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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation

("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements

reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a

fair statement of the financial position and the results of operations and cash flows of Farmer Mac and

subsidiaries for the interim periods presented. Certain information and footnote disclosures normally

included in the annual consolidated financial statements have been omitted as permitted by SEC rules and

regulations. The December 31, 2021 consolidated balance sheet presented in this report has been derived

from Farmer Mac's audited 2021 consolidated financial statements, as revised. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in

conjunction with the 2021 consolidated financial statements of Farmer Mac and subsidiaries included in

Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC

on February 28, 2022. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain

updated information for the three and nine months ended September 30, 2022.

Farmer Mac has revised its prior period financial information to correct an error that was not material to those previous consolidated financial statements, taken as a whole. For more information on the revision, refer to Note 11, Revision of Prior Period Financial Statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries: (1) Farmer Mac Mortgage Securities Corporation, whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Securities included in the Agricultural Finance line of business. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary.

Table 1.1


	Consolidation of Variable Interest Entities
	As of September 30, 2022
	Agricultural Finance		Treasury		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	1,120,403	$	—	$	1,120,403
Debt securities of consolidated trusts held by third parties (1)(2)	1,090,539		—		1,090,539
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value	29,471		—		29,471
Maximum exposure to loss (3)	32,348		—		32,348
Investment securities:
Carrying value (4)	—		2,906,158		2,906,158
Maximum exposure to loss (3) (4)	—		3,083,631		3,083,631
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3) (5)	509,114		—		509,114

(1)Includes borrower remittances of $9.3 million. The borrower remittances had not been passed through to third-party investors as of September 30, 2022.

(2)Includes $39.1 million in unamortized discount related to a structured securitization transaction.

(3)Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.

(4)Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments.

(5)The amount under the Agricultural Finance line of business relates to unconsolidated trusts where it was determined that Farmer Mac was either not the primary beneficiary due to shared power with an unrelated party or a subordinate class majority holder has the unilateral right to remove Farmer Mac as Master Servicer without cause.


	Consolidation of Variable Interest Entities
	As of December 31, 2021
	Agricultural Finance		Treasury		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	948,623	$	—	$	948,623
Debt securities of consolidated trusts held by third parties (1)	981,379		—		981,379
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value	42,298		—		42,298
Maximum exposure to loss (2)	42,155		—		42,155
Investment securities:
Carrying value (3)	—		2,258,219		2,258,219
Maximum exposure to loss (2) (3)	—		2,246,272		2,246,272
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (2) (4)	578,358		—		578,358

(1)Includes borrower remittances of $32.8 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2021.

(2)Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.

(3)Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related investments.

(4)The amount under the Agricultural Finance line of business relates to unconsolidated trusts where it was determined that Farmer Mac was either not the primary beneficiary due to shared power with an unrelated party or a subordinate class majority holder has the unilateral right to remove Farmer Mac as Master Servicer without cause.

Earnings Per Common Share

Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the daily weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive stock appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2022 and 2021:

Table 1.2


	For the Three Months Ended
	September 30, 2022					September 30, 2021
	Net Income		Weighted-Average Shares	$ per Share		Net Income		Weighted-Average Shares	$ per Share
	(in thousands, except per share amounts)
Basic EPS
Net income attributable to common stockholders	$	34,627	10,799	$	3.21	$	28,531	10,766	$	2.65
Effect of dilutive securities(1)
SARs and restricted stock	—		75	(0.03)		—		76	(0.02)
Diluted EPS	$	34,627	10,874	$	3.18	$	28,531	10,842	$	2.63

(1)For the three months ended September 30, 2022 and 2021, SARs and restricted stock of 18,432 and 28,575, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended September 30, 2022 and 2021 contingent shares of unvested restricted stock of 18,535 and 18,183 respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met.


	For the Nine Months Ended
	September 30, 2022					September 30, 2021
	Net Income		Weighted-Average Shares	$ per Share		Net Income		Weighted-Average Shares	$ per Share
	(in thousands, except per share amounts)
Basic EPS
Net income attributable to common stockholders	$	114,352	10,787	$	10.61	$	84,351	10,756	$	7.84
Effect of dilutive securities(1)
SARs and restricted stock	—		88	(0.10)		—		78	(0.05)
Diluted EPS	$	114,352	10,875	$	10.51	$	84,351	10,834	$	7.79

(1)For the nine months ended September 30, 2022 and 2021, SARs and restricted stock of 37,120 and 52,434, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the nine months ended September 30, 2022 and 2021 contingent shares of unvested restricted stock of 18,535 and 18,183 respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met.

Comprehensive IncomeComprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes.

The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and nine months ended September 30, 2022 and 2021.

