[Forward-Looking Statements Overview](index=4&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements regarding Farmer Mac's future financial results, business prospects, and developments, with actual results potentially differing materially due to various known and unknown factors - Forward-looking statements in this report cover prospects for earnings, business volume growth, net interest income and spread trends, portfolio credit quality, expenses, investment securities, asset impairments, allowance for losses, capital position, and future dividend payments[12](index=12&type=chunk) - Key factors that could cause actual results to differ materially include availability of debt and equity financing, legislative/regulatory developments, fluctuations in asset fair value, lender interest in Farmer Mac's products, growth in agricultural/rural utilities indebtedness, economic/geopolitical conditions (e.g., interest rates, trade policies, commodity prices), interest rate risk exposure, financial market developments, changes in executive leadership, and other agricultural/rural utilities lending factors (e.g., weather, real estate values)[13](index=13&type=chunk) PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Farmer Mac is a federally chartered corporation providing a secondary market for rural American loans, enhancing credit availability and competitive financing, with total outstanding business volume reaching **$21.1 billion** as of December 31, 2019 - Farmer Mac's secondary market activities include purchasing eligible loans, purchasing general obligation securities guaranteed by Farmer Mac (AgVantage), issuing Farmer Mac Guaranteed Securities, and providing long-term standby purchase commitments (LTSPCs)[17](index=17&type=chunk) - Farmer Mac's two main revenue sources are interest income earned on balance sheet assets (net of funding costs and derivatives) and guarantee/commitment fees for outstanding guaranteed securities and LTSPCs[19](index=19&type=chunk) [General Business Overview](index=5&type=section&id=General) Farmer Mac is a stockholder-owned, federally chartered corporation established to provide a secondary market for loans in rural America, aiming to increase credit availability and competitive interest rates for agricultural and rural sectors - Farmer Mac's secondary market activities include purchasing eligible loans, purchasing AgVantage securities (general obligation securities guaranteed by Farmer Mac and secured by eligible loans), issuing Farmer Mac Guaranteed Securities, and providing long-term standby purchase commitments (LTSPCs)[15](index=15&type=chunk)[17](index=17&type=chunk) - Farmer Mac is a government-sponsored enterprise (GSE) and an institution of the Farm Credit System (FCS), but its debts are not guaranteed by the full faith and credit of the United States, nor is it liable for other FCS institutions' debts[18](index=18&type=chunk)[19](index=19&type=chunk) - Primary revenue sources are net interest income on assets and guarantee/commitment fees. Farmer Mac funds asset purchases by issuing debt obligations in public capital markets, with **$2.2 billion** in discount notes and **$16.9 billion** in medium-term notes outstanding as of December 31, 2019[19](index=19&type=chunk)[20](index=20&type=chunk) [Secondary Market Function](index=7&type=section&id=Secondary%20Market) Farmer Mac's secondary market enhances lenders' ability to offer competitive financing to rural and agricultural borrowers by increasing liquidity, lending capacity, and providing stable funding - Farmer Mac's secondary market increases lenders' liquidity and lending capacity, provides stable funding, and can lower regulatory capital requirements and reduce concentration exposure for lenders through LTSPCs and guaranteed securities[22](index=22&type=chunk) - Farmer Mac engages with current and prospective lenders through individual meetings, road shows, and conferences, and provides wholesale funding for institutional investors in agricultural assets, leveraging technology for business development[23](index=23&type=chunk) [Farmer Mac's Lines of Business](index=7&type=section&id=FARMER%20MAC'S%20LINES%20OF%20BUSINESS) Farmer Mac operates through four lines of business: Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit, with total outstanding business volume across all lines reaching **$21.1 billion** as of December 31, 2019 - Farmer Mac's four lines of business are Farm & Ranch (mortgage loans on agricultural real estate), USDA Guarantees (USDA-guaranteed agricultural and rural development loans), Rural Utilities (loans for electrification and telecommunications by cooperatives), and Institutional Credit (guarantees and purchases of general obligations of lenders secured by pools of eligible loans)[24](index=24&type=chunk)[25](index=25&type=chunk) Outstanding Business Volume by Line of Business (as of December 31) | Line of Business | 2019 (in thousands) | 2018 (in thousands) | |:-----------------|:--------------------|:--------------------| | **On-balance sheet:** | | | | Farm & Ranch: Loans | $3,675,640 | $3,071,222 | | Loans held in trusts: Beneficial interests owned by third party investors | 1,600,917 | 1,517,101 | | USDA Guarantees: USDA Securities | 2,199,072 | 2,120,553 | | Farmer Mac Guaranteed USDA Securities | 31,887 | 27,383 | | Rural Utilities: Loans | 1,671,293 | 938,843 | | Institutional Credit: AgVantage securities | 8,432,679 | 8,072,919 | | **Total on-balance sheet** | **$17,611,488** | **$15,748,021** | | **Off-balance sheet:** | | | | Farm & Ranch: LTSPCs | $2,393,071 | $2,509,787 | | Guaranteed Securities | 107,322 | 135,862 | | USDA Guarantees: Farmer Mac Guaranteed USDA Securities | 389,216 | 367,684 | | Rural Utilities: LTSPCs | 609,278 | 653,272 | | Institutional Credit: AgVantage securities | 7,567 | 9,898 | | Revolving floating rate AgVantage facility | — | 300,000 | | **Total off-balance sheet** | **$3,506,454** | **$3,976,503** | | **Total** | **$21,117,942** | **$19,724,524** | - Farm & Ranch loans must be secured by first liens on agricultural real estate, meet specific borrower and collateral eligibility criteria, and adhere to Farmer Mac's underwriting standards, including a maximum loan-to-value (LTV) ratio of **80%**[31](index=31&type=chunk)[41](index=41&type=chunk) - USDA Guarantees involve USDA-guaranteed portions of loans, which are exempt from Farmer Mac's standard credit underwriting and collateral standards due to the USDA guarantee[47](index=47&type=chunk) - Rural Utilities loans are for electric or telephone facilities by cooperative lenders to REA-eligible borrowers, requiring Farmer Mac's credit underwriting standards, with the majority of business in electric facilities[51](index=51&type=chunk)[52](index=52&type=chunk) - Institutional Credit involves AgVantage securities, which are general obligations of lenders secured by pools of eligible loans from other lines of business, with Farmer Mac assessing issuer creditworthiness and requiring collateralization (e.g., **103% to 125%** for Farm & Ranch-backed AgVantage securities)[58](index=58&type=chunk)[59](index=59&type=chunk)[62](index=62&type=chunk) [Competition](index=15&type=section&id=Competition) While Farmer Mac is the only Congressionally-chartered secondary market for its specific loan types, it faces indirect competition from various financial institutions and government programs - Farmer Mac competes indirectly with commercial and investment banks, insurance companies, other FCS institutions, financial funds, and government programs that purchase, retain, securitize, or finance eligible assets[65](index=65&type=chunk) - Farmer Mac's competitive position is affected by the overall supply of capital, competitors' ability to price average, and its ability to obtain competitive funding in debt markets, which is crucial for offering savings to customers[67](index=67&type=chunk)[68](index=68&type=chunk) [Capital and Corporate Governance](index=16&type=section&id=Capital%20and%20Corporate%20Governance) Farmer Mac's charter defines its capital and corporate governance, including three classes of common stock and a 15-person board of directors, with compliance required for minimum, critical, and risk-based capital standards - Farmer Mac has Class A (voting, restricted to non-FCS financial institutions), Class B (voting, restricted to FCS institutions), and Class C (non-voting, freely transferable) common stock, with Class A and B stockholders each electing five directors, and the U.S. President appointing the remaining five[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - Dividend and liquidation rights are the same for all common stock classes, but preferred stockholders have priority, balancing Farmer Mac's mission with stockholder returns[75](index=75&type=chunk)[76](index=76&type=chunk) - Farmer Mac's charter establishes minimum, critical, and risk-based capital standards, requiring compliance with the higher of minimum or risk-based capital, with its core capital at **$815.4 million** as of December 31, 2019, exceeding the minimum requirement of **$618.8 million**[80](index=80&type=chunk)[212](index=212&type=chunk) [Employees and Property](index=18&type=section&id=Employees%20and%20Property) As of December 31, 2019, Farmer Mac employed **103 people**, primarily at its Washington, D.C. headquarters, with additional offices in Johnston, Iowa, and Fresno, California, and believes its current office spaces are adequate - Farmer Mac had **103 employees** as of December 31, 2019, primarily located at its main office in Washington, D.C., with additional offices in Johnston, Iowa, and Fresno, California[82](index=82&type=chunk) - The principal office sublease ends August 30, 2024; the Iowa office lease ends June 30, 2023; and the California office lease ends February 28, 2021

Federal Agricultural Mortgage Corporation (NYSE:AGM) Q3 2019 Earnings Conference Call November 6, 2019 11:00 AM ET Company Participants Brad Nordholm - CEO Steve Mullery - General Counsel Zach Carpenter - Chief Business Officer Curt Covington - Chief Credit Officer Greg Ramsey - Principal Financial Officer Conference Call Participants Scott Valentin - Compass Point Greg Pendy - Sidoti Operator Good morning and welcome to the Farmer Mac Third Quarter 2019 Investor Conference Call. All participants will be in ...

