PR Newswire | Nov 8, 2021 04:06PM EST

11/08 15:05 CST

Farmer Mac Reports Third Quarter 2021 Results- Outstanding Business Volume of $23.1 Billion - WASHINGTON, Nov. 8, 2021

WASHINGTON, Nov. 8, 2021 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation's secondary market provider that increases the availability and affordability of credit for the benefit of rural America, today announced its results for the fiscal quarter ended September 30, 2021.

Third Quarter 2021 and Recent Highlights

* Added $2.5 billion of gross business volume, resulting in net growth of $921.6 million * Net income of $24.3 million compared to $18.7 million in third quarter 2020 * Core Earnings1 of $27.6 million compared to $27.7 million in the same period last year * On August 18, 2021, completed a strategic acquisition that expanded the internal loan servicing function and acquired the loan servicing rights for a sizeable portion of our Farm & Ranch loan and USDA Guaranteed Securities portfolios * On October 14, 2021, Farmer Mac closed a $302.7 million securitization of agricultural mortgage-backed securities

"We delivered another quarter of strong earnings and net effective spread, reflecting the consistency of our fundamental business model," said President & Chief Executive Officer, Brad Nordholm. "In addition, we executed two important transactions recently that are consistent with our multi-year strategic plan. The expansion of our internal loan servicing represents yet another important step as part of our dual strategy of broadening our business opportunities while also deepening relationships with existing customers. The newly structured, syndicated agricultural mortgage-backed securitization transaction, which we expect to build on in the future, exemplifies Farmer Mac's core mission to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities."

Quarter Ended Nine Months Ended $ in thousands, except per share amounts Sept. 30, 2021Sept. 30, 2020Sept. 30, 2021Sept. 30, 2020

Net Business Volume $921,630 $(52,820) $1,194,697 $871,346

Net Interest Income $55,005 $44,661 $163,385 $134,321

Net Effective Spread^1 $55,925 $51,802 $166,335 $142,434

Diluted EPS (GAAP) $2.24 $1.73 $7.17 $5.54

Core Earnings (per diluted share)^1 $2.55 $2.57 $7.71 $6.88

^1 Non-GAAP measure

Third Quarter 2021 Results

Business Volume

Our outstanding business volume was $23.1 billion as of September 30, 2021, a net increase of $0.9 billion from June 30, 2021 after taking into account all new business, maturities, and paydowns on existing assets. This net increase consisted of increases of $499.2 million in Institutional Credit, $389.2 million in Farm & Ranch, and $37.4 million in Rural Utilities, partially offset by a net decrease of $4.2 million in USDA Guarantees.

The $499.2 million net increase in the Institutional Credit line of business reflects $1.4 billion in gross volume, partially offset by $0.9 billion of paydowns and maturities. Within the $1.4 billion of gross volume is $1.2 billion of short-term funding that will mature in fourth quarter 2021.

The $389.2 million net increase in our Farm & Ranch line of business reflected a $277.2 million net increase in outstanding loan purchase volume and a $212.7 million net increase in loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities, which was partially offset by a net decrease of $100.6 million in loans held in consolidated trusts. Our net growth of 15.7% in the Farm & Ranch on-balance sheet portfolio over the twelve months ended September 30, 2021 is significantly higher than the 6.6% net growth of the overall agricultural mortgage loan market over the twelve months ended June 30, 2021 (based on our analysis of call report data from commercial banks, -1.6% growth, and Farm Credit System, 12.7% growth).

The $37.4 million net increase in the Rural Utilities line of business was due to $113.9 million in gross new volume, partially offset by $76.5 million in paydowns in loans and LTSPCs. Within the $113.9 million in gross volume is $50.0 million of unfunded telecommunications loan commitments.

The $4.2 million net decrease in the USDA Guarantees line of business reflected $118.3 million in paydowns, partially offset by $114.1 million in gross new volume. The net volume decrease is reflective of the low interest rate environment that has increased the competition and lowered the spreads in this line of business.

Spreads

Net interest income for third quarter 2021 was $55.0 million, a $10.3 million increase compared to $44.7 million in the prior-year period, primarily due to a $4.5 million decrease in funding costs, a $2.9 million increase related to new business volume, and a $3.1 million increase in the fair value of derivatives designated in fair value hedge accounting relationships. Net interest yield was 0.94% in third quarter 2021 compared to 0.78% in the prior-year period.

