FEDERAL AGRICULTURAL MORTGAGE CORP

Farmer Mac is driven by its mission to increase the accessibility of financing for American agriculture and rural infrastructure. As a secondary market provider for our nation's agricultural and rural infrastructure credit, we provide financial solutions to a broad spectrum of customers supporting rural America, including agricultural lenders, agribusinesses, and rural electric cooperatives. We are uniquely positioned to facilitate competitive access to financing that fuels growth, innovation, and prosperity in America's rural and agricultural communities. Farmer Mac also serves as a critical investment tool for a number of entities – such as states, counties, municipalities, pension funds, banks, public trust funds, and credit unions – by offering investment opportunities that may diversify their investment portfolios and provide possibilities to earn a competitive return on their investment dollars.

During second quarter 2024:

•we provided $1.5 billion in liquidity and lending capacity to lenders serving rural America;

•we maintained strong liquidity in our investment portfolio well above regulatory requirements;

•we maintained our strong capital position, well above regulatory requirements, and uninterrupted access to the debt capital markets; and

•we closed our fourth structured securitization transaction involving approximately $300 million of agricultural mortgage loans.

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

The $6.6 million sequential decrease in net income attributable to common stockholders was due to a $6.4 million after-tax increase in our provision for credit losses and a $3.1 million after-tax decrease in the fair value of undesignated financial derivatives. These factors were partially offset by a $2.2 million after-tax decrease in operating expenses.

The $0.1 million year-over-year decrease in net income attributable to common stockholders was due to a $4.0 million after-tax increase in our provision for credit losses, a $2.8 million after-tax decrease in the fair value of undesignated financial derivatives, and a $0.2 million increase in operating expenses. These factors were partially offset by a $6.8 million after-tax increase in net interest income.

The $3.6 million sequential decrease in core earnings was due to a $6.4 million after-tax increase in our provision for credit losses. This factor was partially offset by a $2.2 million after-tax decrease in operating expenses.

The $2.4 million year-over-year decrease in core earnings was due to a $4.0 million after-tax increase in our provision for credit losses. This factor was partially offset by a $1.4 million after-tax increase in net effective spread.

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

The $1.0 million sequential increase in net interest income was primarily due to a $1.3 million increase from a shift in the composition of new business volume towards higher-yielding loans and an increase of $0.9 million in cash-basis interest income. These factors were partially offset by an increase of $1.2 million in funding costs, which was primarily attributable to opportunistic issuance of debt at advantageous rates in advance of the funding needs of our business. In addition, during fourth quarter 2023, debt spreads widened, and we have continued to experience the effects of that along with other issuers in the market. We also lengthened the tenor of our liquidity investment portfolio as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment. In percentage terms, net interest income remained consistent.

The $8.7 million year-over-year increase in net interest income was primarily attributable to a $7.5 million increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated financial derivatives) and a $4.1 million increase from a shift in the composition of new business volume towards higher-yielding loans. These factors were partially offset by an increase of $1.8 million in funding costs, which was primarily attributable to opportunistic issuance of debt at advantageous rates in advance of the funding needs of our business, and there was a decrease of $1.2 million in cash-basis interest income. In addition, during fourth quarter 2023, debt spreads widened, and we have continued to experience the effects of that along with other issuers in the market. We also lengthened the tenor of our liquidity investment portfolio as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment. In percentage terms, the year-over-year 0.03% increase was primarily attributable to net fair value changes from designated financial derivatives.

The $0.6 million sequential increase in net effective spread was primarily due to a $1.3 million increase from a shift in the composition of new business volume towards higher-yielding loans and an increase of $0.9 million in cash-basis interest income. These factors were partially offset by an increase of $1.8 million in our non-GAAP funding costs, which was primarily attributable to opportunistic issuance of debt at advantageous rates in advance of the funding needs of our business in addition to the debt spread and liquidity portfolio factors described above. In percentage terms, net effective spread remained consistent compared to first quarter 2024.

The $1.8 million year-over-year increase in net effective spread was primarily due to a $4.2 million increase from a shift in the composition of new business volume towards higher-yielding loans. This factor was partially offset by an increase of $2.1 million of non-GAAP funding costs, which was primarily attributable to opportunistic issuance of debt at advantageous rates in advance of the funding needs of our business in addition to the debt spread and liquidity portfolio factors described above. In percentage terms, the year-over-year decrease of 0.06% was primarily attributable to a decrease of 0.03% on net business volume changes and a decrease of 0.02% related to the increases in non-GAAP funding costs.

For more information about Farmer Mac's use of net effective spread as a financial measure, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 10 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income."

Business Volume

Our outstanding business volume was $28.8 billion as of June 30, 2024, a net decrease of $88.9 million from March 31, 2024 after taking into account all new business, maturities, sales, and paydowns on existing assets. The net decrease was primarily attributable to a net decrease of $345.8 million in the Agricultural Finance line of business, partially offset by a net increase of $256.9 million in the Rural Infrastructure Finance line of business.

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

Capital

Table 3

The increase in capital in excess of the minimum capital level required was primarily due to an increase in retained earnings.

Credit Quality

During second quarter 2024, we recorded a charge-off of $3.9 million on a single permanent planting loan that is in bankruptcy to reflect the amount of the loan that was deemed uncollectible. The following table presents Agricultural Finance on- and off-balance sheet substandard assets, in dollars and as a percentage of the respective portfolio as of June 30, 2024, March 31, 2024, and December 31, 2023:

Table 4

The decrease of $6.2 million in on-balance sheet substandard assets during second quarter was primarily driven by credit upgrades in permanent plantings, and was partially offset by downgrades in agricultural storage and processing, part-time farms, crops, and livestock. The $1.0 million decrease in substandard assets in our off-balance sheet portfolios during second quarter was primarily due to credit upgrades in crops, part-time farms, and permanent plantings, and was partially offset by downgrades in livestock.

There were no substandard assets in the Rural Infrastructure Finance portfolio as of June 30, 2024. There was one substandard asset with an outstanding balance of $29.4 million in the Rural Infrastructure Finance portfolio as of December 31, 2023.

For an analysis of current loan-to-value ratios across substandard and other internally assigned risk ratings, see Table 25 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."

The following table presents 90-day delinquencies for the on- and off-balance sheet Agricultural Finance portfolios in dollars and as a percentage of the respective balance sheet category as of June 30, 2024, March 31, 2024, and December 31, 2023:

Table 5

On-balance sheet Agricultural Finance assets 90 or more days delinquent decreased in crops, permanent plantings, and livestock, and were partially offset by increases in part-time farms. Off-balance sheet Agricultural Finance assets 90 days or more delinquent decreased in permanent plantings, part-time farms, and livestock, and was partially offset by increases in crops. The top ten borrower exposures over 90 days delinquent in either the on- or off-balance sheet Agricultural Finance portfolio represented over half of the aggregate 90-day delinquencies as of June 30, 2024.

As of both June 30, 2024 and December 31, 2023, there were no 90-day delinquencies in Farmer Mac's portfolio of Rural Infrastructure Finance loan purchases and loans underlying LTSPCs.

For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total allowance for losses, and substandard assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."