts are reported in the consolidated statements of operations in the period in which they occur. For core earnings purposes, these realized gains or losses are deferred and amortized as net yield adjustments over the term of the related debt, which generally ranges from 3 to 15 years.

The following sections provide more detail about specific components of Farmer Mac's results of operations.

Net Interest Income. The following table provides information about interest-earning assets and funding for the years ended December 31, 2023, 2022, and 2021. The average balance of non-accruing loans is included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities presented, though the related income is accounted for on a cash basis. Therefore, as the average balance of non-accruing loans and the income received increases or decreases, the net interest income and yield will fluctuate accordingly. The average balance of loans in consolidated trusts with beneficial interests owned by third parties (single-class) and for which Farmer Mac guarantees all classes of securities issued is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities. The interest income and expense associated with these trusts are shown in the net effect of consolidated trusts.

Table 8

(1)Excludes interest income of $34.2 million, $31.7 million, and $39.0 million in 2023, 2022, and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties (single-class).

(2)Includes current portion of long-term notes.

(3)Excludes interest expense of $30.0 million, $27.4 million, and $34.1 million in 2023, 2022, and 2021, respectively, related to consolidated trusts with beneficial interests owned by third parties (single-class).

(4)Includes the effect of consolidated trusts with beneficial interests owned by third parties (single-class).

The $56.6 million year-over-year increase in net interest income was primarily due to a $48.9 million decrease in funding costs and a $19.9 million increase related to net new business volume. The decrease in funding costs was due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess long-term capital that we raised when interest rates were at historical lows and is held in our investment portfolio. The factors that contributed to an increase in net interest income were partially offset by an $11.2 million decrease in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives). In percentage terms, the 0.11% increase was primarily attributable to a decrease of 0.16% in funding costs and a decrease of 0.04% in net fair value changes from designated financial derivatives.

For 2022 compared to 2021, the $49.0 million year-over-year increase in net interest income was primarily attributable to a $21.9 million increase from net new business volume, a $21.4 million decrease in funding costs due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and a $6.1 million increase in the fair value of designated financial derivatives. In percentage terms, the year-over-year 0.10% increase was primarily attributable to a decrease of 0.08% in funding costs and an increase of 0.02% in net fair value changes from financial derivatives designated in hedge accounting relationships (designated financial derivatives).

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

Table 9

(1)Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties (single-class).

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

Table 10

The $71.5 million year-over-year increase in net effective spread was primarily due to a $54.6 million decrease in non-GAAP funding costs, due to our disciplined funding strategies and higher nominal interest rates that have led to an upward repricing of our excess capital that is held in our short-term investment portfolio, and a $20.6 million increase related to net new business volume. In percentage terms, the year-over-year increase of 0.16% was primarily attributable to a decrease in non-GAAP funding costs.

For 2022 compared to 2021, the $34.9 million year-over-year increase in net effective spread in dollars was primarily due to a $23.6 million increase from net new business volume, a $7.7 million decrease in non-GAAP funding costs due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, a $2.4 million increase in net servicing revenue, and a $0.9 million increase in cash-basis interest income. In percentage terms, the year-over-year increase of 0.04% was primarily attributable to an decrease of 0.03% in non-GAAP funding costs and an increase of 0.01% in cash-basis interest income.

See Note 14 to the consolidated financial statements for more information about net interest income and net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net effective spread by line of business.

Provision for and Release of Allowance for Losses and Reserve for Losses. The following table summarizes the components of Farmer Mac's total allowance for losses for the three-year period ended December 31, 2023:

Table 11

See Notes 8 and 12 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

During 2023, we recorded a $1.1 million net provision to the total allowance for losses primarily as a result of one rural infrastructure loan that was downgraded to substandard during the year, partially offset by an allowance for losses release related to a single collateral dependent agricultural storage and processing loan that fully paid off during the year.

Guarantee and Commitment Fees. The following table presents guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs, for the years ended December 31, 2023, 2022, and 2021:

Table 12

Guarantee and commitment fees increased for the year ended December 31, 2023 compared to 2022, which was due to increases in the average outstanding balance of LTSPCs during the period. As adjusted for the core earnings presentation, guarantee and commitment fees were $18.9 million for the year ended December 31, 2023, compared to $18.1 million and $17.5 million for the years ended December 31, 2022, and 2021, respectively.

In Farmer Mac's presentation of core earnings, guarantee and commitment fees include interest income and interest expense related to consolidated trusts owned by third parties to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on those consolidated Farmer Mac Guaranteed Securities. Farmer Mac has also excluded guarantee asset fair value changes from the presentation of core earnings because these fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations if Farmer Mac fulfills its guarantee obligation throughout the term of the guaranteed securities, as is expected.

For more information about net income attributable to common stockholders, the composition of core earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures."

