
	BUSINESS SEGMENT REPORTING

Farmer Mac's operations consist of four reportable operating segments – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. The Institutional Credit segment comprises Farmer Mac's guarantees of AgVantage securities related to general obligations of lenders that are secured by pools of eligible loans.

Farmer Mac uses these four segments to manage business risk, and each segment is based on distinct products and distinct business activities. In addition to these four operating segments, a corporate segment is presented. That segment represents activity in Farmer Mac's investment portfolio and other corporate activities. The segment financial results include directly attributable revenues and expenses. Corporate charges for administrative expenses that are not directly attributable to an operating segment are allocated based on headcount.

Farmer Mac uses core earnings to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. Core earnings principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with generally accepted accounting principles ("GAAP") if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of this non-GAAP measure is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis. Accordingly, the core earnings for Farmer Mac's reportable operating segments will differ from the stand-alone financial statements of Farmer Mac's subsidiaries. These differences will be due to various factors, including the reversal of unrealized gains and losses related to fair value changes of trading assets and financial derivatives, as well as the allocation of certain expenses such as dividends and interest expense related to the issuance of capital and the incurrence of indebtedness managed at the corporate level. The allocation of general and administrative expenses that are not directly attributable to an operating segment may also result in differences. The assets of Farmer Mac's subsidiary Farmer Mac II LLC will only be available to creditors of Farmer Mac after all obligations owed to creditors of and equity holders in Farmer Mac II LLC have been satisfied. As of June 30, 2015, Farmer Mac II LLC held assets with a fair value of $1.9 billion, had debt outstanding of $777.0 million, and had $1.0 billion of common stock outstanding held by Farmer Mac.

The following tables present core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three and six months ended June 30, 2015 and 2014:

Table 9.1



Core Earnings by Business Segment
For the Three Months Ended June 30, 2015
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	22,159		$	14,779		$	6,521		$	20,036		$	3,094		$	(197	)		$	66,392
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(697		)	—			—			—			—			697				—
Interest expense⁽²⁾	(11,781		)	(10,313		)	(3,683		)	(9,176		)	(1,152		)	1,577				(34,528		)
Net effective spread	9,681			4,466			2,838			10,860			1,942			2,077				31,864
Guarantee and commitment fees	3,693			8			—			384			—			(697		)		3,388
Other income/(expense)⁽³⁾	160			28			—			—			(212		)	14,843				14,819
Non-interest income/(loss)	3,853			36			—			384			(212		)	14,146				18,207

Provision for loan losses	(110		)	—			—			—			—			—				(110		)

Provision for losses	(1,146		)	—			—			—			—			—				(1,146		)
Other non-interest expense	(4,304		)	(1,025		)	(860		)	(532		)	(2,986		)	—				(9,707		)
Non-interest expense⁽⁴⁾	(5,450		)	(1,025		)	(860		)	(532		)	(2,986		)	—				(10,853		)
Core earnings before income taxes	7,974			3,477			1,978			10,712			(1,256		)	16,223			⁽⁵⁾	39,108
Income tax (expense)/benefit	(2,791		)	(1,216		)	(691		)	(3,749		)	356			(5,678		)		(13,769		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	5,183			2,261			1,287			6,963			(900		)	10,545			⁽⁵⁾	25,339
Preferred stock dividends	—			—			—			—			(3,296		)	—				(3,296		)
Non-controlling interest	—			—			—			—			119			—				119
Segment core earnings/(losses)	$	5,183		$	2,261		$	1,287		$	6,963		$	(4,077	)	$	10,545		⁽⁵⁾	$	22,162

Total assets at carrying value	$	2,780,018		$	1,913,390		$	962,702		$	5,874,088		$	3,614,399		$	—			$	15,144,597
Total on- and off-balance sheet program assets at principal balance	5,485,570			1,862,430			954,188			6,827,939						—				15,130,127


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "Gains/(losses) on financial derivatives and hedging activities" on the consolidated financial statements.