Net effective spread, a non-GAAP measure, for third quarter 2021 was $55.9 million, a $4.1 million increase from $51.8 million in the prior-year period. The $4.1 million year-over-year increase in net effective spread in dollars was primarily due to an increase of $2.9 million from new business volume and a $1.0 million decrease in non-GAAP funding costs. In percentage terms, net effective spread increased 0.03% to 0.99% in third quarter 2021 from the prior-year period.

Earnings

Farmer Mac's net income attributable to common stockholders for third quarter 2021 were $24.3 million ($2.24 per diluted common share), compared to $18.7 million ($1.73 per diluted common share) in the prior-year period. The $5.6 million year-over-year increase in net income attributable to common stockholders was due to an $8.2 million after-tax increase in net interest income, the absence of a $1.7 million after-tax loss on the retirement of preferred stock recorded in the comparable prior period, and a $0.7 million after-tax decrease in the provision for credit losses. These factors were partially offset by a $2.0 million after-tax increase in operating expenses, a $1.4 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, and a $1.6 million increase in preferred stock dividends

Farmer Mac enters into financial derivatives transactions to hedge interest rate risks inherent in its business and carries its financial derivatives at fair value in its consolidated financial statements. As these fluctuations are not expected to have a cumulative impact on Farmer Mac's earnings, Farmer Mac uses non-GAAP core earnings as a useful alternative measure to understand the business.

Farmer Mac's non-GAAP core earnings for third quarter 2021 were $27.6 million ($2.55 per diluted common share), compared to $27.7 million ($2.57 per diluted common share) in third quarter 2020. Year-over-year core earnings were approximately equivalent because a $3.3 million after-tax increase in net effective spread and a $0.7 million after-tax decrease in the provision for credit losses, were partially offset by a $2.0 million after-tax increase in operating expenses, a $1.6 million increase in preferred stock dividends, and a $0.3 million after-tax decrease in guarantee fees.

Credit

As of September 30, 2021, the total allowance for losses was $16.8 million, which reflects a $0.3 million provision from June 30, 2021. The provision was primarily attributable to a decline in the economic factor forecast for commodity prices in Farmer Mac's fruit and nuts portfolio. Across all of Farmer Mac's lines of business, allowance for losses represented 0.07% of total outstanding business volume as of September 30, 2021.

As of September 30, 2021, Farmer Mac's 90-day delinquencies were $54.8 million (0.58% of the Farm & Ranch portfolio), compared to $63.1 million (0.70% of the Farm & Ranch portfolio) as of June 30, 2021. Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.24% of total outstanding business volume as of September 30, 2021, compared to 0.28% as of June 30, 2021.

Capital

As of September 30, 2021, Farmer Mac's core capital level was $1.2 billion, which was $479.5 million above the minimum capital level required by our statutory charter. This compares to $1.2 billion as of June 30, 2021, which was $482.6 million above the minimum capital requirement. The decrease in capital in excess of the minimum capital level required was primarily due to an increase in the minimum capital required related to on-balance sheet volume growth. This was partially offset by an increase in core capital due to an increase in retained earnings. Farmer Mac's Tier 1 capital ratio was 15.1% as of September 30, 2021.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's third quarter 2021 financial results will be held beginning at 4:30 p.m. Eastern time on Monday, November 8, and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616Telephone (International): (412) 902-4254Webcast: https://www.farmermac.com/investors/events-presentations/

When dialing in to the call, please ask for the "Farmer Mac Earnings Conference Call." The call can be heard live and will also be available for replay on Farmer Mac's website for two weeks following the conclusion of the call.

More complete information about Farmer Mac's performance for third quarter 2021 is in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed today with the SEC.

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected.

Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, we have excluded from core earnings losses on retirement of preferred stock and the re-measurement of the deferred tax asset.

Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship.

Net effective spread also principally differs from net interest income and net interest yield because it includes: (1) the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"); and (2) the net effects of terminations or net settlements on financial derivatives. More information about Farmer Mac's use of non-GAAP measures is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2020, filed February 25, 2021 with the SEC.

For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, and net interest income and net interest yield to net effective spread, see "Reconciliations" below.

Forward-Looking Statements

Management's expectations for Farmer Mac's future necessarily involve assumptions and 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 in this release, including 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, supply chain disruptions, increases in input costs, labor availability, 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.