Table 1.3


	As of September 30, 2022								As of September 30, 2021
	Available-for-Sale Securities		Held-to-Maturity Securities		Cash Flow Hedges		Total		Available-for-Sale Securities		Held-to-Maturity Securities		Cash Flow Hedges		Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	(98,924)	$	16,818	$	32,622	$	(49,484)	$	8,954	$	19,819	$	(12,040)	$	16,733
Other comprehensive (loss)/income before reclassifications	(33,041)		—		20,277		(12,764)		1,275		—		1,049		2,324
Amounts reclassified from AOCI	(2)		(492)		(847)		(1,341)		(493)		(1,884)		1,526		(851)
Net comprehensive (loss)/income	(33,043)		(492)		19,430		(14,105)		782		(1,884)		2,575		1,473
Ending Balance	$	(131,967)	$	16,326	$	52,052	$	(63,589)	$	9,736	$	17,935	$	(9,465)	$	18,206

For the Nine Months Ended:
Beginning Balance	$	(6,932)	$	16,153	$	(5,368)	$	3,853	$	(13,937)	$	22,829	$	(22,815)	$	(13,923)
Other comprehensive (loss)/income before reclassifications	(125,027)		—		55,766		(69,261)		25,734		—		9,041		34,775
Amounts reclassified from AOCI	(8)		173		1,654		1,819		(2,061)		(4,894)		4,309		(2,646)
Net comprehensive (loss)/income	(125,035)		173		57,420		(67,442)		23,673		(4,894)		13,350		32,129
Ending Balance	$	(131,967)	$	16,326	$	52,052	$	(63,589)	$	9,736	$	17,935	$	(9,465)	$	18,206

The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three and nine months ended September 30, 2022 and 2021:

Table 1.4


	For the Three Months Ended
	September 30, 2022						September 30, 2021
	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
	(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding (losses)/gains on available-for-sale securities	$	(41,824)	$	(8,783)	$	(33,041)	$	1,614	$	339	$	1,275
Less reclassification adjustments included in:
Net interest income(1)	—		—		—		(362)		(76)		(286)
Gains on sale of available-for-sale investment securities(2)	—		—		—		(253)		(53)		(200)
Other income(3)	(3)		(1)		(2)		(8)		(1)		(7)
Total	$	(41,827)	$	(8,784)	$	(33,043)	$	991	$	209	$	782
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(4)	(622)		(130)		(492)		(2,385)		(501)		(1,884)
Total	$	(622)	$	(130)	$	(492)	$	(2,385)	$	(501)	$	(1,884)
Cash flow hedges
Unrealized gains on cash flow hedges	$	25,668	$	5,391	$	20,277	$	1,326	$	277	$	1,049
Less reclassification adjustments included in:
Net interest income(5)	(1,072)		(225)		(847)		1,932		406		1,526
Total	$	24,596	$	5,166	$	19,430	$	3,258	$	683	$	2,575
Other comprehensive (loss)/income	$	(17,853)	$	(3,748)	$	(14,105)	$	1,864	$	391	$	1,473

(1)Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.

(2)Represents unrealized gains and losses on sales of available-for-sale securities.

(3)Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.

(4)Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income.

(5)Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.


	For the Nine Months Ended
	September 30, 2022						September 30, 2021
	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
	(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding (losses)/gains on available-for-sale securities	$	(158,263)	$	(33,236)	$	(125,027)	$	32,574	$	6,840	$	25,734
Less reclassification adjustments included in:
Net interest income(1)	—		—		—		(2,333)		(490)		(1,843)
Gains on sale of available-for-sale investment securities(2)	—		—		—		(253)		(53)		(200)
Other income(3)	(10)		(2)		(8)		(22)		(4)		(18)
Total	$	(158,273)	$	(33,238)	$	(125,035)	$	29,966	$	6,293	$	23,673
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(4)	220		47		173		(6,195)		(1,301)		(4,894)
Total	$	220	$	47	$	173	$	(6,195)	$	(1,301)	$	(4,894)
Cash flow hedges
Unrealized gains on cash flow hedges	$	70,590	$	14,824	$	55,766	$	11,445	$	2,404	$	9,041
Less reclassification adjustments included in:
Net interest income(5)	2,094		440		1,654		5,454		1,145		4,309
Total	$	72,684	$	15,264	$	57,420	$	16,899	$	3,549	$	13,350
Other comprehensive (loss)/income	$	(85,369)	$	(17,927)	$	(67,442)	$	40,670	$	8,541	$	32,129

(1)Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.

(2)Represents unrealized gains and losses on sales of available-for-sale securities.

(3)Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.

(5)Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.

New Accounting Standards

Recently Adopted Accounting Guidance


Standard	Description	Date of Adoption	Effect on Consolidated Financial Statements
ASU 2020-04 and 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.	January 1, 2020	Farmer Mac adopted optional expedients specific to discounting transition on a retrospective basis, and as a result of this election, the discounting transition did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows. Farmer Mac is exploring the adoption of additional optional expedients, including contract modification relief, and is not expected to have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

Recently Issued Accounting Guidance


Standard	Description	Effect on Consolidated Financial Statements
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	The Update addresses and amends areas identified by the Financial Accounting Standards Board ("FASB") as part of its post-implementation review of the accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. Early adoption, however, is permitted if an entity has adopted the CECL accounting standard.	Farmer Mac is still assessing the impact of the new accounting standard but does not expect that adoption of the new guidance will have a material effect on Farmer Mac's financial position, results of operations, or cash flows.