⁽³⁾	Includes reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets. Also includes a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


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


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Three Months Ended June 30, 2014
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	19,598		$	13,307		$	6,782		$	20,073		$	5,185		$	(470	)		$	64,475
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(513		)	—			—			—			—			513				—
Interest expense⁽²⁾	(11,265		)	(9,148		)	(3,829		)	(10,116		)	(1,025		)	(7,119		)		(42,502		)
Net effective spread	7,820			4,159			2,953			9,957			4,160			(7,076		)		21,973
Guarantee and commitment fees	3,807			23			—			386			—			(513		)		3,703
Other income/(expense)⁽³⁾	242			9			—			—			(603		)	2,913				2,561
Non-interest income/(loss)	4,049			32			—			386			(603		)	2,400				6,264

Release of allowance for loan losses	1,583			—			—			—			—			—				1,583

Release of reserve for losses	974			—			—			—			—			—				974
Other non-interest expense	(3,914		)	(764		)	(830		)	(492		)	(2,830		)	—				(8,830		)
Non-interest expense⁽⁴⁾	(2,940		)	(764		)	(830		)	(492		)	(2,830		)	—				(7,856		)
Core earnings before income taxes	10,512			3,427			2,123			9,851			727			(4,676		)	⁽⁵⁾	21,964
Income tax (expense)/benefit	(3,679		)	(1,200		)	(743		)	(3,447		)	13,803			1,634				6,368
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	6,833			2,227			1,380			6,404			14,530			(3,042		)	⁽⁵⁾	28,332
Preferred stock dividends	—			—			—			—			(2,308		)	—				(2,308		)
Non-controlling interest	—			—			—			—			(5,819		)	—				(5,819		)
Segment core earnings/(losses)	$	6,833		$	2,227		$	1,380		$	6,404		$	6,403		$	(3,042	)	⁽⁵⁾	$	20,205

Total assets at carrying value	$	2,387,899		$	1,721,003		$	1,022,421		$	5,115,147		$	4,423,632		$	—			$	14,670,102
Total on- and off-balance sheet program assets at principal balance	5,310,664			1,710,335			1,012,313			6,039,230						—				14,072,542


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts and interest income related to securities purchased under agreements to resell.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "Gains/(losses) on financial derivatives and hedging activities" on the consolidated financial statements. Includes reconciling adjustments for interest expense related to securities sold, not yet purchased.

⁽³⁾

Includes interest income and interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased, respectively; reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets; and a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


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


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Six Months Ended June 30, 2015
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	44,127		$	29,127		$	13,106		$	39,335		$	5,959		$	(1,311	)		$	130,343
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(1,332		)	—			—			—			—			1,332				—
Interest expense⁽²⁾	(23,000		)	(20,436		)	(7,464		)	(18,050		)	(2,328		)	3,588				(67,690		)
Net effective spread	19,795			8,691			5,642			21,285			3,631			3,609				62,653
Guarantee and commitment fees	7,326			2			—			769			—			(1,332		)		6,765
Other income/(expense)⁽³⁾	247			87			—			—			(764		)	12,347				11,917
Non-interest income/(loss)	7,573			89			—			769			(764		)	11,015				18,682

Provision for loan losses	(186		)	—			—			—			—			—				(186		)

Provision for losses	(374		)	—			—			—			—			—				(374		)
Other non-interest expense	(8,630		)	(1,410		)	(1,726		)	(1,067		)	(5,989		)	—				(18,822		)
Non-interest expense⁽⁴⁾	(9,004		)	(1,410		)	(1,726		)	(1,067		)	(5,989		)	—				(19,196		)
Core earnings before income taxes	18,178			7,370			3,916			20,987			(3,122		)	14,624			⁽⁵⁾	61,953
Income tax (expense)/benefit	(6,362		)	(2,579		)	(1,369		)	(7,345		)	2,872			(3,217		)		(18,000		)
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	11,816			4,791			2,547			13,642			(250		)	11,407			⁽⁵⁾	43,953
Preferred stock dividends	—			—			—			—			(6,591		)	—				(6,591		)
Non-controlling interest	—			—			—			—			(5,235		)	—				(5,235		)
Loss on retirement of preferred stock	—			—			—			—			—			(8,147		)		(8,147		)
Segment core earnings/(losses)	$	11,816		$	4,791		$	2,547		$	13,642		$	(12,076	)	$	3,260		⁽⁵⁾	$	23,980