PART I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents Farmer Mac's unaudited consolidated financial statements and detailed notes for Q3 2019, covering balance sheets, operations, comprehensive income, equity, and cash flows [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Farmer Mac's financial position (Sep 2019 vs Dec 2018) shows significant asset and liability growth, with stable equity Consolidated Balance Sheet Summary | Metric | September 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--------------------------------- | :-------------------------------- | :------------------------------- | | Total Assets | $21,315,234 | $18,694,328 | | Total Liabilities | $20,564,975 | $17,941,771 | | Total Equity | $750,259 | $752,557 | | Loans, net of allowance | $6,517,220 | $5,515,052 | | Total notes payable | $18,826,622 | $16,243,697 | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Net income attributable to common stockholders decreased significantly quarter-over-quarter and year-over-year due to fair value changes in financial derivatives and increased operating expenses Net Income Attributable to Common Stockholders | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $14,406 | $26,474 | $64,584 | $75,338 | | Basic EPS | $1.34 | $2.48 | $6.04 | $7.07 | | Diluted EPS | $1.33 | $2.46 | $5.99 | $7.01 | Net Interest Income | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $40,112 | $45,058 | $123,765 | $132,220 | Non-interest (loss)/income | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $(3,432) | $4,439 | $12,990 | $11,058 | [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The company reported a comprehensive loss for Q3 2019, primarily due to significant net unrealized losses on available-for-sale securities and cash flow hedges Comprehensive (loss)/income attributable to Farmer Mac | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $(12,348) | $20,360 | $9,068 | $98,113 | Net unrealized (losses)/gains on available-for-sale securities (before tax) | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $(24,925) | $(13,546) | $(50,272) | $8,678 | Net unrealized (losses)/gains on cash flow hedges (before tax) | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $(6,736) | $3,181 | $(22,373) | $12,038 | [Consolidated Statements of Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Equity) Details changes in equity, including net income, other comprehensive losses, preferred and common stock dividends, and stock issuance/redemption Total Equity | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Dec 31, 2018 | $752,557 | | Sep 30, 2019 | $750,259 | - Issuance of Series D preferred stock: **$96,659 thousand** (Q2 2019)[21](index=21&type=chunk) - Redemption of Series B preferred stock: **$(73,044) thousand** (Q2 2019)[21](index=21&type=chunk) Accumulated Other Comprehensive Income | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Dec 31, 2018 | $24,956 | | Sep 30, 2019 | $(43,024) | Retained Earnings | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Dec 31, 2018 | $393,351 | | Sep 30, 2019 | $435,479 | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating and investing activities increased significantly, while net cash provided by financing activities saw a substantial increase, leading to an overall net increase in cash and cash equivalents Net cash (used in)/provided by operating activities | Period | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | | Amount (in thousands) | $(138,076) | $252,225 | Net cash used in investing activities | Period | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | | Amount (in thousands) | $(2,062,969) | $(233,520) | Net cash provided by financing activities | Period | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | | Amount (in thousands) | $2,363,730 | $115,425 | Cash and cash equivalents at end of period | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Sep 30, 2019 | $587,941 | | Sep 30, 2018 | $436,152 | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed disclosures for financial statements, including accounting policies, financial instrument breakdowns, and segment reporting [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines Farmer Mac's accounting principles, including consolidation, EPS, comprehensive income, and recently adopted/issued accounting guidance [Principles of Consolidation](index=13&type=section&id=Principles%20of%20Consolidation) Farmer Mac consolidates subsidiaries and VIEs where it is the primary beneficiary, with tables detailing consolidated and unconsolidated VIEs by line of business Consolidated VIEs (Sep 30, 2019) | Item | Farm & Ranch (in thousands) | USDA Guarantees (in thousands) | Rural Utilities (in thousands) | Institutional Credit (in thousands) | Corporate (in thousands) | Total (in thousands) | | :-------------------------------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | :---------------------------------- | :----------------------- | :------------------- | | Loans held for investment in consolidated trusts | $1,526,718 | — | — | — | — | $1,526,718 | | Debt securities of consolidated trusts held by third parties | $1,532,401 | — | — | — | — | $1,532,401 | Unconsolidated VIEs (Sep 30, 2019) - Maximum exposure to loss | Item | Farm & Ranch (in thousands) | USDA Guarantees (in thousands) | Rural Utilities (in thousands) | Institutional Credit (in thousands) | Corporate (in thousands) | Total (in thousands) | | :-------------------------------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | :---------------------------------- | :----------------------- | :------------------- | | Farmer Mac Guaranteed Securities | — | $32,645 | — | — | — | $32,645 | | Investment securities | — | — | — | — | $1,114,220 | $1,114,220 | | Off-Balance Sheet Farmer Mac Guaranteed Securities | $115,306 | $404,052 | — | — | — | $519,358 | [(a) Earnings Per Common Share](index=16&type=section&id=(a)%20Earnings%20Per%20Common%20Share) Details the calculation of basic and diluted earnings per common share (EPS) for the three and nine months ended September 30, 2019 and 2018 Basic and Diluted EPS | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Basic EPS | $1.34 | $2.48 | $6.04 | $7.07 | | Diluted EPS | $1.33 | $2.46 | $5.99 | $7.01 | [(b) Comprehensive Income](index=16&type=section&id=(b)%20Comprehensive%20Income) Explains comprehensive income as all changes in stockholders' equity not from investments by or distributions to stockholders, comprising net income and OCI Net comprehensive (loss)/income (3 months ended Sep 30) | Component | 2019 (in thousands) | 2018 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Available-for-Sale Securities | $(19,691) | $(10,702) | | Held-to-Maturity Securities | $(5,169) | $(1,220) | | Cash Flow Hedges | $(5,321) | $2,513 | | Total | $(30,181) | $(9,409) | Net comprehensive (loss)/income (9 months ended Sep 30) | Component | 2019 (in thousands) | 2018 (in thousands) | | :-------------------------------------------------- | :------------------ | :------------------ | | Available-for-Sale Securities | $(39,715) | $6,856 | | Held-to-Maturity Securities | $(10,591) | $(3,477) | | Cash Flow Hedges | $(17,674) | $9,510 | | Total | $(67,980) | $12,889 | [(c) New Accounting Standards](index=20&type=section&id=(c)%20New%20Accounting%20Standards) Discusses recently adopted and not-yet-adopted accounting guidance, noting no material effect from recent adoptions and ongoing evaluation for future standards - ASU 2016-02 (Leases) adopted Jan 1, 2019, no material effect[53](index=53&type=chunk) - ASU 2018-15 (Cloud Computing) adopted July 1, 2019, no material effect[53](index=53&type=chunk) - ASU 2016-13 (Credit Losses) effective Jan 1, 2020, not expected to have a material effect on financial condition, results of operations, or cash flows[54](index=54&type=chunk) - ASU 2017-08 (Premium Amortization) effective Jan 1, 2020, not expected to have a material effect[54](index=54&type=chunk) - ASU 2018-13 (Fair Value Measurement) effective Jan 1, 2020, not expected to have a material effect[55](index=55&type=chunk) [(d) Reclassifications](index=22&type=section&id=(d)%20Reclassifications) States that certain prior period information was reclassified to conform to the current period's presentation - Prior period information was reclassified to conform to current period presentation[57](index=57&type=chunk) [2. INVESTMENT SECURITIES](index=22&type=section&id=2.%20INVESTMENT%20SECURITIES) Total investment securities increased to **$3.16 billion** as of September 30, 2019, with unrealized losses deemed recoverable Total Investment Securities | Date | Amortized Cost (in thousands) | Fair Value (in thousands) | | :---------------------- | :---------------------------- | :------------------------ | | Sep 30, 2019 | $3,156,378 | $3,157,163 | | Dec 31, 2018 | $2,267,952 | $2,263,446 | Unrealized Losses on Available-for-Sale Securities (Sep 30, 2019) | Category | Fair Value (in thousands) | Loss (in thousands) | | :-------------------------------------------------------------------- | :------------------------ | :------------------ | | Floating rate auction-rate certificates backed by Government guaranteed student loans | $19,208 | $(492) | | Floating rate asset-backed securities | $24,569 | $(175) | | Floating rate Government/GSE guaranteed mortgage-backed securities | $1,622,238 | $(3,500) | | Fixed rate U.S. Treasuries | $1,445,265 | $(82) | | Total | $3,111,632 | $(4,249) | - Unrealized losses are considered recoverable, and no other-than-temporary impairment was recognized[65](index=65&type=chunk)[67](index=67&type=chunk) [3. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES](index=25&type=section&id=3.%20FARMER%20MAC%20GUARANTEED%20SECURITIES%20AND%20USDA%20SECURITIES) Details Farmer Mac's on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities, with unrealized losses primarily due to interest rate changes but not considered impaired Total Held-to-Maturity Securities (Sep 30, 2019) | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | | :-------------------------------------------------- | :---------------------------- | :------------------------ | | AgVantage | $1,419,800 | $1,435,159 | | Farmer Mac Guaranteed USDA Securities | $32,816 | $33,385 | | USDA Securities | $2,164,064 | $2,183,074 | | Total | $3,616,680 | $3,651,618 | Available-for-Sale AgVantage Securities (Sep 30, 2019) | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | | :---------------------- | :---------------------------- | :------------------------ | | AgVantage | $7,008,885 | $7,182,541 | - Unrealized losses are primarily due to interest rate changes and are not considered other-than-temporarily impaired[75](index=75&type=chunk)[77](index=77&type=chunk) - Credit exposure related to USDA Guarantees is covered by the full faith and credit of the United States[76](index=76&type=chunk) [4. FINANCIAL DERIVATIVES](index=28&type=section&id=4.%20FINANCIAL%20DERIVATIVES) Farmer Mac uses financial derivatives for risk protection, with a total notional amount of **$13.8 billion** and a net asset fair value of **$5.6 million** as of September 30, 2019 Total Financial Derivatives (Sep 30, 2019) | Item | Notional Amount (in thousands) | Fair Value Asset (in thousands) | Fair Value Liability (in thousands) | | :-------------------------------------------------- | :----------------------------- | :------------------------------ | :---------------------------------- | | Fair value hedges (Interest rate swaps) | $6,801,188 | $3,605 | $(10,124) | | Cash flow hedges (Interest rate swaps) | $428,000 | $1,338 | $(2,989) | | No hedge designation (Interest rate swaps, Basis swaps, Treasury futures) | $6,560,265 | $646 | $(17,459) | | Credit valuation adjustment | — | — | $55 | | Total | $13,799,053 | $5,589 | $(30,542) | - Expected reclassification from AOCI to earnings: **$0.8 million** after tax over the next twelve months[89](index=89&type=chunk) Net income/(expense) recognized in consolidated statements of operations related to derivatives (3 months ended Sep 30, 2019) | Item | Net Interest Income (in thousands) | Non-Interest Income (in thousands) | Total (in thousands) | | :-------------------------------------------------- | :--------------------------------- | :--------------------------------- | :------------------- | | Income/(expense) related to interest settlements on fair value hedging relationships | $25,236 | — | $25,236 | | (Losses)/gains on fair value hedging relationships | $(4,490) | — | $(4,490) | | Expense related to interest settlements on cash flow hedging relationships | $(2,410) | — | $(2,410) | | Losses on financial derivatives not designated in hedge relationships | — | $(7,360) | $(7,360) | [5. LOANS AND ALLOWANCE FOR LOSSES](index=37&type=section&id=5.%20LOANS%20AND%20ALLOWANCE%20FOR%20LOSSES) Total loans, net of allowance, increased to **$6.52 billion** as of September 30, 2019, with the allowance for loan losses increasing due to decreased portfolio credit quality Total Loans, net of allowance | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Sep 30, 2019 | $6,517,220 | | Dec 31, 2018 | $5,515,052 | Allowance for Loan Losses | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Beginning Balance | $7,264 | $6,789 | $7,017 | $6,796 | | Provision for/(release of) losses | $760 | $99 | $1,074 | $92 | | Ending Balance | $8,024 | $6,871 | $8,024 | $6,871 | - Provision for loan losses in Q3 2019 was due to decreased portfolio credit quality, mainly from idiosyncratic factors of a few large loans[127](index=127&type=chunk) Total Impaired Loans (Recorded Investment) | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Sep 30, 2019 | $221,412 | | Dec 31, 2018 | $155,312 | - Recorded investment of loans on nonaccrual status (Sep 30, 2019): **$92,287 thousand**[140](index=140&type=chunk) 90-Day Delinquencies (Farm & Ranch) | Date | Amount (in thousands) | Percentage of Portfolio | | :---------------------- | :---------------------- | :------------------------ | | Sep 30, 2019 | $59,691 | 0.81% | | Dec 31, 2018 | $26,881 | 0.37% | [6. GUARANTEES AND LONG-TERM STANDBY PURCHASE COMMITMENTS](index=48&type=section&id=6.%20GUARANTEES%20AND%20LONG-TERM%20STANDBY%20PURCHASE%20COMMITMENTS) Details Farmer Mac's off-balance sheet obligations, with maximum potential undiscounted future payments of **$828.6 million** for Farmer Mac Guaranteed Securities and **$3.1 billion** for LTSPCs as of September 30, 2019 Maximum principal amount of potential undiscounted future payments for off-balance sheet Farmer Mac Guaranteed Securities | Date | Amount (in thousands) | | :---------------------- | :---------------------- | | Sep 30, 2019 | $828,583 | | Dec 31, 2018 | $813,444 | - Maximum principal amount of potential undiscounted future payments for LTSPCs: approximately **$3.1 billion** as of September 30, 2019, compared to approximately **$3.2 billion** as of December 31, 2018[161](index=161&type=chunk) - Guarantee and commitment obligation liability: **$37.4 million** (Sep 30, 2019) and **$38.7 million** (Dec 31, 2018)[11](index=11&type=chunk) [7. EQUITY](index=49&type=section&id=7.