Gains on financial derivatives. The components of gains and losses on financial derivatives for the years ended December 31, 2023, 2022, and 2021 are summarized in the following table:

Table 13

These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are undesignated financial derivatives is shown as income or expense related to financial derivatives. Payments or receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received upon the inception of certain undesignated swaps are included in "Gains/(losses) due to terminations or net settlements" in the table above. See Note 6 to the consolidated financial statements for more information about Farmer Mac's financial derivatives.

Gains on Sale of Mortgage Loans

Table 14

In 2021, Farmer Mac executed a structured securitization of Farm & Ranch loans that resulted in a gain of $6.5 million from the sale of the pool of mortgage loans into the securitization vehicle.

Operating Expenses. The components of operating expenses for the years ended December 31, 2023, 2022, and 2021 are summarized in the following table:

Table 15

Compensation and Employee Benefits. The increase in compensation and employee benefits expenses for the year ended December 31, 2023 compared to 2022 was largely due to increased headcount. The increase in compensation and employee benefits expenses for 2022 compared to 2021 was due to increased headcount (full year impact of 32 net new hires in 2021 and 5 net new hires in 2022) and increased executive stock compensation.

General and Administrative Expenses (G&A). The increase in G&A expenses for the year ended December 31, 2023 compared to 2022 was primarily due to increased spending on software licenses and information technology and other consultants to support growth and strategic initiatives. One of those initiatives is a multi-year effort to replace Farmer Mac's platform for securities trades and to implement a treasury management system. That initiative is expected to be completed during the first half of 2024.

Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the years ended December 31, 2023, 2022, and 2021:

Table 16

Business Volume.

The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the years ended December 31, 2023 and 2022:

Table 17

(1)Categories of Farmer Mac Guaranteed Securities.

Farmer Mac's outstanding business volume was $28.5 billion as of December 31, 2023, a net increase of $2.5 billion from December 31, 2022 after taking into account all new business, maturities, and paydowns on existing assets.

The $1.1 billion net increase in Farm & Ranch during 2023 resulted from $5.0 billion of new purchases, commitments, and guarantees, partially offset by $3.9 billion of scheduled maturities and repayments. Included in the $5.0 billion of new volume is newly purchased servicing rights on $0.6 billion of loans (i.e., loans serviced for others). Loans serviced for others earn servicing fee income rather than interest income and are a component of outstanding business volume because they are assets under our management.

Farmer Mac also purchased a total of $2.7 billion in Farm & Ranch AgVantage Securities during 2023, which primarily reflected the refinancing of maturing securities. The $2.7 billion in gross purchases was partially offset by $2.5 billion in scheduled maturities.

The $90.5 million net increase in Corporate AgFinance during 2023 resulted from $0.9 billion of new purchases and unfunded loan commitments, which was partially offset by $0.8 billion of scheduled maturities, repayments, and paydowns on revolving commitments. Farmer Mac purchased a total of $578.1 million in loans, including draws on revolving commitments, which was partially offset by $484.6 million in scheduled maturities, repayments, and paydowns on revolving commitments. The increase in loan purchases was primarily due to Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food and fiber processing and other food supply chain production.

The $1.1 billion net increase in Rural Utilities during 2023 resulted from $2.0 billion of new purchases, unfunded loan commitments, and guarantees, which was partially offset by $0.9 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $1.5 billion in AgVantage Securities, $232.5 million in telecommunications loans, and $297.6 million in electric distribution and generation and transmission loans. The $530.1 million in loan purchases was partially offset by $237.3 million in scheduled maturities and repayments. The net increase in loan purchases primarily reflected borrowers' normal-course capital expenditures related to maintaining and upgrading utility infrastructure as well as investments in broadband infrastructure, and Farmer Mac's continued focus to support telecommunications investment in rural America.

The $257.4 million net increase in Renewable Energy during 2023 primarily reflects $273.5 million in loan purchases and unfunded commitments, partially offset by $52.7 million in repayments.

Farmer Mac's outstanding business volume was $25.9 billion as of December 31, 2022, a net increase of $2.3 billion from December 31, 2021 after taking into account all new business, scheduled maturities, and paydowns on existing assets.

The $1.6 billion net increase in Farm & Ranch during 2022 resulted from $6.9 billion of new purchases, commitments, and guarantees, mostly offset by $5.3 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $1.4 billion in loans, which was primarily driven by improved borrower economics albeit navigating a substantially higher interest rate environment. The $1.4 billion in gross Farm & Ranch loan purchases was partially offset by $1.1 billion in scheduled maturities and repayments.

Farmer Mac also purchased a total of $4.2 billion in Farm & Ranch AgVantage Securities during 2022, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking to add longer-term AgVantage securities to manage their asset-liability maturity profile given increases in credit spreads and interest rates. The $4.2 billion in gross purchases was partially offset by $3.3 billion in scheduled maturities. Of the AgVantage Securities that were acquired during 2022 and were still outstanding as of December 31, 2022, $470.0 million are scheduled to mature by June 30, 2023 and an additional $600.0 million are scheduled to mature by December 31, 2023.