Total assets at carrying value	$	2,780,018		$	1,913,390		$	962,702		$	5,874,088		$	3,614,399		$	—			$	15,144,597
Total on- and off-balance sheet program assets at principal balance	5,485,570			1,862,430			954,188			6,827,939						—				15,130,127


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "Gains/(losses) on financial derivatives and hedging activities" on the consolidated financial statements.


⁽³⁾	Includes reconciling adjustments for the reclassification of expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets. Also includes a reconciling adjustment related to the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.


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


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.



Core Earnings by Business Segment
For the Six Months Ended June 30, 2014
	Farm & Ranch			USDA Guarantees			Rural Utilities			Institutional Credit			Corporate			Reconciling Adjustments				Consolidated Net Income
	(in thousands)
Interest income⁽¹⁾	$	37,936		$	26,266		$	14,525		$	40,455		$	10,420		$	(12,675	)		$	116,927
Interest income related to consolidated trusts owned by third parties reclassified to guarantee fee income	(1,044		)	—			—			—			—			1,044				—
Interest expense⁽²⁾	(21,958		)	(18,323		)	(9,582		)	(21,092		)	(2,118		)	(4,155		)		(77,228		)
Net effective spread	14,934			7,943			4,943			19,363			8,302			(15,786		)		39,699
Guarantee and commitment fees	7,716			49			—			766			—			(1,044		)		7,487
Other income/(expense)⁽³⁾	373			36			—			—			(1,174		)	(3,493		)		(4,258		)
Non-interest income/(loss)	8,089			85			—			766			(1,174		)	(4,537		)		3,229

Release of allowance for loan losses	1,010			—			—			—			—			—				1,010

Release of reserve for losses	873			—			—			—			—			—				873
Other non-interest expense	(7,466		)	(1,495		)	(1,607		)	(937		)	(5,171		)	—				(16,676		)
Non-interest expense⁽⁴⁾	(6,593		)	(1,495		)	(1,607		)	(937		)	(5,171		)	—				(15,803		)
Core earnings before income taxes	17,440			6,533			3,336			19,192			1,957			(20,323		)	⁽⁵⁾	28,135
Income tax (expense)/benefit	(6,103		)	(2,288		)	(1,168		)	(6,717		)	16,676			7,109				7,509
Core earnings before preferred stock dividends and attribution of income to non-controlling interest	11,337			4,245			2,168			12,475			18,633			(13,214		)	⁽⁵⁾	35,644
Preferred stock dividends	—			—			—			—			(3,260		)	—				(3,260		)
Non-controlling interest	—			—			—			—			(11,366		)	—				(11,366		)
Segment core earnings/(losses)	$	11,337		$	4,245		$	2,168		$	12,475		$	4,007		$	(13,214	)	⁽⁵⁾	$	21,018

Total assets at carrying value	$	2,387,899		$	1,721,003		$	1,022,421		$	5,115,147		$	4,423,632		$	—			$	14,670,102
Total on- and off-balance sheet program assets at principal balance	5,310,664			1,710,335			1,012,313			6,039,230						—				14,072,542


⁽¹⁾	Includes reconciling adjustments for the amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts and interest income related to securities purchased under agreements to resell.


⁽²⁾	Based on effective funding cost determined for each operating segment, including expenses related to interest rate swaps not designated as hedges, which are included in "Gains/(losses) on financial derivatives and hedging activities" on the consolidated financial statements. Includes reconciling adjustments for interest expense related to securities sold, not yet purchased.

⁽³⁾


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


⁽⁵⁾	Net adjustments to reconcile core earnings before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest; and segment core earnings to corresponding income measures: income before income taxes, net income, and net income attributable to common stockholders, respectively.