%20EQUITY) Discusses changes in Farmer Mac's equity, including preferred and common stock activities and capital requirements, with core capital **$184.9 million** above the minimum as of September 30, 2019 - Series D Preferred Stock: Issued **4.0 million shares** at **$25 par value**, totaling **$100.0 million**[163](index=163&type=chunk) - Series B Preferred Stock: Redeemed all **$75.0 million** outstanding shares, resulting in a **$2.0 million** loss on retirement[164](index=164&type=chunk) - Common Stock Dividends: Increased to **$0.70 per share** (2019) from **$0.58 per share** (2018)[165](index=165&type=chunk) - Core Capital Level: **$793.3 million** (Sep 30, 2019), **$184.9 million** above minimum requirement[169](index=169&type=chunk) - Tier 1 Capital Ratio: **13.2%** (Sep 30, 2019), decreased from **13.4%** (Dec 31, 2018) due to growth in risk-weighted assets[412](index=412&type=chunk) [8. FAIR VALUE DISCLOSURES](index=50&type=section&id=8.%20FAIR%20VALUE%20DISCLOSURES) Discloses assets and liabilities measured at fair value, with **$7.2 billion** (34% of total assets) valued using significant unobservable inputs (Level 3) as of September 30, 2019 Financial instruments measured as Level 3 | Date | Amount (in thousands) | % of Total Assets | % of Financial Instruments at Fair Value | | :---------------------- | :---------------------- | :---------------- | :--------------------------------------- | | Sep 30, 2019 | $7,210,692 | 34% | 70% | | Dec 31, 2018 | $6,003,211 | 32% | 73% | Total Assets at Fair Value (Sep 30, 2019) | Item | Amount (in thousands) | | :---------------------- | :---------------------- | | Total Assets at fair value | $10,308,705 | Total Liabilities at Fair Value (Sep 30, 2019) | Item | Amount (in thousands) | | :---------------------- | :---------------------- | | Total Liabilities at fair value | $30,542 | Key Level 3 Assets (Sep 30, 2019) | Asset | Fair Value (in thousands) | Valuation Technique | Unobservable Input | Range (Weighted Average) | | :-------------------------------------------------------------------- | :------------------------ | :------------------ | :----------------- | :----------------------- | | Floating rate auction-rate certificates backed by Government guaranteed student loans | $19,208 | Indicative bids | Range of broker quotes | 97.5% - 97.5% (97.5%) | | AgVantage | $7,182,541 | Discounted cash flow | Discount rate | 2.2% - 3.8% (2.6%) | | USDA Securities | $8,943 | Discounted cash flow | Discount rate | 2.4% - 3.3% (3.3%) | | | | | CPR | 11% - 21% (20%) | [9. BUSINESS SEGMENT REPORTING](index=58&type=section&id=9.%20BUSINESS%20SEGMENT%20REPORTING) Presents core earnings and reconciliation to consolidated net income by operating segment, with Farm & Ranch and Institutional Credit as largest contributors for the nine months ended September 30, 2019 Segment Core Earnings (9 months ended Sep 30, 2019) | Segment | Amount (in thousands) | | :---------------------- | :---------------------- | | Farm & Ranch | $30,868 | | USDA Guarantees | $7,030 | | Rural Utilities | $8,087 | | Institutional Credit | $35,820 | | Corporate | $(12,547) | | Reconciling Adjustments | $(4,674) | | Total | $64,584 | - Total on- and off-balance sheet program assets at principal balance (Sep 30, 2019): **$20,932,359 thousand**[204](index=204&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on Farmer Mac's financial performance, condition, and future outlook, discussing net income, core earnings, net interest income, business volume, capital, credit quality, and risk management strategies, while highlighting non-GAAP measures for economic performance understanding [Forward-Looking Statements](index=62&type=section&id=Forward-Looking%20Statements) Identifies forward-looking statements covering earnings, business volume, credit quality, expenses, investments, capital, and dividends, cautioning that actual results may differ due to various factors - Forward-looking statements cover: earnings, business volume growth, net interest income and net effective spread trends, portfolio credit quality, delinquencies, substandard assets, credit losses, provisions for losses, expenses, investment securities, asset impairments, allowance for losses, capital position, and future dividend payments[209](index=209&type=chunk) - Factors that could cause actual results to differ include: availability of debt/equity financing, legislative/regulatory developments, fair value fluctuations, secondary market development, agricultural/rural utilities indebtedness growth, economic conditions (interest rates, trade policies, export demand), basis risk, financial market developments, executive leadership changes, and other negative factors (commodity prices, weather, real estate values)[209](index=209&type=chunk)[211](index=211&type=chunk) [Overview](index=64&type=section&id=Overview) Provides a high-level summary of Farmer Mac's Q3 2019 financial performance, noting decreased net income due to fair value changes and increased operating expenses, while non-GAAP core earnings remained stable or increased, driven by net effective spread - Net Income Attributable to Common Stockholders (Q3 2019): **$14.4 million**, down from **$28.3 million** (Q2 2019) and **$26.5 million** (Q3 2018)[215](index=215&type=chunk) - Sequential Decrease in Net Income: Primarily due to **$12.9 million** after-tax decrease in fair value of undesignated financial derivatives, **$2.3 million** after-tax decrease in net interest income, and **$1.1 million** after-tax increase in operating expenses[215](index=215&type=chunk) - Year-over-Year Decrease in Net Income: Primarily due to **$6.3 million** after-tax decrease in fair value of undesignated financial derivatives, **$3.9 million** after-tax decrease in net interest income, **$1.4 million** after-tax increase in operating expenses, and **$0.5 million** after-tax provision for total loan losses[216](index=216&type=chunk) - Non-GAAP Core Earnings (Q3 2019): **$23.4 million**, compared to **$23.6 million** (Q2 2019) and **$22.4 million** (Q3 2018)[216](index=216&type=chunk) - Net Effective Spread (Q3 2019): **$42.5 million (0.90%)**, up from **$41.4 million** (Q2 2019) and **$39.1 million** (Q3 2018)[221](index=221&type=chunk) - Outstanding Business Volume (Sep 30, 2019): **$20.9 billion**, a net increase of **$185.6 million** from June 30, 2019, and **$1.2 billion** from Dec 31, 2018[225](index=225&type=chunk) - Core Capital Level (Sep 30, 2019): **$793.3 million**, **$184.9 million** above minimum[226](index=226&type=chunk) - Allowance for Losses (Sep 30, 2019): **$9.8 million (0.13% of Farm & Ranch portfolio)**, up from **$9.1 million** (Q2 2019)[227](index=227&type=chunk) - Substandard Assets (Sep 30, 2019): **$290.5 million (3.9% of Farm & Ranch portfolio)**, up from **$232.7 million** (Dec 31, 2018)[228](index=228&type=chunk) - 90-Day Delinquencies (Sep 30, 2019): **$59.7 million (0.81% of Farm & Ranch portfolio)**, up from **$26.9 million** (Dec 31, 2018)[229](index=229&type=chunk) [Use of Non-GAAP Measures](index=67&type=section&id=Use%20of%20Non-GAAP%20Measures) Explains Farmer Mac's use of non-GAAP financial measures to provide a clearer understanding of its economic performance, transaction economics, and business trends - Non-GAAP measures used: "core earnings," "core earnings per share," and "net effective spread"[232](index=232&type=chunk) - Core earnings and core EPS exclude: - Effects of fair value fluctuations (not expected to have cumulative net impact if held to maturity)[234](index=234&type=chunk) - Specified infrequent or unusual transactions not indicative of future operating results[235](index=235&type=chunk) - Net effective spread differs from net interest income by: - Excluding amortization of premiums/discounts on assets consolidated at fair value[236](index=236&type=chunk) - Excluding interest income/expense related to consolidated trusts (reclassified as guarantee/commitment fees)[239](index=239&type=chunk) - Excluding fair value changes of financial derivatives and corresponding hedged items[240](index=240&type=chunk) - Including accrual of income/expense on undesignated financial derivatives[241](index=241&type=chunk) - Including net effects of terminations or net settlements on financial derivatives[241](index=241&type=chunk) [Results of Operations](index=69&type=section&id=Results%20of%20Operations) Detailed analysis of Farmer Mac's financial results, showing decreased net income but increased core earnings, with improved net effective spread and business volume growth Net Income Attributable to Common Stockholders | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $14,406 | $26,474 | $64,584 | $75,338 | | Diluted EPS | $1.33 | $2.46 | $5.99 | $7.01 | Non-GAAP Core Earnings | Period | Sep 30, 2019 (3 months) | Sep 30, 2018 (3 months) | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Amount (in thousands) | $23,395 | $22,381 | $69,258 | $63,588 | | Diluted EPS | $2.17 | $2.08 | $6.43 | $5.92 | - Net Interest Income (9 months ended Sep 30): Decreased by **$8.5 million** YoY, primarily due to **$14.4 million** decrease in net fair value changes from fair value hedge accounting relationships and **$4.7 million** increase in funding and liquidity costs, partially offset by **$8.0 million** increase in interest income from new business volume[263](index=263&type=chunk) - Net Effective Spread (9 months ended Sep 30): Increased by **$10.3 million** YoY, primarily due to **$9.4 million** increase from new business volume[268](index=268&type=chunk) - Provision for Allowance for Loan Losses (9 months ended Sep 30, 2019): **$1.1 million**, due to decreased credit quality[274](index=274&type=chunk) (Losses)/gains on financial derivatives | Period | Sep 30, 2019 (9 months) | Sep 30, 2018 (9 months) | | :---------------------- | :---------------------- | | Amount (in thousands) | $1,193 | $(688) | - Compensation and Employee Benefits (9 months ended Sep 30, 2019): **$22.0 million**, up from **$20.4 million** in 2018, due to increased headcount and health insurance costs[281](index=281&type=chunk) - General and Administrative Expenses (9 months ended Sep 30, 2019): **$14.5 million**, up from **$13.9 million** in 2018, due to growth and strategic initiatives[281](index=281&type=chunk) - Outstanding Business Volume (Sep 30, 2019): **$20.9 billion**, a net increase of **$185.6 million** from June 30, 2019, including a **$102.4 million** net increase in Farm & Ranch, **$76.9 million** in Rural Utilities, and **$46.4 million** in USDA Guarantees, partially offset by a **$40.1 million** net decrease in Institutional Credit[284](index=284&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk) [Outlook](index=86&type=section&id=Outlook) Farmer Mac anticipates continued growth, but expects increased operating expenses and challenges from global trade policies and weather, moderated by government support and portfolio diversity - Growth Opportunities: Driven by lenders managing equity capital, new counterparties in rural utilities, expanding customer base, industry consolidation, and increased financing requirements for agricultural producers[302](index=302&type=chunk) - Expense Outlook: Annual operating expenses expected to increase by approximately **8% to 9%** in 2019 due to investments in human capital, technology, and strategic initiatives[304](index=304&type=chunk) - Agricultural Industry Outlook: USDA forecasts net cash income growth of **7.3%** in 2019. Farmland values held steady or increased in most regions[308](index=308&type=chunk) - Trade Policies: Reciprocal tariffs by China and the U.S. have affected agricultural exports, but government aid (2018 MFP: **$8.6 billion**, 2019 MFP: up to **$14.5 billion**) and recent positive trade developments (Canada/Mexico tariff removal, U.S.-Japan agreement, WTO ruling against EU) are mitigating impacts[309](index=309&type=chunk)[310](index=310&type=chunk)[313](index=313&type=chunk) - Weather Conditions (H1 2019): Difficult planting conditions for corn and soybeans in the Midwest, but federal crop insurance programs are expected to offset short-term profitability pressure[314](index=314&type=chunk) - Credit Quality: 90-day delinquencies and credit losses remain low, but substandard assets have increased since 2015. Portfolio diversity and collateralization are expected to moderate losses[315](index=315&type=chunk) - 2018 Farm Bill Impact: - Acreage exception to loan limit increased from **1,000 to 2,000 acres** (effective June 18, 2020), providing unconstrained access to Farmer Mac's secondary market for more farming operations[318](index=318&type=chunk) - USDA guarantee limit increased from **$3.026 billion to $7.0 billion** annually through Sep 2023, and individual loan size limit increased from **$1.399 million to $1.75 million**, supporting growth in USDA Guarantees[319](index=319&type=chunk) [Balance Sheet Review](index=90&type=section&id=Balance%20Sheet%20Review) Total assets increased to **$21.3 billion**, driven by business volume and liquidity investments, while total liabilities also rose to **$20.6 billion** to support asset growth, and total equity slightly decreased to **$750.3 million** - Total Assets (Sep 30, 2019): **$21.3 billion**, up from **$18.7 billion** (Dec 31, 2018), driven by business volume growth and increased liquidity investment portfolio[324](index=324&type=chunk) - Cash and Cash Equivalents (Sep 30, 2019): **$0.6 billion**, up from **$0.4 billion** (Dec 31, 2018)[324](index=324&type=chunk) - Investment Securities (Sep 30, 2019): **$3.2 billion**, up from **$2.3 billion** (Dec 31, 2018)[324](index=324&type=chunk) - Farmer Mac Guaranteed Securities (Sep 30, 2019): **$8.6 billion**, up from **$8.1 billion** (Dec 31, 2018)[325](index=325&type=chunk) - Loans, net of allowance (Sep 30, 2019): **$6.5 billion**, up from **$5.5 billion** (Dec 31, 2018)[325](index=325&type=chunk) - USDA Securities (Sep 30, 2019): **$2.2 billion**, stable from **$2.2 billion** (Dec 31, 2018)[325](index=325&type=chunk) - Total Liabilities (Sep 30, 2019): **$20.6 billion**, up from **$17.9 billion** (Dec 31, 2018), primarily due to increased notes payable[327](index=327&type=chunk) - Total Equity (Sep 30, 2019): **$750.3 million**, slightly down from **$752.6 million** (Dec 31, 2018), due to preferred stock redemption and OCI losses, partially offset by Series D issuance and net income[327](index=327&type=chunk) [Off-Balance Sheet Arrangements](index=91&type=section&id=Off-Balance%20Sheet%20Arrangements) Farmer Mac uses off-balance sheet arrangements, including Farmer Mac Guaranteed Securities and LTSPCs, to enhance lender liquidity and lending capacity, with consolidation occurring if Farmer Mac is the primary beneficiary of securitization trusts - Off-balance sheet arrangements: Farmer Mac Guaranteed Securities and LTSPCs[328](index=328&type=chunk) - Purpose: Increase lender liquidity or lending capacity while retaining cash flow benefits of loans[328](index=328&type=chunk) - Consolidation: Trust assets and liabilities are included on Farmer Mac's balance sheet if Farmer Mac is the primary beneficiary[328](index=328&type=chunk) [Risk Management](index=91&type=section&id=Risk%20Management) Details Farmer Mac's comprehensive approach to managing credit risk across its loan and guarantee portfolios, institutional relationships, and investments, as well as interest rate risk [Credit Risk – Loans and Guarantees](index=91&type=section&id=Credit%20Risk%20%E2%80%93%20Loans%20and%20Guarantees) Farmer Mac manages credit risk for Farm & Ranch and Rural Utilities loans through underwriting and collateral standards, with low credit losses in Rural Utilities and USDA Guarantees, despite increased 90-day delinquencies and substandard assets in Farm & Ranch - Direct credit exposure: Farm & Ranch loans (**$7.4 billion**), Rural Utilities loans (**$2.2 billion**)[329](index=329&type=chunk)[330](index=330&type=chunk) - Rural Utilities: No delinquencies or credit losses since 2008[330](index=330&type=chunk) - USDA Guarantees: Credit exposure covered by full faith and credit of the United States; no credit losses[333](index=333&type=chunk) - Weighted-average original loan-to-value ratio (Farm & Ranch): **51%** (Sep 30, 2019)[334](index=334&type=chunk) - Weighted-average current loan-to-value ratio (Farm & Ranch): **44%** (Sep 30, 2019)[335](index=335&type=chunk) 90-Day Delinquencies (Farm & Ranch) | Date | Amount (in thousands) | Percentage of Farm & Ranch Portfolio | | :---------------------- | :---------------------- | :----------------------------------- | | Sep 30, 2019 | $59,691 | 0.81% | | Dec 31, 2018 | $26,881 | 0.37% | | Sep 30, 2018 | $37,545 | 0.53% | Substandard Assets (Farm & Ranch) | Date | Amount (in thousands) | Percentage of Farm & Ranch Portfolio | | :---------------------- | :---------------------- | :----------------------------------- | | Sep 30, 2019 | $290,510 | 3.9% | | Dec 31, 2018 | $232,700 (approx.) | 3.2% | - Cumulative Net Credit Losses (Farm & Ranch, as of Sep 30, 2019): **$33,339 thousand**, with a cumulative loss rate of **0.13%**[353](index=353&type=chunk) [Credit Risk – Institutional](index=100&type=section&id=Credit%20Risk%20%E2%80%93%20Institutional) Farmer Mac manages institutional credit risk from AgVantage issuers, approved lenders/servicers, and interest rate swap counterparties through creditworthiness standards and collateralization, with no credit losses on AgVantage securities - Institutional credit risk sources: AgVantage issuers, approved lenders/servicers, interest rate swap counterparties[361](index=361&type=chunk) - AgVantage securities: No credit losses experienced, not expected in future[333](index=333&type=chunk) - Required collateralization for AgVantage: Ranges from **100% to 125%** depending on counterparty[366](index=366&type=chunk) - Swap counterparty risk: Managed through collateralization provisions (full collateralization for cleared and post-March 2017 non-cleared swaps) and multiple counterparties[367](index=367&type=chunk) - Uncollateralized net exposures to counterparties (Sep 30, 2019): **$257 thousand** to two counterparties[397](index=397&type=chunk) [Credit Risk – Other Investments](index=101&type=section&id=Credit%20Risk%20%E2%80%93%20Other%20Investments) Farmer Mac manages credit risk in its **$0.6 billion** cash and cash equivalents and **$3.2 billion** investment securities portfolio through internal policies and FCA regulations, requiring high creditworthiness standards and establishing concentration limits - Investment portfolio: **$0.6 billion** cash/cash equivalents, **$3.2 billion** investment securities (Sep 30, 2019)[368](index=368&type=chunk) - Creditworthiness standards: - At a minimum, at least one obligor must have a very strong capacity to meet financial commitments for the life of the investment, even under severely adverse or stressful conditions, and generally present a very low risk of default[369](index=369&type=chunk) - If the obligor is located outside of the United States, the investment must also be fully guaranteed by a U.S. government agency[369](index=369&type=chunk) - Concentration limits: - Single entity/issuer/obligor: **10% of regulatory capital ($80.3 million** as of Sep 30, 2019), internal policy limits to **5% ($40.2 million)**[370](index=370&type=chunk) - Senior non-convertible debt of any one GSE: Internal policy restricts to **100% of regulatory capital**[370](index=370&type=chunk) [Interest Rate Risk](index=102&type=section&id=Interest%20Rate%20Risk) Farmer Mac manages interest rate risk from cash flow timing differences and loan prepayments by funding assets with liabilities of similar duration and using financial derivatives, regularly stress testing its portfolio - Primary strategy: Fund asset purchases with liabilities having similar duration and cash flow characteristics[375](index=375&type=chunk) - Tools: Issuing discount notes, callable/non-callable medium-term notes, and financial derivatives[375](index=375&type=chunk) - Interest Rate Risk Metrics: MVE sensitivity, projected NES, and duration gap analysis[380](index=380&type=chunk) - Effective Duration Gap (Sep 30, 2019): Negative **2.2 months**, widened from negative **0.8 months** (Dec 31, 2018) due to decreasing interest rates[391](index=391&type=chunk) MVE Sensitivity (Sep 30, 2019) | Interest Rate Scenario | Percentage Change in MVE | | :--------------------- | :----------------------- | | +100 basis points | 3.0% | | -100 basis points | (8.6)% | NES Sensitivity (Sep 30, 2019) | Interest Rate Scenario | Percentage Change in NES | | :--------------------- | :----------------------- | | +100 basis points | 2.8% | | -100 basis points | (0.5)% | - Total Notional Amount of Interest Rate Swaps (Sep 30, 2019): **$13.8 billion**[393](index=393&type=chunk) - LIBOR Discontinuation Risk: **$5.2 billion** floating rate assets, **$4.2 billion** floating rate debt, and **$13.6 billion** notional amount of interest rate swaps reset based on LIBOR. Evaluating transition to alternative benchmarks like SOFR[404](index=404&type=chunk) [Liquidity and Capital Resources](index=107&type=section&id=Liquidity%20and%20Capital%20Resources) Farmer Mac maintains strong liquidity from debt issuances, fees, and loan repayments, complying with statutory capital requirements with a core capital level significantly above the minimum and a Tier 1 capital ratio of **13.2%** as of September 30, 2019 - Primary sources of funds: Debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities[405](index=405&type=chunk) - Outstanding Debt (Sep 30, 2019): **$2.2 billion** discount notes, **$7.7 billion** medium-term notes (within one year), and **$8.9 billion** medium-term notes (after one year. Total **$18.8 billion** outstanding against **$20.0 billion** authorized[407](index=407&type=chunk) - Liquidity: Maintained an average of **186 days** of liquidity in Q3 2019, with **199 days** as of Sep 30, 2019 (minimum **90 days** required)[408](index=408&type=chunk) Cash and Investment Securities for Liquidity (Sep 30, 2019) | Category | Amount (in thousands) | | :--------------------------------- | :---------------------- | | Cash and cash equivalents | $587,941 | | Investment securities | $3,156,664 | | Total | $3,744,605 | - Capital Requirements: In compliance with statutory requirements, classified as "level I" (highest compliance)[411](index=411&type=chunk) - Tier 1 Capital Ratio (Sep 30, 2019): **13.2%**[412](index=412&type=chunk) [Regulatory Matters](index=109&type=section&id=Regulatory%20Matters) Discusses regulatory developments from the 2018 Farm Bill, including FCA's conclusion on Farmer Mac's lower risk profile and appropriate capital approach, and the feasible increase in acreage exception to loan limits - FCA Study on Risk Profile: Concluded Farmer Mac has a "significantly lower risk profile from a total portfolio perspective" compared to the Farm Credit System[416](index=416&type=chunk) - FCA Study on Capital Requirements: Concluded Farmer Mac's Basel approach is "appropriate" given its business model and product mix[416](index=416&type=chunk) - Acreage Exception Increase: FCA deemed increasing the acreage exception from **1,000 to 2,000 acres** feasible, with no safety and soundness concerns. Effective June 18, 2020[416](index=416&type=chunk) - FCA Recommendation: Replace the acreage rule with exposure concentration limits[418](index=418&type=chunk) [Other Matters](index=110&type=section&id=Other%20Matters) Covers common and preferred stock dividends, noting an increase in common stock dividends to **$0.70 per share** in 2019 and preferred stock dividends paid on Series A, C, and D - Common Stock Dividends: **$0.70 per share** (2019), up from **$0.58 per share** (2018)[419](index=419&type=chunk) - Preferred Stock Dividends (Q3 2019): Paid on Series A (**$0.3672/share**), Series C (**$0.3750/share**), and Series D (**$0.35625/share**)[420](index=420&type=chunk) - Series B Preferred Stock: Redeemed in Q2 2019[420](index=420&type=chunk) [Supplemental Information](index=111&type=section&id=Supplemental%20Information) Provides quarterly and annual data on new business volume, repayments, outstanding business volume by line of business, and net effective spread by segment, showing overall outstanding business volume growth New Business Volume (Q3 2019) | Item | Amount (in thousands) | | :-------------------------------------------------- | :---------------------- | | Loans | $309,805 | | LTSPCs | $125,022 | | USDA Securities | $113,664 | | Rural Utilities Loans | $117,279 | | AgVantage securities | $402,611 | | Total | $1,068,381 | Total Repayments (Q3 2019) | Item | Amount (in thousands) | | :--------------------------------- | :---------------------- | | Scheduled | $633,005 | | Unscheduled | $249,752 | | Total | $882,757 | Outstanding Business Volume (Sep 30, 2019) | Item | Amount (in thousands) | | :--------------------------------- | :---------------------- | | Farm & Ranch | $7,393,728 | | USDA Guarantees | $2,567,763 | | Rural Utilities | $2,232,602 | | Institutional Credit | $8,738,266 | | Total | $20,932,359 | On-Balance Sheet Outstanding Business Volume (Sep 30, 2019) | Item | Amount (in thousands) | | :--------------------------------- | :---------------------- | | Fixed Rate | $9,642,802 | | 5- to 10-Year ARMs & Resets | $2,850,000 | | 1-Month to 3-Year ARMs | $4,549,689 | | Total Held in Portfolio | $17,042,491 | Net Effective Spread by Segment (Q3 2019) | Segment | Dollars (in thousands) | Yield | | :---------------------- | :--------------------- | :------ | | Farm & Ranch | $13,181 | 1.66% | | USDA Guarantees | $4,314 | 0.79% | | Rural Utilities | $4,502 | 1.16% | | Institutional Credit | $17,807 | 0.84% | | Corporate | $2,657 | 0.30% | | Total | $42,461 | 0.90% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=117&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Farmer Mac is exposed to market risk from interest rate changes, which it manages through financial transactions, including derivatives, and by monitoring its exposure - Market Risk Exposure: Primarily from changes in interest rates[437](index=437&type=chunk) - Management Strategy: Financial transactions (including derivatives), monitoring and measuring exposure[437](index=437&type=chunk) [Item 4. Controls and Procedures](index=117&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of Farmer Mac's disclosure controls and procedures as of September 30, 2019, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure Controls and Procedures: Evaluated as effective as of September 30, 2019[438](index=438&type=chunk)[439](index=439&type=chunk) - Internal Control Over Financial Reporting: No material changes during Q3 2019[439](index=439&type=chunk) PART II [Item 1. Legal Proceedings](index=117&type=section&id=Item%201.%20Legal%20Proceedings) States that there are no legal proceedings to report - Legal Proceedings: None[440](index=440&type=chunk) [Item 1A. Risk Factors](index=117&type=section&id=Item%201A.%20Risk%20Factors) States that there were no material changes from the risk factors previously disclosed in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2018 - Risk Factors: No material changes from the 2018 Annual Report on Form 10-K[440](index=440&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=118&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details unregistered sales of Class C non-voting common stock during Q3 2019, issued to directors who elected to receive stock in lieu of cash retainers - Exemption: Farmer Mac's securities are exempt from registration under Section 3(a)(2) of the Securities Act of 1933[442](index=442&type=chunk) - Class C Non-Voting Common Stock: **261 shares** issued to directors in Q3 2019 in lieu of cash retainers, based on a price of **$72.66 per share**[442](index=442&type=chunk) [Item 3. Defaults Upon Senior Securities](index=118&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that there were no defaults upon senior securities - Defaults Upon Senior Securities: None[443](index=443&type=chunk) [Item 4. Mine Safety Disclosures](index=118&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable - Mine Safety Disclosures: Not applicable[443](index=443&type=chunk) [Item 5. Other Information](index=118&type=section&id=Item%205.%20Other%20Information) States that there is no other information to report under this item - Other Information: None[443](index=443&type=chunk) [Item 6. Exhibits](index=119&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including charter documents, by-laws, specimen certificates for various stock classes, and certifications required by the Sarbanes-Oxley Act - Exhibits include: Charter documents, by-laws, specimen certificates for Class A, B, C common stock and Series A, B, C, D preferred stock, Loan Participation Servicing Agreement, and certifications (31.1, 31.2, 32)[445](index=445&type=chunk) Signatures [Signatures](index=121&type=section&id=Signatures) Contains the signatures of the President and Chief Executive Officer and the Vice President – Controller of Federal Agricultural Mortgage Corporation, certifying the filing of the report on November 6, 2019 - Signatories: Bradford T. Nordholm (President and CEO), Gregory N. Ramsey (VP – Controller)[448](index=448&type=chunk) - Filing Date: November 6, 2019[448](index=448&type=chunk)

Federal Agricultural Mortgage Corporation (NYSE:AGM) Q2 2019 Earnings Conference Call August 1, 2019 11:00 AM ET Company Participants Brad Nordholm – President and Chief Executive Officer Steve Mullery – Executive Vice President-General Counsel and Corporate Secretary Zach Carpenter – Executive Vice President-Chief Business Officer Curt Covington – Chief Credit Officer Greg Ramsey – Principal Financial Officer Conference Call Participants Scott Valentin – Compass Point Research Greg Pendy – Sidoti Operator ...