The $65.7 million net increase in Corporate AgFinance during 2022 resulted from $546.6 million of new purchases and unfunded loan commitments, which was partially offset by $480.9 million of scheduled maturities, repayments, and sales. Farmer Mac purchased a total of $328.9 million in loans, which was partially offset by $276.9 million in scheduled maturities and repayments. The increase in loan purchases was primarily due to Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food and fiber processing and other food supply chain production.

The $464.4 million net increase in Rural Utilities during 2022 resulted from $1.4 billion of new purchases, unfunded loan commitments, and guarantees, which was partially offset by $927.8 million of scheduled maturities and repayments. Farmer Mac purchased a total of $670.0 million in AgVantage Securities, $231.0 million in telecommunications loans, and $449.5 million in electric distribution and generation and transmission loans. The $680.5 million in loan purchases was partially offset by $181.2 million in scheduled maturities and repayments. The net increase in loan purchases primarily reflected borrowers' normal-course capital expenditures related to maintaining and upgrading utility infrastructure as well as investments in broadband infrastructure, and Farmer Mac's continued focus to support telecommunications investment in rural America.

The $143.4 million net increase in Renewable Energy during 2022 primarily reflects $182.3 million in loan purchases and unfunded loan commitments, partially offset by $38.9 million in repayments.

The level and composition of Farmer Mac’s outstanding business volume is based on the relationship between new business, loan sales, scheduled maturities, and repayments on existing assets from year to year. This relationship in turn depends on a variety of factors both internal and external to Farmer Mac. The external factors include general market forces, competition, and our counterparties’ liquidity needs, access to alternative funding, desired products, and assessment of strategic factors. The internal factors include our assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more information about potential growth opportunities in Farmer Mac's lines of business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report.

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

Table 18

Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac Guaranteed Securities backed by those securitized loans. During 2023, Farmer Mac sold and securitized agricultural mortgage loans in a structured securitization resulting in $281.0 million of Farmer Mac Guaranteed Securities. Farmer Mac consolidates the assets and liabilities of the trust for this structured securitization. Farmer Mac does not consider the assets held by the related securitization trust to be available to satisfy the claims of the creditors of Farmer Mac and/or the depositor.

During 2023 and 2022, Farmer Mac realized no gains or losses from the securitization of loans that it holds in consolidated trusts. Farmer Mac consolidates these loans and presents them as "Loans held for investment in consolidated trusts, at amortized cost" on the consolidated balance sheets.

During 2021, Farmer Mac realized a $5.2 million gain after tax from the sale of Farmer Mac Guaranteed Securities in its structured securitization transaction.

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

Table 19

(1)A type of Farmer Mac Guaranteed Security.

The following table summarizes by maturity date the scheduled principal amortization of loans held, loans underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of December 31, 2023:

Table 20

Of Farmer Mac's $28.5 billion outstanding principal balance of business volume as of December 31, 2023, $10.0 billion were AgVantage securities included in the Agricultural Finance and Rural Infrastructure Finance lines of business. Unlike business volume in the form of purchased loans, USDA Securities, and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage securities do not require periodic payments of principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due. The following table summarizes by maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as of December 31, 2023:

Table 21

(1)Includes various maturities ranging from 2029 to 2044.

The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table above was 4.2 years as of December 31, 2023.

Related Party Transactions. As provided by Farmer Mac's statutory charter, only banks, insurance companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common stock. Farmer Mac's charter also provides that holders of Class A voting common stock elect five members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock elect five members of the board of directors. The ownership of Farmer Mac's two classes of voting common stock is currently concentrated in a small number of institutions. Approximately 51% of the Class A voting common stock is held by four financial institutions, with 31% held by one institution. Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which are related to each other through a parent-subsidiary relationship).

Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer Mac is not structured as a cooperative owned exclusively by member institutions and established to provide services exclusively to its members. Farmer Mac, as a stockholder-owned, publicly-traded corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is consistent with providing a return on the investment of its stockholders, including those who do not directly participate in the secondary market provided by Farmer Mac. Farmer Mac generally requires most financial institutions that participate in Farmer Mac's Agricultural Finance line of business to own a requisite amount of common stock, based on the size and type of institution. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties," including institutions affiliated with members of Farmer Mac's board of directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be conducted in the ordinary course of business, with terms and conditions comparable to those available to any other counterparty not related to Farmer Mac.

The following table summarizes the material relationships between Farmer Mac and certain related parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a class of Farmer Mac voting common stock as of December 31, 2023 and (2) other institutions that are considered "related parties" through an affiliation with a Farmer Mac director and that have conducted business with Farmer Mac during the two years ended December 31, 2023. The table below does not specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series of preferred stock.

Table 22

As discussed in more detail in Note 2(o) to the consolidated financial statements, Farmer Mac’s consolidated financial statements include the accounts of variable interest entities ("VIEs") in which Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer Mac shares the power to make decisions about default mitigation with a related party. If that related party status changes, consolidation or deconsolidation of securitization trusts may occur. For more information about related party transactions, see Note 3 to the consolidated financial statements.