Other risk factors are discussed in "Risk Factors" in Part I, Item 1A 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. Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this release. The forward-looking statements contained in this release represent management's expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements included in this release to reflect new information or any future events or circumstances, except as otherwise required by applicable law. The information in this release is not necessarily indicative of future results.

About Farmer Mac

Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities. As the nation's secondary market for agricultural credit, we provide financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac's customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. More information about Farmer Mac (including the Annual Report on Form 10-K referenced above) is available on Farmer Mac's website at www.farmermac.com.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)



As of

September 30, 2021December 31, 2020

(in thousands)

Assets:

Cash and cash equivalents $899,052 $1,033,941

Investment securities:

Available-for-sale, at fair value (amortized cost of $3,684,066 and $3,843,666, 3,696,204 3,853,692 respectively)

Held-to-maturity, at amortized cost 45,032 45,032

Other investments 403 -

Total Investment Securities 3,741,639 3,898,724

Farmer Mac Guaranteed Securities:

Available-for-sale, at fair value (amortized cost of $5,909,989 and $6,594,992, 6,138,759 6,947,701 respectively)

Held-to-maturity, at amortized cost 2,248,303 1,175,792

Total Farmer Mac Guaranteed Securities 8,387,062 8,123,493

USDA Securities:

Trading, at fair value 4,793 6,695

Held-to-maturity, at amortized cost 2,457,217 2,473,626

Total USDA Securities 2,462,010 2,480,321

Loans:

Loans held for sale, at lower of cost or fair value 301,551 -

Loans held for investment, at amortized cost 7,758,286 7,261,933

Loans held for investment in consolidated trusts, at amortized cost 977,372 1,287,045

Allowance for losses (14,294) (13,832)

Total loans, net of allowance 9,022,915 8,535,146

Financial derivatives, at fair value 15,668 17,468

Interest receivable (includes $7,400 and $16,401, respectively, related to 144,078 186,429 consolidated trusts)

Guarantee and commitment fees receivable 39,038 37,113

Deferred tax asset, net 11,084 18,321

Prepaid expenses and other assets 21,822 24,545

Total Assets $24,744,368 $24,355,501



Liabilities and Equity:

Liabilities:

Notes payable $22,365,121 $21,848,917

Debt securities of consolidated trusts held by third parties 990,961 1,323,786

Financial derivatives, at fair value 25,633 29,892

Accrued interest payable (includes $6,550 and $14,370, respectively, related to 83,263 92,738 consolidated trusts)

Guarantee and commitment obligation 37,526 35,535

Accounts payable and accrued expenses 42,566 28,879

Reserve for losses 2,000 3,277

Total Liabilities 23,547,070 23,363,024

Commitments and Contingencies

Equity:

Preferred stock:

Series C, par value $25 per share, 3,000,000 shares authorized, issued and 73,382 73,382 outstanding

Series D, par value $25 per share, 4,000,000 shares authorized, issued and 96,659 96,659 outstanding

Series E, par value $25 per share, 3,180,000 shares authorized, issued and 77,003 77,003 outstanding

Series F, par value $25 per share, 4,800,000 shares authorized, issued and 116,160 116,160 outstanding

Series G, par value $25 per share, 5,000,000 shares authorized, issued and 121,327 - outstanding

Common stock:

Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares 1,031 1,031 outstanding

Class B Voting, $1 par value, no maximum authorization, 500,301 shares 500 500 outstanding

Class C Non-Voting, $1 par value, no maximum authorization, 9,234,778 shares 9,235 9,206 and 9,205,897 shares outstanding, respectively

Additional paid-in capital 124,942 122,899

Accumulated other comprehensive income/(loss), net of tax 18,206 (13,923)

Retained earnings 558,853 509,560

Total Equity 1,197,298 992,477

Total Liabilities and Equity $24,744,368 $24,355,501

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



For the Three Months Ended For the Nine Months Ended

September 30,September 30,September 30,September 30, 2021 2020 2021 2020

(in thousands, except per share amounts)

Interest income:

Investments and cash equivalents $ 4,121 $ 7,096 $ 14,107 $ 35,236

Farmer Mac Guaranteed Securities and USDA Securities 38,428 45,335 123,246 178,644