PART I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Farmer Mac's unaudited consolidated financial statements for interim periods, covering balance sheets, operations, comprehensive income, equity, cash flows, and detailed notes on financial instruments [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show Farmer Mac's financial position, with total assets increasing to **$20.7 billion** from **$18.7 billion**, driven by investment securities and loans, while total liabilities and equity also rose | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | |:---|:---|:---| | Total Assets | $20,738,160 | $18,694,328 | | Total Liabilities | $19,964,418 | $17,941,771 | | Total Equity | $773,742 | $752,557 | | Cash and cash equivalents | $396,602 | $425,256 | | Investment securities | $2,967,536 | $2,262,884 | | Farmer Mac Guaranteed Securities | $8,614,843 | $8,071,115 | | USDA Securities | $2,137,579 | $2,176,173 | | Total loans, net of allowance | $6,316,005 | $5,515,052 | | Notes payable | $18,187,418 | $16,243,697 | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations show increased net income attributable to common stockholders, driven by higher non-interest income and gains on financial derivatives, despite a slight decrease in net interest income for the six-month period | Metric | Three Months Ended June 30, 2019 (in thousands) | Three Months Ended June 30, 2018 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | |:---|:---|:---|:---|:---|\ | Total interest income | $165,128 | $135,670 | $320,643 | $255,216 | | Total interest expense | $122,074 | $91,737 | $236,990 | $168,054 | | Net interest income | $43,054 | $43,933 | $83,653 | $87,162 | | Non-interest income | $12,732 | $6,380 | $16,422 | $6,619 | | Non-interest expense | $12,052 | $12,921 | $24,813 | $24,563 | | Net income attributable to common stockholders | $28,304 | $26,340 | $50,178 | $48,864 | | Basic earnings per common share | $2.65 | $2.47 | $4.70 | $4.59 | | Diluted earnings per common share | $2.63 | $2.45 | $4.66 | $4.55 | - Net income attributable to common stockholders increased by **$2.0 million** year-over-year for the three months ended June 30, 2019, and by **$1.3 million** for the six months ended June 30, 2019[14](index=14&type=chunk) - Gains on financial derivatives significantly increased non-interest income, rising from **$2.5 million** to **$8.9 million** for the three-month period and from a loss of **$1.3 million** to a gain of **$8.5 million** for the six-month period[14](index=14&type=chunk) [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income show a significant shift from comprehensive income in 2018 to a comprehensive loss in 2019 for both the three and six-month periods, driven by substantial net unrealized losses on available-for-sale securities and cash flow hedges | Metric | Three Months Ended June 30, 2019 (in thousands) | Three Months Ended June 30, 2018 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | |:---|:---|:---|:---|:---|\ | Net income | $34,045 | $29,636 | $59,215 | $55,455 | | Net unrealized (losses)/gains on available-for-sale securities | $(28,588) | $996 | $(25,347) | $22,224 | | Net unrealized (losses)/gains on cash flow hedges | $(9,972) | $2,194 | $(15,637) | $8,857 | | Other comprehensive (loss)/income net of tax | $(34,097) | $1,299 | $(37,799) | $22,298 | | Comprehensive (loss)/income attributable to Farmer Mac | $(52) | $30,935 | $21,416 | $77,753 | - Comprehensive income shifted from a gain of **$30.9 million** in Q2 2018 to a loss of **$52 thousand** in Q2 2019, and from a gain of **$77.8 million** in H1 2018 to a gain of **$21.4 million** in H1 2019[17](index=17&type=chunk) [Consolidated Statements of Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Equity) The consolidated statements of equity show an increase in total equity from **$752.6 million** at December 31, 2018, to **$773.7 million** at June 30, 2019, driven by net income and preferred stock issuance, partially offset by other comprehensive losses and preferred stock redemptions | Metric | December 31, 2018 (in thousands) | June 30, 2019 (in thousands) | |:---|:---|:---|\ | Total Equity | $752,557 | $773,742 | | Preferred Stock Amount | $204,759 | $228,374 | | Common Stock Amount | $10,669 | $10,700 | | Additional Paid-In Capital | $118,822 | $118,942 | | Accumulated Other Comprehensive Income/(Loss) | $24,956 | $(12,843) | | Retained Earnings | $393,351 | $428,569 | - Issuance of Series D preferred stock contributed **$96.7 million** to equity, while redemption of Series B preferred stock reduced it by **$73.0 million**[20](index=20&type=chunk) - Accumulated other comprehensive income shifted from a gain of **$24.9 million** to a loss of **$12.8 million**, reflecting significant other comprehensive losses during the period[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows show a net decrease in cash and cash equivalents of **$28.7 million** for the six months ended June 30, 2019, primarily due to net cash used in operating and investing activities, partially offset by significant cash provided by financing activities | Metric | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | |:---|:---|:---|\ | Net cash (used by)/provided by operating activities | $(100,669) | $162,154 | | Net cash used by investing activities | $(1,741,530) | $(608,357) | | Net cash provided by financing activities | $1,813,545 | $574,993 | | Net change in cash and cash equivalents | $(28,654) | $128,790 | | Cash and cash equivalents at end of period | $396,602 | $430,812 | - Operating activities shifted from providing **$162.2 million** in cash in H1 2018 to using **$100.7 million** in H1 2019, largely due to net change in fair value of trading securities, hedged assets, and financial derivatives[26](index=26&type=chunk) - Financing activities provided **$1.8 billion** in cash in H1 2019, significantly higher than **$575.0 million** in H1 2018, driven by increased proceeds from issuance of discount and medium-term notes, and Series D preferred stock[26](index=26&type=chunk) [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited consolidated financial statements, offering explanations of accounting policies, financial instrument compositions, and segment performance [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines Farmer Mac's significant accounting policies, including principles of consolidation, earnings per common share, comprehensive income, and recently adopted and issued accounting guidance - Farmer Mac consolidates its two subsidiaries (FMMSC and Farmer Mac II LLC) and Variable Interest Entities (VIEs) where it is the primary beneficiary[31](index=31&type=chunk) Consolidation of Variable Interest Entities (VIEs) as of June 30, 2019 | Metric | Farm & Ranch (in thousands) | USDA Guarantees (in thousands) | Corporate (in thousands) | Total (in thousands) | |:---|:---|:---|:---|:---|\ | Loans held for investment in consolidated trusts, at amortized cost | $1,563,223 | — | — | $1,563,223 | | Debt securities of consolidated trusts held by third parties | $1,570,862 | — | — | $1,570,862 | | Unconsolidated VIEs: Farmer Mac Guaranteed Securities (Carrying value) | — | $33,778 | — | $33,778 | | Unconsolidated VIEs: Investment securities (Carrying value) | — | — | $1,115,618 | $1,115,618 | | Off-Balance Sheet: Unconsolidated VIEs: Farmer Mac Guaranteed Securities (Maximum exposure to loss) | $121,064 | $398,710 | — | $519,774 | Basic and Diluted EPS for Three and Six Months Ended June 30, 2019 and 2018 | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | |:---|:---|:---|:---|:---|\ | Basic EPS | $2.65 | $2.47 | $4.70 | $4.59 | | Diluted EPS | $2.63 | $2.45 | $4.66 | $4.55 | - The adoption of ASU 2016-02, Leases (Topic 842), on January 1, 2019, did not materially affect Farmer Mac's financial position, results of operations, or cash flows[51](index=51&type=chunk) - Farmer Mac is currently evaluating the impact of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which will require recognition of all expected credit losses, not just incurred losses, starting January 1, 2020[52](index=52&type=chunk) [2. INVESTMENT SECURITIES](index=21&type=section&id=2.%20INVESTMENT%20SECURITIES) This note provides a detailed breakdown of Farmer Mac's investment securities portfolio, categorized by available-for-sale and held-to-maturity, including amortized cost, unrealized gains and losses, fair value, and contractual maturities Investment Securities as of June 30, 2019 | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | |:---|:---|:---|\ | Available-for-sale | $2,920,159 | $2,922,504 | | Held-to-maturity | $45,032 | $45,761 | | Total Investment Securities | $2,965,191 | $2,968,265 | Unrealized Losses on Available-for-Sale Investment Securities as of June 30, 2019 | Category | Fair Value (less than 12 months) (in thousands) | Unrealized Loss (less than 12 months) (in thousands) | Fair Value (more than 12 months) (in thousands) | Unrealized Loss (more than 12 months) (in thousands) | |:---|:---|:---|:---|:---|\ | Floating rate auction-rate certificates backed by Government guaranteed student loans | — | — | $19,208 | $(492) | | Floating rate asset-backed securities | $8,978 | $(65) | $16,824 | $(128) | | Floating rate Government/GSE guaranteed mortgage-backed securities | $376,791 | $(1,270) | $281,180 | $(1,949) | | Fixed rate U.S. Treasuries | $79,700 | $(9) | — | — | | Total | $465,469 | $(1,344) | $317,212 | $(2,569) | - Unrealized losses are primarily due to widening market spreads and increased interest rates, but are not considered other-than-temporary impairments as Farmer Mac does not intend to sell these securities before recovery of amortized cost[61](index=61&type=chunk)[63](index=63&type=chunk) [3. FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES](index=24&type=section&id=3.%20FARMER%20MAC%20GUARANTEED%20SECURITIES%20AND%20USDA%20SECURITIES) This note details Farmer Mac's on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities, including their amortized cost, fair value, unrealized gains and losses, and maturity profiles, highlighting the U.S. government backing for USDA Guarantees Farmer Mac Guaranteed Securities and USDA Securities as of June 30, 2019 | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | |:---|:---|:---|\ | Held-to-maturity: AgVantage | $1,545,397 | $1,557,807 | | Held-to-maturity: Farmer Mac Guaranteed USDA Securities | $33,778 | $34,402 | | Held-to-maturity: USDA Securities | $2,128,378 | $2,132,665 | | Available-for-sale: AgVantage | $6,923,315 | $7,035,668 | | Trading: USDA Securities | $9,388 | $9,201 | - The credit exposure for Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States[72](index=72&type=chunk) - Unrealized losses on these securities are primarily due to higher interest rates and are not considered other-than-temporary impairments, as Farmer Mac does not intend to sell them before recovery of amortized cost[71](index=71&type=chunk)[73](index=73&type=chunk) [4. FINANCIAL DERIVATIVES](index=27&type=section&id=4.%20FINANCIAL%20DERIVATIVES) This note details Farmer Mac's financial derivative transactions, primarily interest rate swaps used for risk management, summarizing fair values, notional amounts, and their impact on the consolidated statements of operations Financial Derivatives Summary as of June 30, 2019 | Category | Notional Amount (in thousands) | Fair Value Assets (in thousands) | Fair Value Liabilities (in thousands) | |:---|:---|:---|:---|\ | Fair value hedges: Interest rate swaps | $6,831,009 | $5,249 | $(10,548) | | Cash flow hedges: Interest rate swaps | $373,000 | $887 | $(1,100) | | No hedge designation: Interest rate swaps | $3,407,847 | $294 | $(15,469) | | No hedge designation: Basis swaps | $2,545,500 | $1,132 | $(162) | | No hedge designation: Treasury futures | $29,100 | — | $(188) | | Total financial derivatives | $13,186,456 | $7,560 | $(27,429) | - Farmer Mac expects to reclassify **$0.3 million** after tax from accumulated other comprehensive income to earnings over the next twelve months related to cash flow hedges[85](index=85&type=chunk) Net Income/(Expense) Recognized on Derivatives (Three Months Ended June 30, 2019) | Category | Net Interest Income (in thousands) | Non-Interest Income (in thousands) | Total (in thousands) | |:---|:---|:---|:---|\ | Income/(expense) related to interest settlements on fair value hedging relationships | $23,153 | — | $23,153 | | Gains/(losses) on fair value hedging relationships | $(1,428) | — | $(1,428) | | Expense related to interest settlements on cash flow hedging relationships | $(2,236) | — | $(2,236) | | Gains on financial derivatives not designated in hedge relationships | — | $8,913 | $8,913 | [5. LOANS AND ALLOWANCE FOR LOSSES](index=36&type=section&id=5.