FEDERAL AGRICULTURAL MORTGAGE CORP

Net Interest Income. The following tables provide information about interest-earning assets and funding, composition of changes in NII due to rate and volume, and a reconciliation of NII to NES for the three months ended March 31, 2026 and 2025. See MD&A—Use of Non-GAAP Measures—Net Effective Spread for more information about the differences between NII and NES. Our interest-earning assets include:

•"Liquidity investments", which are defined as cash, cash equivalents (including U.S. Treasury securities, operational deposits, and other short-term money market instruments), and other investment securities (including securities guaranteed by the U.S. Government and its agencies or by GSEs and asset-backed securities) that can be drawn upon for liquidity needs. For additional details regarding our liquidity investments, see MD&A—Liquidity and Capital Resources.

•"Program Assets" are those assets that fulfill our mission to increase the accessibility of financing to provide vital liquidity for American agriculture and rural infrastructure. Program Assets include but are not limited to Eligible Loans, Farmer Mac Guaranteed Securities, AgVantage Securities, USDA Securities, and other asset‑backed securities.

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The year-over-year increase of $10.5 million in NII and $12.0 million in NES were both primarily driven by an $11.5 million increase related to net volume growth, primarily in Infrastructure Finance and Farm & Ranch.

See Note 9—Business Segments to the consolidated financial statements for more information about NII and NES from our business segments. See MD&A—Supplemental Information for quarterly NES by line of business.

Provision for Allowance for Losses. The following table summarizes the components of our total allowance for losses for the three month period ended March 31, 2026 and 2025:

Table 10

Our allowance for loan loss increased $2.1 million from December 31, 2025 to March 31, 2026, primarily due to $4.3 million in provision expense offset by $2.2 million in charge-offs.

The $4.3 million provision to the allowance during the three months ended March 31, 2026 is primarily attributed to new volume growth across all of our segments and portfolio credit migration.

For additional information, see Note 4—Loans to the consolidated financial statements and MD&A—Risk Management—Credit Risk—Loans and Guarantees.

Gains/(losses) on financial derivatives. The components of gains and losses on financial derivatives for the three months ended March 31, 2026 and 2025 are summarized in the following table:

Table 11

These changes in fair value are primarily the result of fluctuations in interest rates. 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 3—Financial Derivatives to the consolidated financial statements for more information about our financial derivatives.

Operating Expenses. The following table summarizes components of operating expenses for the three months ended March 31, 2026 and 2025:

Table 12

The year-over-year increase in compensation and employee benefits expenses for the three months ended March 31, 2026 was largely due to increased head count and increased bonus accruals associated with strong financial performance compared to targets in 2025.

The year-over-year increase in general and administrative expenses for the three months ended March 31, 2026 was primarily attributable to transactional legal fees.

Income Tax Expense. The following table presents income tax expense and the effective income tax rate for the three months ended March 31, 2026 and 2025:

Table 13

The year-over-year decrease in income tax expense and the effective tax rate for the three months ended March 31, 2026 was primarily attributable to increased purchases of renewable energy investment tax credits. During the first quarter of 2026, we purchased $45.0 million of tax credits at prices ranging from approximately $0.91 to $0.93 per $1.00 of credit, resulting in a benefit of $4.2 million. We did not purchase any tax credits during the first quarter of 2025.