Loans 61,923 56,204 181,631 172,230

Total interest income 104,472 108,635 318,984 386,110

Total interest expense 49,467 63,974 155,599 251,789

Net interest income 55,005 44,661 163,385 134,321

Provision for losses (366) (653) (518) (4,542)

Net interest income after provision for losses 54,639 44,008 162,867 129,779

Non-interest income/(expense):

Guarantee and commitment fees 3,155 3,159 9,182 9,495

Losses on financial derivatives (2,347) (564) (1,120) (3,339)

Gains/(losses) on trading securities 37 (258) (38) (173)

Gains on sale of available-for-sale investment securities253 - 253 -

Gains on sale of real estate owned - - - 485

Release of/(provision for) reserve for losses 111 (547) 1,277 (540)

Other income 582 594 1,600 2,639

Non-interest income 1,791 2,384 11,154 8,567

Operating expenses:

Compensation and employee benefits 10,027 8,791 31,601 27,005

General and administrative 6,330 5,044 19,015 15,702

Regulatory fees 750 725 2,250 2,175

Operating expenses 17,107 14,560 52,866 44,882

Income before income taxes 39,323 31,832 121,155 93,464

Income tax expense 8,260 6,340 25,579 19,516

Net income 31,063 25,492 95,576 73,948

Preferred stock dividends (6,774) (5,166) (17,885) (12,536)

Loss on retirement of preferred stock - (1,667) - (1,667)

Net income attributable to common stockholders $ 24,289 $ 18,659 $ 77,691 $ 59,745



Earnings per common share:

Basic earnings per common share $ 2.26 $ 1.74 $ 7.22 $ 5.57

Diluted earnings per common share $ 2.24 $ 1.73 $ 7.17 $ 5.54

Reconciliations

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 for the periods indicated:

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Three Months Ended

September 30, 2021June 30, 2021September 30, 2020

(in thousands, except per share amounts)

Net income attributable to common stockholders $24,289 $ 25,444 $18,659

Less reconciling items:

Losses on undesignated financial derivatives due to fair value changes (1,864) (3,721) (4,149)

Losses on hedging activities due to fair value changes (2,093) (2,097) (5,245)

Unrealized gains/(losses) on trading assets 36 (61) (258)

Net effects of amortization of premiums/discounts and deferred gains on assets 23 20 97 consolidated at fair value

Net effects of terminations or net settlements on financial derivatives (351) 109 233

Issuance costs on the retirement of preferred stock - - (1,667)

Income tax effect related to reconciling items 892 1,208 1,957

Sub-total (3,357) (4,542) (9,032)

Core earnings $27,646 $ 29,986 $27,691



Composition of Core Earnings:

Revenues:

Net effective spread^(1) $55,925 $ 56,551 $51,802

Guarantee and commitment fees^(2) 4,322 4,334 4,659

Other^(3) 687 301 453

Total revenues 60,934 61,186 56,914



Credit related expense (GAAP):

Provision for/(release of) losses 255 (983) 1,200

Total credit related expense 255 (983) 1,200



Operating expenses (GAAP):

Compensation and employee benefits 10,027 9,779 8,791

General and administrative 6,330 6,349 5,044

Regulatory fees 750 750 725

Total operating expenses 17,107 16,878 14,560



Net earnings 43,572 45,291 41,154

Income tax expense^(4) 9,152 9,463 8,297

Preferred stock dividends (GAAP) 6,774 5,842 5,166

Core earnings $27,646 $ 29,986 $27,691



Core earnings per share:

Basic $2.57 $ 2.79 $2.58

Diluted 2.55 2.77 2.57

^ Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures"(1) above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.

Includes interest income and interest expense related to consolidated^ trusts owned by third parties reclassified from net interest income to(2) 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.

Reflects reconciling adjustments for the reclassification to exclude^ expenses related to interest rate swaps not designated as hedges and(3) 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.