%20LOANS%20AND%20ALLOWANCE%20FOR%20LOSSES) This note details Farmer Mac's loan portfolio, including composition, allowance for loan losses, and credit quality indicators, showing an increase in total loans and a modest increase in the total allowance for losses, with substandard assets rising in specific commodity sub-groups Loan Balances as of June 30, 2019 | Category | Unsecuritized (in thousands) | Consolidated Trusts (in thousands) | Total (in thousands) | |:---|:---|:---|:---|\ | Farm & Ranch | $3,191,035 | $1,563,223 | $4,754,258 | | Rural Utilities | $1,527,150 | — | $1,527,150 | | Total loans, net of allowance | $4,754,224 | $1,561,781 | $6,316,005 | | Allowance for loan losses | $(5,822) | $(1,442) | $(7,264) | Changes in Total Allowance for Losses (Three and Six Months Ended June 30, 2019) | Metric | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | |:---|:---|:---|\ | Beginning Balance | $8,791 | $9,184 | | Provision for/(release of) losses | $420 | $27 | | Charge-offs | $(67) | $(67) | | Ending Balance | $9,144 | $9,144 | - Substandard assets increased by **$10.0 million** in the first half of 2019 to **$242.7 million** (**3.3%** of Farm & Ranch portfolio), mainly due to downgrades in cattle and calves, dairy, and cotton commodity sub-groups[225](index=225&type=chunk)[342](index=342&type=chunk) - 90-day delinquencies were **$28.0 million** (**0.38%** of Farm & Ranch portfolio) as of June 30, 2019, showing a seasonal decrease from March 31, 2019, but a slight increase from December 31, 2018[226](index=226&type=chunk)[332](index=332&type=chunk) [6. GUARANTEES AND LONG-TERM STANDBY PURCHASE COMMITMENTS](index=47&type=section&id=6.%20GUARANTEES%20AND%20LONG-TERM%20STANDBY%20PURCHASE%20COMMITMENTS) This note outlines Farmer Mac's off-balance sheet obligations, including Farmer Mac Guaranteed Securities and Long-Term Standby Purchase Commitments (LTSPCs), detailing maximum potential future payments and associated liabilities Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities (in thousands) | Category | June 30, 2019 | December 31, 2018 | |:---|:---|:---|\ | Farm & Ranch: Guaranteed Securities | $121,064 | $135,862 | | USDA Guarantees: Farmer Mac Guaranteed USDA Securities | $398,710 | $367,684 | | Institutional Credit: AgVantage Securities | $9,225 | $9,898 | | Institutional Credit: Revolving floating rate AgVantage facility | $300,000 | $300,000 | | Total | $828,999 | $813,444 | - The maximum principal amount of potential undiscounted future payments under LTSPCs was **$3.0 billion** as of June 30, 2019, down from **$3.2 billion** at December 31, 2018[155](index=155&type=chunk) - The liability for guarantee and commitment obligations approximated **$2.5 million** for Farmer Mac Guaranteed Securities and **$34.7 million** for LTSPCs as of June 30, 2019[153](index=153&type=chunk)[156](index=156&type=chunk) [7. EQUITY](index=48&type=section&id=7.%20EQUITY) This note details Farmer Mac's equity activities, including preferred and common stock transactions, and capital requirements, highlighting the issuance of Series D Preferred Stock, redemption of Series B Preferred Stock, common stock dividends, and compliance with statutory capital requirements - On May 13, 2019, Farmer Mac issued **4.0 million** shares of 5.700% Non-Cumulative Preferred Stock, Series D, totaling **$100.0 million**[157](index=157&type=chunk) - On June 12, 2019, Farmer Mac redeemed all **$75.0 million** of its 6.875% Non-Cumulative Preferred Stock, Series B, resulting in a **$2.0 million** loss on retirement[158](index=158&type=chunk) - Farmer Mac paid a quarterly common stock dividend of **$0.70 per share** for Q1 and Q2 2019, an increase from **$0.58 per share** in 2018[159](index=159&type=chunk) Capital Requirements as of June 30, 2019 | Metric | Amount (in millions) | |:---|:---|\ | Minimum Capital Requirement | $595.0 | | Core Capital Level | $786.6 | | Capital Above Minimum | $191.6 | [8. FAIR VALUE DISCLOSURES](index=49&type=section&id=8.%20FAIR%20VALUE%20DISCLOSURES) This note provides disclosures on assets and liabilities measured at fair value, categorizing them into a three-level hierarchy based on input observability, highlighting that a significant portion of Farmer Mac's financial instruments are valued using significant unobservable inputs (Level 3) - As of June 30, 2019, financial instruments valued at **$7.1 billion** were estimated using significant unobservable inputs (Level 3), representing **34%** of total assets and **71%** of financial instruments measured at fair value[165](index=165&type=chunk) Assets and Liabilities Measured at Fair Value (Recurring) as of June 30, 2019 (in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | |:---|:---|:---|:---|:---|\ | Investment Securities | $1,273,766 | $1,629,530 | $19,208 | $2,922,504 | | Farmer Mac Guaranteed Securities | — | — | $7,035,668 | $7,035,668 | | USDA Securities (Trading) | — | — | $9,201 | $9,201 | | Financial derivatives (Assets) | — | $7,560 | — | $7,560 | | Financial derivatives (Liabilities) | $188 | $27,241 | — | $27,429 | | Total Assets at fair value | $1,273,766 | $1,637,090 | $7,064,077 | $9,974,933 | | Total Liabilities at fair value | $188 | $27,241 | — | $27,429 | - The fair values of loans, Farmer Mac Guaranteed Securities, and USDA Securities are internally modeled using discounted cash flow methods with management's best estimates of prepayment speeds, forward yield curves, and discount rates[190](index=190&type=chunk) [9. BUSINESS SEGMENT REPORTING](index=57&type=section&id=9.%20BUSINESS%20SEGMENT%20REPORTING) This note presents core earnings and key financial metrics for Farmer Mac's operating segments: Farm & Ranch, USDA Guarantees, Rural Utilities, Institutional Credit, and Corporate, providing a reconciliation to consolidated net income and highlighting each segment's contribution to overall performance Segment Core Earnings (Three Months Ended June 30, 2019) (in thousands) | Segment | Net Interest Income | Non-Interest Income/(Loss) | Non-Interest Expense | Segment Core Earnings/(Losses) | |:---|:---|:---|:---|:---|\ | Farm & Ranch | $15,797 | $4,782 | $(4,429) | $10,357 | | USDA Guarantees | $4,112 | $238 | $(1,345) | $2,362 | | Rural Utilities | $3,936 | $365 | $(816) | $2,801 | | Institutional Credit | $16,385 | $86 | $(2,034) | $12,184 | | Corporate | $2,824 | $582 | $(3,428) | $(4,062) | | Consolidated Net Income Attributable to Common Stockholders | $43,054 | $12,732 | $(12,052) | $28,304 | Segment Core Earnings (Six Months Ended June 30, 2019) (in thousands) | Segment | Net Interest Income | Non-Interest Income/(Loss) | Non-Interest Expense | Segment Core Earnings/(Losses) | |:---|:---|:---|:---|:---|\ | Farm & Ranch | $31,079 | $10,006 | $(9,099) | $21,065 | | USDA Guarantees | $8,554 | $462 | $(2,773) | $4,542 | | Rural Utilities | $3,662 | $735 | $(1,682) | $4,963 | | Institutional Credit | $34,572 | $174 | $(4,193) | $23,483 | | Corporate | $5,786 | $604 | $(7,066) | $(8,190) | | Consolidated Net Income Attributable to Common Stockholders | $83,653 | $16,422 | $(24,813) | $50,178 | - Total on- and off-balance sheet program assets at principal balance increased to **$20.7 billion** as of June 30, 2019, from **$19.5 billion** as of June 30, 2018[197](index=197&type=chunk)[199](index=199&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Farmer Mac's financial condition and operating results, including an overview of business performance, non-GAAP measures, detailed analysis of operations, future outlook, balance sheet review, off-balance sheet arrangements, and comprehensive risk management strategies [FORWARD-LOOKING STATEMENTS](index=61&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section identifies forward-looking statements within the report, emphasizing that management's expectations involve assumptions, estimates, and inherent risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements cover prospects for earnings, business volume growth, trends in net interest income, credit quality, expenses, investment securities, asset impairments, capital position, and future dividend payments[203](index=203&type=chunk) - Key risks and uncertainties include debt and equity financing availability, legislative/regulatory developments, fair value fluctuations, secondary market development, agricultural indebtedness growth, economic conditions, changes in executive leadership, financial market developments, interest rate changes, basis risk, and commodity price volatility/trade policies[203](index=203&type=chunk)[205](index=205&type=chunk) [Overview](index=63&type=section&id=Overview) Farmer Mac's business volume increased by **$239.8 million** (**1.2%**) to **$20.7 billion** in Q2 2019, with growth across all lines, while credit quality modestly decreased, leading to a **$0.4 million** provision for losses, and net income attributable to common stockholders rose to **$28.3 million** - Outstanding business volume increased by **$239.8 million** (**1.2%**) to **$20.7 billion** during Q2 2019, with net growth across all four lines of business[208](index=208&type=chunk) - Overall credit quality as of June 30, 2019, decreased modestly compared to December 31, 2018, with a **$0.4 million** provision for net total losses in Q2 2019[208](index=208&type=chunk) Net Income and Core Earnings (in millions) | Metric | Q2 2019 | Q1 2019 | Q2 2018 | |:---|:---|:---|:---|\ | Net income attributable to common stockholders | $28.3 | $21.9 | $26.3 | | Non-GAAP core earnings | $23.6 | $22.2 | $19.4 | - Net interest income was **$43.1 million** in Q2 2019, up from **$40.6 million** in Q1 2019, but down from **$43.9 million** in Q2 2018[214](index=214&type=chunk) - Net effective spread (non-GAAP) increased to **$41.4 million** in Q2 2019 from **$38.8 million** in Q1 2019 and **$36.2 million** in Q2 2018[218](index=218&type=chunk) [Use of Non-GAAP Measures](index=66&type=section&id=Use%20of%20Non-GAAP%20Measures) Farmer Mac utilizes non-GAAP measures such as 'core earnings,' 'core earnings per share,' and 'net effective spread' to provide a clearer understanding of its economic performance, transaction economics, and business trends by excluding fair value fluctuations and infrequent transactions - Core earnings and core earnings per share exclude fair value fluctuations and specified infrequent or unusual transactions to better reflect core business performance[231](index=231&type=chunk)[232](index=232&type=chunk) - Net effective spread measures the net spread between interest-earning assets and related funding costs, excluding amortization of premiums/discounts on fair-valued assets, interest from consolidated trusts, and fair value changes of financial derivatives in hedge relationships[233](index=233&type=chunk)[234](index=234&type=chunk) - Net effective spread includes income/expense from undesignated financial derivatives and net effects of terminations/settlements on financial derivatives to capture the complete economic spread[235](index=235&type=chunk)[237](index=237&type=chunk) [Results of Operations](index=68&type=section&id=Results%20of%20Operations) Farmer Mac's net income attributable to common stockholders increased to **$28.3 million** in Q2 2019 and **$50.2 million** in H1 2019, while non-GAAP core earnings also rose to **$23.6 million** and **$45.9 million**, respectively, driven by increased net effective spread and gains on financial derivatives Net Income and Core Earnings (in thousands, except per share) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | |:---|:---|:---|:---|:---|\ | Net income attributable to common stockholders | $28,304 | $26,340 | $50,178 | $48,864 | | Diluted EPS (GAAP) | $2.63 | $2.45 | $4.66 | $4.55 | | Core earnings (non-GAAP) | $23,642 | $19,360 | $45,863 | $41,207 | | Diluted EPS (non-GAAP) | $2.20 | $1.80 | $4.26 | $3.84 | - The sequential increase in net income was primarily due to a **$7.3 million** after-tax increase in fair value of undesignated financial derivatives and a **$1.9 million** after-tax increase in net interest income, partially offset by preferred stock related costs[212](index=212&type=chunk) - The year-over-year increase in core earnings was primarily due to a **$4.1 million** after-tax increase in net effective spread and a **$0.5 million** after-tax decrease in operating expenses[213](index=213&type=chunk) [Net Interest Income](index=74&type=section&id=Net%20Interest%20Income) Net interest income for Q2 2019 was **$43.1 million**, a sequential increase of **$2.5 million** but a year-over-year decrease of **$0.8 million**, while the six-month period saw a **$3.5 million** decrease year-over-year, though non-GAAP net effective spread increased Net Interest Income and Yield (Six Months Ended June 30, 2019 and 2018) | Metric | H1 2019 (Dollars in thousands) | H1 2019 (Yield) | H1 2018 (Dollars in thousands) | H1 2018 (Yield) | |:---|:---|:---|:---|:---|\ | Net interest income/yield | $83,653 | 0.87% | $87,162 | 0.97% | | Net effective spread (non-GAAP) | $80,156 | 0.90% | $73,263 | 0.88% | - The **$2.5 million** sequential increase in net interest income was due to **$1.2 million** from net business volume growth and **$1.3 million** from fair value changes in derivatives and hedged items[215](index=215&type=chunk) - The **$0.8 million** year-over-year decrease in Q2 net interest income was primarily due to a **$3.3 million** decrease in fair value changes from derivatives and hedged items and a **$2.3 million** decrease in LIBOR-indexed assets, partially offset by **$2.6 million** from new business volume and the absence of a **$2.0 million** premium amortization[216](index=216&type=chunk) [Provision for and Release of Allowance for Loan Losses and Reserve for Losses](index=77&type=section&id=Provision%20for%20and%20Release%20of%20Allowance%20for%20Loan%20Losses%20and%20Reserve%20for%20Losses) Farmer Mac recorded a **$0.4 million** provision for total losses in Q2 2019, primarily due to increased Farm & Ranch loan volume and slightly lower credit quality, with a net provision of **$27,000** for the six months ended June 30, 2019 Total Allowance for Losses (in thousands) | Metric | Q2 2019 | H1 2019 | |:---|:---|:---|\ | Beginning Balance | $8,791 | $9,184 | | Provision for/(release of) losses | $420 | $27 | | Charge-offs | $(67) | $(67) | | Ending Balance | $9,144 | $9,144 | - The Q2 2019 provision for allowance for loan losses was driven by net volume growth in on-balance sheet Farm & Ranch loans and a slight decrease in portfolio credit quality[269](index=269&type=chunk) - Specific allowances of **$3.8 million** were recorded for undercollateralized assets, and the general allowance was **$5.3 million** as of June 30, 2019[270](index=270&type=chunk) [Guarantee and Commitment Fees](index=78&type=section&id=Guarantee%20and%20Commitment%20Fees) Guarantee and commitment fees were **$3.4 million** for Q2 2019 and **$6.9 million** for H1 2019, slightly down from the prior year, but increased to **$5.3 million** and **$10.7 million** respectively when adjusted for core earnings Guarantee and Commitment Fees (in thousands) | Period | GAAP Fees | Core Earnings Adjusted Fees | |:---|:---|:---|\ | Three Months Ended June 30, 2019 | $3,403 | $5,276 | | Three Months Ended June 30, 2018 | $3,481 | $5,171 | | Six Months Ended June 30, 2019 | $6,916 | $10,695 | | Six Months Ended June 30, 2018 | $6,980 | $10,254 | - The core earnings presentation reclassifies interest income and expense from consolidated trusts to guarantee and commitment fees, aligning with management's view of these as effective guarantee fees[273](index=273&type=chunk) [Gains/(losses) on financial derivatives](index=78&type=section&id=Gains%2F(losses)%20on%20financial%20derivatives) Gains on financial derivatives significantly increased to **$8.9 million** for Q2 2019 and **$8.5 million** for H1 2019, compared to **$2.5 million** and a loss of **$1.3 million** in the prior year periods, primarily driven by changes in long-term interest rates Gains/(losses) on Financial Derivatives (in thousands) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | |:---|:---|:---|:---|:---|\ | Gains due to fair value changes | $10,485 | $6,709 | $12,725 | $4,429 | | Accrual of contractual payments | $(1,557) | $(3,998) | $(4,101) | $(6,299) | | (Losses)/gains due to terminations or net settlements | $(15) | $(177) | $(71) | $554 | | Total Gains/(losses) on financial derivatives | $8,913 | $2,534 | $8,553 | $(1,316) | - The significant increase in gains is primarily attributed to fluctuations in long-term interest rates affecting the fair value of derivatives[274](index=274&type=chunk) [Other Income](index=79&type=section&id=Other%20Income) Other income for Q2 2019 was **$0.4 million** and **$0.8 million** for H1 2019, primarily consisting of late fees on Farm & Ranch loans, comparable to prior year periods Other Income (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $355 | $320 | | Six Months Ended June 30 | $848 | $894 | - Late fees on Farm & Ranch loans constituted **$0.2 million** for Q2 2019 and **$0.6 million** for H1 2019[278](index=278&type=chunk) [Compensation and Employee Benefits](index=79&type=section&id=Compensation%20and%20Employee%20Benefits) Compensation and employee benefits were **$6.8 million** for Q2 2019 and **$14.4 million** for H1 2019, with the six-month increase due to an overall increase in headcount and related employee health insurance costs Compensation and Employee Benefits (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $6,770 | $6,936 | | Six Months Ended June 30 | $14,376 | $13,590 | - The increase in H1 2019 compensation and employee benefits was driven by an overall increase in headcount and associated health insurance costs[278](index=278&type=chunk) [General and Administrative Expenses](index=79&type=section&id=General%20and%20Administrative%20Expenses) General and administrative (G&A) expenses decreased to **$4.7 million** for Q2 2019 and **$9.3 million** for H1 2019, primarily due to lower executive hiring expenses, servicing advances, and reduced legal fees General and Administrative Expenses (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $4,689 | $5,202 | | Six Months Ended June 30 | $9,285 | $9,528 | - Q2 2019 G&A decrease was mainly due to **$0.3 million** decreases in executive hiring expenses and servicing advances[279](index=279&type=chunk) - H1 2019 G&A decrease was primarily due to a **$0.4 million** reduction in legal fees[279](index=279&type=chunk) [Regulatory Fees](index=79&type=section&id=Regulatory%20Fees) Regulatory fees paid to the Farm Credit Administration (FCA) increased slightly to **$0.7 million** for Q2 2019 and **$1.4 million** for H1 2019, with FCA estimating total fees for FY2019 to be **$2.75 million** Regulatory Fees (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $687 | $625 | | Six Months Ended June 30 | $1,375 | $1,250 | - FCA's estimated fees for the federal government fiscal year ending September 30, 2019, are **$2.75 million** (**$0.688 million** per quarter)[280](index=280&type=chunk) [Income Tax Expense](index=79&type=section&id=Income%20Tax%20Expense) Income tax expense increased to **$9.1 million** for Q2 2019 and **$15.7 million** for H1 2019, with the effective federal tax rate for H1 2019 at approximately **21.0%**, higher than H1 2018 due to prior year tax benefits Income Tax Expense (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $9,111 | $7,332 | | Six Months Ended June 30 | $15,733 | $13,770 | - The effective federal tax rate for H1 2019 was approximately **21.0%**, compared to **20.0%** for H1 2018 due to prior year tax benefits from stock compensation[281](index=281&type=chunk) [Business Volume](index=80&type=section&id=Business%20Volume) Farmer Mac's outstanding business volume grew by **$239.8 million** to **$20.7 billion** in Q2 2019, with net growth across all four lines of business, driven by new loan purchases and AgVantage securities, despite a slowdown in the overall agricultural mortgage market - Outstanding business volume reached **$20.7 billion** as of June 30, 2019, a net increase of **$239.8 million** from March 31, 2019[283](index=283&type=chunk) Net Growth in Business Volume by Line of Business (Q2 2019) (in millions) | Line of Business | Net Growth | |:---|:---|\ | Rural Utilities | $80.9 | | Farm & Ranch | $75.8 | | Institutional Credit | $46.5 | | USDA Guarantees | $36.6 | - Farm & Ranch loan purchases grew **8.6%** over the twelve months ended June 30, 2019, outperforming the overall agricultural mortgage market's **4.7%** growth[284](index=284&type=chunk) Total Farmer Mac Guaranteed Securities Issuances (in thousands) | Period | 2019 | 2018 | |:---|:---|:---|\ | Three Months Ended June 30 | $709,090 | $890,291 | | Six Months Ended June 30 | $1,651,215 | $1,834,829 | [Outlook](index=85&type=section&id=Outlook) Farmer Mac anticipates continued growth opportunities across its business lines, driven by lenders seeking capital management solutions, new counterparties, and industry consolidation, despite agricultural industry challenges from declining net cash income and trade disputes, with regulatory changes expected to further support growth - Growth opportunities are expected from lenders managing equity capital, new rural utilities counterparties, expanding customer base, and consolidation in agricultural finance[300](index=300&type=chunk) - Operating expenses are projected to increase by approximately **8% to 9%** in 2019 relative to 2018, driven by investments in human capital, technology, and business infrastructure[302](index=302&type=chunk) - The USDA forecasts a **4.7%** rebound in net cash income for 2019, despite declines since 2013, and farmland values have generally held steady[306](index=306&type=chunk) - The Farm Bill's acreage exception for loan limits will increase to **2,000 acres** on June 18, 2020, and the authorized limit for USDA guarantees increased to **$7.0 billion**, potentially boosting business volume[314](index=314&type=chunk)[315](index=315&type=chunk) [Balance Sheet Review](index=89&type=section&id=Balance%20Sheet%20Review) Farmer Mac's total assets increased by **$2.0 billion** to **$20.7 billion** as of June 30, 2019, driven by business volume growth, while total liabilities rose to **$20.0 billion** due to increased notes payable, and total equity increased to **$773.7 million** due to preferred stock issuance and retained earnings - Total assets increased by **$2.0 billion** to **$20.7 billion** as of June 30, 2019, driven by net growth in outstanding business volume[321](index=321&type=chunk) - Total liabilities increased to **$20.0 billion** as of June 30, 2019, from **$17.9 billion** at December 31, 2018, primarily due to an increase in total notes payable[322](index=322&type=chunk) - Total equity increased by **$21.1 million** to **$773.7 million**, a result of the Series D Preferred Stock issuance (**$100.0 million**) and increased retained earnings (**$35.2 million**), partially offset by Series B Preferred Stock redemption (**$75.0 million**) and a decrease in accumulated other comprehensive income (**$37.8 million**)[322](index=322&type=chunk) [Off-Balance Sheet Arrangements](index=90&type=section&id=Off-Balance%20Sheet%20Arrangements) Farmer Mac offers off-balance sheet credit enhancement alternatives, including Farmer Mac Guaranteed Securities and Long-Term Standby Purchase Commitments (LTSPCs), to approved lenders, which provide liquidity and lending capacity while creating off-balance sheet obligations - Off-balance sheet arrangements include Farmer Mac Guaranteed Securities (across all lines of business) and LTSPCs (Farm & Ranch, Rural Utilities)[324](index=324&type=chunk) - These arrangements create off-balance sheet obligations for Farmer Mac, with consolidation occurring when Farmer Mac is the primary beneficiary of securitization trusts[324](index=324&type=chunk) [Risk Management](index=90&type=section&id=Risk%20Management) Farmer Mac employs comprehensive risk management strategies to address credit risk, interest rate risk, and other investment risks, detailing credit exposure, monitoring credit quality indicators, and managing interest rate risk through asset/liability matching and financial derivatives, while also addressing basis risk and LIBOR discontinuation [Credit Risk – Loans and Guarantees](index=90&type=section&id=Credit%20Risk%20%E2%80%93%20Loans%20and%20Guarantees) Farmer Mac's direct credit exposure for Farm & Ranch loans and guarantees was **$7.3 billion**, and for Rural Utilities loans and LTSPCs was **$2.1 billion**, with USDA Guarantees carrying little to no credit risk due to U.S. government backing, and while delinquencies and substandard assets increased slightly, they remain below historical averages - Direct credit exposure: **$7.3 billion** for Farm & Ranch, **$2.1 billion** for Rural Utilities[325](index=325&type=chunk)[326](index=326&type=chunk) - USDA Guarantees have little to no credit risk due to U.S. government backing[328](index=328&type=chunk) - Weighted-average original loan-to-value ratio for Farm & Ranch loans was **51%** as of June 30, 2019, with a current loan-to-value ratio of **45%**[331](index=331&type=chunk)[332](index=332&type=chunk) Farm & Ranch 90-Day Delinquencies | Date | Farm & Ranch Line of Business (in thousands) | 90-Day Delinquencies (in thousands) | Percentage | |:---|:---|:---|:---|\ | June 30, 2019 | $7,291,352 | $28,045 | 0.38% | | December 31, 2018 | $7,233,971 | $26,881 | 0.37% | - Substandard assets increased by **$10.0 million** to **$242.7 million** (**3.3%** of Farm & Ranch portfolio) as of June 30, 2019, primarily in cattle and calves, dairy, and cotton sub-groups[342](index=342&type=chunk) [Credit Risk – Institutional](index=99&type=section&id=Credit%20Risk%20%E2%80%93%20Institutional) Farmer Mac manages institutional credit risk from AgVantage securities issuers, approved lenders/servicers, and interest rate swap counterparties through creditworthiness standards, collateralization requirements, financial covenants, and collateralization provisions in swap agreements - Institutional credit risk is managed by requiring AgVantage counterparties to meet creditworthiness standards and maintain specified collateralization levels (e.g., **100% to 125%**)[356](index=356&type=chunk)[360](index=360&type=chunk) - Farmer Mac manages interest rate swap counterparty risk through collateralization provisions in swap agreements, requiring full collateralization for cleared and new non-cleared swaps[361](index=361&type=chunk) - As of June 30, 2019, Farmer Mac had **$44,000** of uncollateralized net exposures to two counterparties, down from **$1.4 million** to three counterparties at December 31, 2018[388](index=388&type=chunk) [Credit Risk – Other Investments](index=100&type=section&id=Credit%20Risk%20%E2%80%93%20Other%20Investments) Farmer Mac manages credit risk in its **$0.4 billion** cash and cash equivalents and **$3.0 billion** investment securities portfolio through internal policies and FCA regulations, requiring high creditworthiness standards and adhering to concentration limits - Investments must meet high creditworthiness standards, requiring at least one obligor with a very strong capacity to meet financial commitments and generally presenting a very low risk of default[363](index=363&type=chunk) - Farmer Mac's internal policy limits total credit exposure to any single entity, issuer, or obligor of securities to **5%** of its regulatory capital (**$39.8 million** as of June 30, 2019), excluding U.S. government agencies or GSEs[364](index=364&type=chunk) [Interest Rate Risk](index=101&type=section&id=Interest%20Rate%20Risk) Farmer Mac is exposed to interest rate risk from timing differences in asset and liability cash flows, particularly due to loan prepayments, which it manages by matching asset purchases with liabilities of similar duration and cash flow characteristics, using a blend of callable and non-callable debt, and employing financial derivatives - Primary strategy for interest rate risk management is to fund asset purchases with liabilities that have similar duration and cash flow characteristics, using discount notes and callable/non-callable medium-term notes[369](index=369&type=chunk) - Farmer Mac uses MVE and NES sensitivity analysis, as well as duration gap analysis, to quantify and manage interest rate risk, providing both long-term and short-term views of sensitivity[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk) Interest Rate Sensitivity Analysis (June 30, 2019) | Scenario | Percentage Change in MVE from Base Case | Percentage Change in NES from Base Case | |:---|:---|:---|\ | +100 basis points | 1.4% | (1.6)% | | -100 basis points | (7.0)% | 2.3% | - As of June 30, 2019, Farmer Mac's effective duration gap was negative **1.7 months**, widening from negative **0.8 months** at December 31, 2018, due to significant interest rate decreases[383](index=383&type=chunk) - Farmer Mac is evaluating the potential effect of LIBOR discontinuation, with **$5.1 billion** in LIBOR-based floating rate assets, **$4.1 billion** in floating rate debt, and **$13.0 billion** notional amount of interest rate swaps[396](index=396&type=chunk) [Liquidity and Capital Resources](index=106&type=section&id=Liquidity%20and%20Capital%20Resources) Farmer Mac maintains strong liquidity and capital resources, primarily through debt issuances, guarantee fees, and loan repayments, regularly accessing capital markets and complying with statutory capital requirements, maintaining a Tier 1 capital ratio of **13.6%** as of June 30, 2019 - Primary funding sources include debt issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of AgVantage securities[397](index=397&type=chunk) - As of June 30, 2019, Farmer Mac had **$18.2 billion** in outstanding discount and medium-term notes, within its **$20.0 billion** authorized limit[399](index=399&type=chunk) - Farmer Mac maintained an average of **170 days** of liquidity during Q2 2019, with **179 days** as of June 30, 2019, exceeding the **90-day** minimum requirement[400](index=400&type=chunk) - As of June 30, 2019, Farmer Mac's Tier 1 capital ratio was **13.6%**, in compliance with statutory capital requirements and classified as 'level I' (highest compliance level)[402](index=402&type=chunk)[403](index=403&type=chunk) [Regulatory Matters](index=108&type=section&id=Regulatory%20Matters) The 2018 Farm Bill introduced provisions affecting Farmer Mac, including an FCA study on financial risks and capital requirements compared to Farm Credit System banks, and an assessment of increasing the acreage exception for loan limits, with the FCA concluding Farmer Mac has a lower risk profile and appropriate capital requirements - FCA's study concluded Farmer Mac has a 'significantly lower risk profile' compared to the Farm Credit System and that its Basel approach for capital requirements is 'appropriate'[407](index=407&type=chunk) - The FCA found increasing the acreage exception for Farm & Ranch loan limits from **1,000 to 2,000 acres** to be feasible, without safety and soundness concerns, effective June 18, 2020[407](index=407&type=chunk) - FCA recommends replacing the acreage rule with exposure concentration limits to address individual borrower risk[410](index=410&type=chunk) [Other Matters](index=109&type=section&id=Other%20Matters) This section covers common and preferred stock dividends, noting Farmer Mac increased its quarterly common stock dividend to **$0.70 per share** for Q1 and Q2 2019, with preferred stock dividends paid as scheduled and the first Series D Preferred Stock dividend expected in Q3 2019 - Quarterly common stock dividend increased to **$0.70 per share** for Q1 and Q2 2019, up from **$0.58 per share** in 2018[411](index=411&type=chunk) - Preferred stock dividends were paid on Series A, B, and C, with the first Series D dividend scheduled for Q3 2019[411](index=411&type=chunk)[412](index=412&type=chunk) [Supplemental Information](index=110&type=section&id=Supplemental%20Information) This section provides detailed quarterly and annual supplemental information on Farmer Mac's business volume, including new business, repayments, and outstanding balances across all lines of business, and presents quarterly net effective spread and core earnings by segment New Business Volume (Q2 2019) (in thousands) | Category | Gross Volume | Net Growth/(Decrease) | |:---|:---|:---|\ | Loans (Farm & Ranch) | $248,152 | $143,361 | | LTSPCs (Farm & Ranch) | $57,321 | $(67,594) | | USDA Securities | $88,916 | $14,392 | | Farmer Mac Guaranteed USDA Securities | $29,419 | $22,223 | | Loans (Rural Utilities) | $105,000 | $98,049 | | AgVantage securities | $659,447 | $46,483 | | Total | $1,188,255 | $239,822 | Repayments of Assets by Line of Business (Q2 2019) (in thousands) | Category | Scheduled | Unscheduled | Total | |:---|:---|:---|:---|\ | Loans (Farm & Ranch) | $39,879 | $64,912 | $104,791 | | LTSPCs (Farm & Ranch) | $58,779 | $58,979 | $117,758 | | USDA Securities | $38,676 | $43,044 | $81,720 | | AgVantage | $612,964 | — | $612,964 | | Total | $778,099 | $170,334 | $948,433 | Outstanding Business Volume (June 30, 2019) (in thousands) | Line of Business | Amount | |:---|:---|\ | Farm & Ranch (Loans, LTSPCs, Guaranteed Securities) | $7,291,352 | | USDA Guarantees (USDA Securities, Farmer Mac Guaranteed USDA Securities) | $2,521,394 | | Rural Utilities (Loans, LTSPCs) | $2,155,671 | | Institutional Credit (AgVantage) | $8,778,318 | | Total | $20,746,735 | Net Effective Spread by Line of Business (Q2 2019) (in thousands) | Line of Business | Dollars | Yield | |:---|:---|:---|\ | Farm & Ranch | $13,335 | 1.72% | | USDA Guarantees | $4,097 | 0.76% | | Rural Utilities | $3,996 | 1.10% | | Institutional Credit | $17,371 | 0.82% | | Corporate | $2,556 | 0.34% | | Total | $41,355 | 0.91% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=117&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Farmer Mac is exposed to market risk, primarily from changes in interest rates, which the company actively manages through various financial transactions, including derivatives, and by continuously monitoring and measuring its exposure - Farmer Mac's primary market risk exposure is to changes in interest rates[430](index=430&type=chunk) - Market risk is managed through financial transactions, including derivatives, and by monitoring interest rate exposure[430](index=430&type=chunk) [Item 4. Controls and Procedures](index=117&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of Farmer Mac's disclosure controls and procedures as of June 30, 2019, and concluded they were effective, with no material changes in internal control over financial reporting during the quarter - Farmer Mac's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2019[431](index=431&type=chunk)[432](index=432&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2019[432](index=432&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=117&type=section&id=Item%201.%20Legal%20Proceedings) There are no legal proceedings to report for the period [Item 1A. Risk Factors](index=117&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes from the risk factors previously disclosed in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2018[433](index=433&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=118&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Farmer Mac, as a federally chartered instrumentality, is exempt from certain Securities Act registration requirements, and during Q2 2019, it issued **50 shares** of Class C non-voting common stock to directors and granted **12,182 shares** of restricted Class C non-voting common stock to employees as incentive compensation - Farmer Mac issued **50 shares** of Class C non-voting common stock to three directors on April 2, 2019, in lieu of cash retainers, valued at **$72.43 per share**[435](index=435&type=chunk) - On April 15, 2019, Farmer Mac granted **12,182 shares** of restricted Class C non-voting common stock to **31 employees** as incentive compensation, with a grant price of **$75.64 per share**, vesting on April 15, 2022[436](index=436&type=chunk)[437](index=437&type=chunk) [Item 3. Defaults Upon Senior Securities](index=118&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report for the period [Item 4. Mine Safety Disclosures](index=118&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Farmer Mac [Item 5. Other Information](index=119&type=section&id=Item%205.%20Other%20Information) This section lists various exhibits incorporated by reference from prior filings or filed with this report, including organizational documents, specimen certificates for different classes of stock, and certifications from executive officers - Includes amendments to Title VIII of the Farm Credit Act of 1971 and Amended and Restated By-Laws of the Registrant[438](index=438&type=chunk) - Specimen Certificates for Class A, B, C common stock and Series A, B, C, D preferred stock are referenced[439](index=439&type=chunk) - Certifications of the principal executive officer and principal financial officer for the Quarterly Report on Form 10-Q are filed with this report[439](index=439&type=chunk) [Item 6. Exhibits](index=119&type=section&id=Item%206.%20Exhibits) This section lists all exhibits, indicating whether they are incorporated by reference from prior filings or filed concurrently with this report - Exhibits are either incorporated by reference to prior filings or filed with the current report[440](index=440&type=chunk) [SIGNATURES](index=120&type=section&id=SIGNATURES) The report is duly signed on behalf of Federal Agricultural Mortgage Corporation by its President and Chief Executive Officer (Principal Executive Officer) and Vice President – Controller (Principal Financial Officer) as of August 1, 2019 - The report is signed by Bradford T. Nordholm, President and Chief Executive Officer, and Gregory N. Ramsey, Vice President – Controller, on August 1, 2019[443](index=443&type=chunk)

Federal Agricultural Mortgage Corporation (NYSE:AGM) Q1 2019 Earnings Conference Call May 2, 2019 11:00 AM ET Company Participants Stephen Mullery - Executive Vice President, General Counsel and Corporate Secretary Bradford Nordholm - President and Chief Executive Officer Curt Covington - Executive Vice President and Chief Credit Officer Dale Lynch - Executive Vice President, Chief Financial Officer and Treasurer Conference Call Participants Scott Valentin - Compass Point Operator Good day and welcome to th ...