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

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Nine Months Ended

September 30, 2021 September 30, 2020

(in thousands, except per share amounts)

Net income attributable to common $ 77,691 $ 59,745 stockholders

Less reconciling items:

Losses on undesignated financial derivatives due to fair value (3,890) (1,933) changes

Losses on hedging activities due to (4,461) (13,846) fair value changes

Unrealized losses on trading assets (39) (173)

Net effects of amortization of premiums/discounts and deferred 59 135 gains on assets consolidated at fair value

Net effects of terminations or net 923 (346) settlements on financial derivatives

Issuance costs on the retirement of - (1,667) preferred stock

Income tax effect related to 1,556 3,394 reconciling items

Sub-total (5,852) (14,436)

Core earnings $ 83,543 $ 74,181



Composition of Core Earnings:

Revenues:

Net effective spread^(1) $ 166,335 $ 142,434

Guarantee and commitment fees^(2) 12,896 14,498

Other^(3) 1,439 2,175

Total revenues 180,670 159,107



Credit related expense (GAAP):

(Release of)/provision for losses (759) 5,082

Gain on sale of REO - (485)

Total credit related expense (759) 4,597



Operating expenses (GAAP):

Compensation and employee benefits 31,601 27,005

General and administrative 19,015 15,702

Regulatory fees 2,250 2,175

Total operating expenses 52,866 44,882



Net earnings 128,563 109,628

Income tax expense^(4) 27,135 22,911

Preferred stock dividends (GAAP) 17,885 12,536

Core earnings $ 83,543 $ 74,181



Core earnings per share:

Basic $ 7.77 $ 6.92

Diluted 7.71 6.88

^ Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures"(1) above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.

Includes interest income and interest expense related to consolidated^ trusts owned by third parties reclassified from net interest income to(2) 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.

Reflects reconciling adjustments for the reclassification to exclude^ expenses related to interest rate swaps not designated as hedges and(3) 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.

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

Reconciliation of GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per Share

For the Three Months Ended For the Nine Months Ended

September 30,June 30,September 30,September 30,September 30, 2021 2021 2020 2021 2020

(in thousands, except per share amounts)

GAAP - Basic EPS $ 2.26 $ 2.36$ 1.74 $ 7.22 $ 5.57

Less reconciling items:

Losses on undesignated financial derivatives due to fair value changes (0.17) (0.35) (0.39) (0.36) (0.18)

Losses on hedging activities due to fair value changes (0.19) (0.19) (0.49) (0.42) (1.29)

Unrealized losses on trading securities - (0.01) (0.02) - (0.02)

Net effects of amortization of premiums/discounts and deferred gains on assets - - 0.01 0.01 0.01 consolidated at fair value

Net effects of terminations or net settlements on financial derivatives (0.03) 0.01 0.02 0.08 (0.03)

Issuance costs on the retirement of preferred stock - - (0.15) - (0.16)

Income tax effect related to reconciling items 0.08 0.11 0.18 0.14 0.32

Sub-total (0.31) (0.43) (0.84) (0.55) (1.35)

Core Earnings - Basic EPS $ 2.57 $ 2.79$ 2.58 $ 7.77 $ 6.92



Shares used in per share calculation (GAAP and Core Earnings) 10,766 10,763 10,734 10,756 10,725

Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings Per Share

For the Three Months Ended For the Nine Months Ended

September 30,June 30,September 30,September 30,September 30, 2021 2021 2020 2021 2020

(in thousands, except per share amounts)

GAAP - Diluted EPS $ 2.24 $ 2.35$ 1.73 $ 7.17 $ 5.54

Less reconciling items:

Losses on undesignated financial derivatives due to fair value changes (0.17) (0.34) (0.39) (0.36) (0.18)

Losses on hedging activities due to fair value changes (0.19) (0.19) (0.49) (0.42) (1.28)

Unrealized losses on trading securities - (0.01) (0.02) - (0.02)

Net effects of amortization of premiums/discounts and deferred gains on assets - - 0.01 0.01 0.01 consolidated at fair value

Net effects of terminations or net settlements on financial derivatives (0.03) 0.01 0.02 0.09 (0.03)

Issuance costs on the retirement of preferred stock - - (0.15) - (0.15)

Income tax effect related to reconciling items 0.08 0.11 0.18 0.14 0.31

Sub-total (0.31) (0.42) (0.84) (0.54) (1.34)

Core Earnings - Diluted EPS $ 2.55 $ 2.77$ 2.57 $ 7.71 $ 6.88



Shares used in per share calculation (GAAP and Core Earnings) 10,842 10,838 10,785 10,834 10,781

The following table presents a reconciliation of net interest income and net yield to net effective spread for the periods indicated:

Reconciliation of GAAP Net Interest Income/Yield to Net Effective Spread

For the Three Months Ended For the Nine Months Ended

September 30, June 30, September 30, September 30, September 30, 2021 2021 2020 2021 2020

Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

Net interest income/yield $55,0050.94%$55,1290.94% $44,6610.78% $163,3850.93% $134,3210.80%

Net effects of consolidated trusts (1,167) 0.02%(1,337) 0.02% (1,500) 0.02% (3,713) 0.02% (5,003) 0.03%

Expense related to undesignated financial derivatives 117 - %970 0.02% 3,613 0.07% 3,154 0.02% 9 - %

Amortization of premiums/discounts on assets consolidated at fair value (15) - %(13) - % (81) - % (36) - % (92) - %

Amortization of losses due to terminations or net settlements on financial 65 - %77 - % 62 - % 246 - % 90 - % derivatives

Fair value changes on fair value hedge relationships 1,920 0.03%1,725 0.03% 5,047 0.09% 3,299 0.02% 13,109 0.09%

Net effective spread $55,9250.99%$56,5511.01% $51,8020.96% $166,3350.99% $142,4340.92%

The following table presents core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three months ended September 30, 2021:

Core Earnings by Business Segment

For the Three Months Ended September 30, 2021

Farm & USDA Rural Institutional Reconciling Consolidated Ranch Guarantees Credit Corporate Net Income Utilities Adjustments

(in thousands)

Net interest income $24,893 $6,449 $7,018 $13,707 $2,938 $- $55,005

Less: reconciling adjustments^(1)(2)(3) (526) 398 (554) 1,652 (50) (920) -

Net effective spread 24,367 6,847 6,464 15,359 2,888 (920)

Guarantee and commitment fees^(2) 3,831 166 320 5 - (1,167) 3,155

Other income/(expense)^(3) 405 152 2 - 128 (2,162) (1,475)

Non-interest income/(loss) 4,236 318 322 5 128 (3,329) 1,680



(Provision for)/release of losses (414) - 120 (78) 6 - (366)



Release of reserve for losses 91 - 20 - - - 111

Other non-interest expense (6,275) (2,284) (1,889) (2,514) (4,145) - (17,107)

Non-interest expense^(4) (6,184) (2,284) (1,869) (2,514) (4,145) - (16,996)

Core earnings before income taxes 22,005 4,881 5,037 12,772 (1,123) (4,249) ^(5)39,323

Income tax (expense)/benefit (4,621) (1,025) (1,058) (2,682) 234 892 (8,260)

Core earnings before preferred stock dividends 17,384 3,856 3,979 10,090 (889) (3,357) ^(5)31,063

Preferred stock dividends - - - - (6,774) - (6,774)

Segment core earnings/(losses) $17,384 $3,856 $3,979 $10,090 $(7,663) $(3,357) ^(5)$24,289



Total assets at carrying value $6,883,879$2,522,382$2,249,071$8,395,286 $4,693,750$- $24,744,368

Total on- and off-balance sheet program assets at principal balance$9,445,359$2,722,702$2,817,427$8,133,303 $- $- $23,118,791

^ Includes the amortization of premiums and discounts on assets consolidated(1) at fair value, originally included in interest income, to reflect core earnings amounts.

^ Includes the reclassification of interest income and interest expense from(2) 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.

^ Includes the reclassification of interest expense related to interest rate(3) swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.

^ Includes directly attributable costs and an allocation of indirectly(4) attributable costs based on employee headcount.

Net adjustments to reconcile to the corresponding income measures: core^ earnings before income taxes reconciled to income before income taxes; core(5) earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders.

Supplemental Information

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

Lines of Business - Outstanding Business Volume

As of September 30, 2021As of December 31, 2020

(in thousands)

Farm & Ranch:

Loans $5,800,376 $4,889,393

Loans held in trusts:

Beneficial interests owned by third party investors977,373 1,287,045

LTSPCs 2,607,261 2,325,431

Guaranteed Securities 60,349 79,312

USDA Guarantees:

USDA Securities 2,434,582 2,452,964

Farmer Mac Guaranteed USDA Securities 288,120 333,754

Rural Utilities:

Loans 2,243,172 2,260,412

LTSPCs 574,255 556,425

Institutional Credit

AgVantage Securities 8,133,303 7,739,359

Total $23,118,791 $21,924,095

The following table presents the quarterly net effective spread by segment:

Net Effective Spread by Line of Business

Farm & USDA Rural Institutional Corporate Net Effective Ranch Guarantees Utilities Credit Spread

Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

For the quarter ended:

September 30, 2021^(1)$24,3671.74%$6,8471.11%$6,4641.15%$15,3590.81%$2,8880.25%$55,9250.99 %

June 30, 2021 23,978 1.82%6,982 1.12%6,615 1.18%16,131 0.85%2,845 0.24%56,551 1.01 %

March 31, 2021 21,454 1.74%6,367 1.02%6,674 1.19%16,673 0.87%2,691 0.22%53,859 0.97 %

December 31, 2020 20,313 1.75%6,786 1.10%7,322 1.35%17,401 0.85%2,700 0.22%54,522 0.98 %

September 30, 2020 18,025 1.67%5,865 0.97%6,939 1.32%18,601 0.87%2,372 0.23%51,802 0.96 %

June 30, 2020 16,733 1.71%4,689 0.81%5,516 1.15%18,782 0.86%749 0.08%46,469 0.89 %

March 31, 2020 14,938 1.64%4,625 0.81%4,920 1.14%17,702 0.84%1,978 0.21%44,163 0.89 %

December 31, 2019 16,374 1.90%4,363 0.78%4,871 1.17%18,008 0.85%2,375 0.27%45,991 0.95 %

September 30, 2019 13,181 1.66%4,314 0.79%4,502 1.16%17,807 0.84%2,657 0.30%42,461 0.90 %

^ See above for a reconciliation of GAAP net interest income by line of(1) business to net effective spread by line of business for the three months ended September 30, 2021.

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:

Core Earnings by Quarter Ended

September June March December September June March December September 2021 2021 2021 2020 2020 2020 2020 2019 2019

(in thousands)

Revenues:

Net effective spread $55,925 $56,551 $53,859$54,522 $51,802 $46,469$44,163 $45,991$42,461

Guarantee and commitment fees 4,322 4,334 4,240 4,652 4,659 4,943 4,896 5,432 5,208

Other 687 301 451 512 453 1,048 674 100 389

Total revenues 60,934 61,186 58,550 59,686 56,914 52,460 49,733 51,523 48,058



Credit related expense/(income):

Provision for/(release of) losses 255 (983) (31) 2,973 1,200 51 3,831 2,851 623

REO operating expenses - - - - - - - - -

Losses/(gains) on sale of REO - - - 22 - - (485) - -

Total credit related expense/(income) 255 (983) (31) 2,995 1,200 51 3,346 2,851 623



Operating expenses:

Compensation and employee benefits 10,027 9,779 11,795 9,497 8,791 8,087 10,127 6,732 7,654

General and administrative 6,330 6,349 6,336 6,274 5,044 5,295 5,363 5,773 5,253

Regulatory fees 750 750 750 750 725 725 725 725 688

Total operating expenses 17,107 16,878 18,881 16,521 14,560 14,107 16,215 13,230 13,595



Net earnings 43,572 45,291 39,700 40,170 41,154 38,302 30,172 35,442 33,840

Income tax expense 9,152 9,463 8,520 8,470 8,297 8,016 6,598 7,526 7,018

Preferred stock dividends 6,774 5,842 5,269 5,269 5,166 3,939 3,431 3,432 3,427

Core earnings $27,646 $29,986 $25,911$26,431 $27,691 $26,347$20,143 $24,484$23,395



Reconciling items:

(Losses)/gains on undesignated financial derivatives due to fair value changes $(1,864)$(3,721)$1,695 $(1,758)$(4,149)$8,700 $(6,484)$4,469 $(7,117)

(Losses)/gains on hedging activities due to fair value changes (2,093) (2,097) (271) 3,827 (5,245) (2,676) (5,925) (220) (4,535)

Unrealized gains/(losses) on trading assets 36 (61) (14) 223 (258) (20) 106 172 49

Net effects of amortization of premiums/discounts and deferred gains on assets 23 20 16 (77) 97 35 3 40 (7) consolidated at fair value

Net effects of terminations or net settlements on financial derivatives (351) 109 1,165 1,583 233 720 (1,300) 1,339 232

Issuance costs on the retirement of preferred stock - - - - (1,667) - - - -

Income tax effect related to reconciling items 892 1,208 (544) (798) 1,957 (1,419) 2,856 (1,218) 2,389

Net income attributable to common stockholders $24,289 $25,444 $27,958$29,431 $18,659 $31,687$9,399 $29,066$14,406

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SOURCE Farmer Mac