SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2024

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, 2023 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2023 consolidated financial statements. 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 2023 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, 2023, as filed with the SEC on February 23, 2024. 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, 2024.

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, 2024
	Agricultural Finance		Treasury		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	1,718,440	$	—	$	1,718,440
Debt securities of consolidated trusts held by third parties (1)(2)	1,616,513		—		1,616,513
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value	57,951		—		57,951
Maximum exposure to loss (3)	57,502		—		57,502
Investment securities:
Carrying value (4)	—		4,289,450		4,289,450
Maximum exposure to loss (3)(4)	—		4,423,837		4,423,837
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3)(5)	430,628		—		430,628

(1)Includes borrower remittances of $0.2 million. The borrower remittances had not been passed through to third-party investors as of September 30, 2024.

(2)Includes $102.0 million in unamortized discount related to structured securitization transactions.

(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, 2023
	Agricultural Finance		Treasury		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	1,432,261	$	—	$	1,432,261
Debt securities of consolidated trusts held by third parties (1)(2)	1,351,069		—		1,351,069
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value	46,343		—		46,343
Maximum exposure to loss (3)	45,952		—		45,952
Investment securities:
Carrying value (4)	—		3,676,555		3,676,555
Maximum exposure to loss (3)(4)	—		3,862,006		3,862,006
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3)(5)	452,602		—		452,602

(1)Includes borrower remittances of $6.0 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2023.

(2)Includes $87.1 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.

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 unit awards. The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2024 and 2023:

Table 1.2


	For the Three Months Ended
	September 30, 2024					September 30, 2023
	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	$	42,312	10,883	$	3.89	$	51,345	10,839	$	4.74
Effect of dilutive securities(1)
SARs and restricted stock units	—		83	(0.03)		—		99	(0.05)
Diluted EPS	$	42,312	10,966	$	3.86	$	51,345	10,938	$	4.69

(1)For the three months ended September 30, 2024 and 2023, SARs and restricted stock units of 15,465 and 16,761 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, 2024 and 2023, contingent shares of unvested restricted stock units of 29,918 and 32,469 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, 2024					September 30, 2023
	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	$	129,580	10,869	$	11.93	$	132,010	10,825	$	12.20
Effect of dilutive securities(1)
SARs and restricted stock units	—		99	(0.11)		—		99	(0.12)
Diluted EPS	$	129,580	10,968	$	11.82	$	132,010	10,924	$	12.08

(1)For the nine months ended September 30, 2024 and 2023, SARs and restricted stock units of 36,033 and 37,990 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, 2024 and 2023, contingent shares of unvested restricted stock units of 29,918 and 32,407 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 Income

Comprehensive 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, 2024 and 2023.

Table 1.3


	As of September 30, 2024								As of September 30, 2023
	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	$	(41,062)	$	(8,972)	$	40,893	$	(9,141)	$	(96,607)	$	15,486	$	46,770	$	(34,351)
Other comprehensive income/(loss) before reclassifications	20,820		—		(9,663)		11,157		17,443		(25,199)		10,376		2,620
Amounts reclassified from AOCI	(3)		(350)		(4,217)		(4,570)		(4)		294		(4,398)		(4,108)
Net comprehensive income/(loss)	20,817		(350)		(13,880)		6,587		17,439		(24,905)		5,978		(1,488)
Ending Balance	$	(20,245)	$	(9,322)	$	27,013	$	(2,554)	$	(79,168)	$	(9,419)	$	52,748	$	(35,839)

For the Nine Months Ended:
Beginning Balance	$	(68,447)	$	(8,724)	$	37,026	$	(40,145)	$	(115,561)	$	16,357	$	48,361	$	(50,843)
Other comprehensive income/(loss) before reclassifications	49,042		—		2,755		51,797		36,406		(25,199)		16,277		27,484
Amounts reclassified from AOCI	(840)		(598)		(12,768)		(14,206)		(13)		(577)		(11,890)		(12,480)
Net comprehensive income/(loss)	48,202		(598)		(10,013)		37,591		36,393		(25,776)		4,387		15,004
Ending Balance	$	(20,245)	$	(9,322)	$	27,013	$	(2,554)	$	(79,168)	$	(9,419)	$	52,748	$	(35,839)

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, 2024 and 2023:

Table 1.4


	For the Three Months Ended
	September 30, 2024						September 30, 2023
	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
	(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding gains on available-for-sale securities	$	26,354	$	5,534	$	20,820	$	22,081	$	4,638	$	17,443
Less reclassification adjustments included in:
Gains on sale of available-for-sale investment securities(1)	—		—		—		—		—		—
Other income(2)	(4)		(1)		(3)		(5)		(1)		(4)
Total	$	26,350	$	5,533	$	20,817	$	22,076	$	4,637	$	17,439
Held-to-maturity securities:
Change in fair value(3)	$	—	$	—	$	—	$	(31,898)	$	(6,699)	$	(25,199)
Less reclassification adjustments included in:
Net interest income(4)	(443)		(93)		(350)		373		79		294
Total	$	(443)	$	(93)	$	(350)	$	(31,525)	$	(6,620)	$	(24,905)
Cash flow hedges
Unrealized (losses)/gains on cash flow hedges	$	(12,232)	$	(2,569)	$	(9,663)	$	13,135	$	2,759	$	10,376
Less reclassification adjustments included in:
Net interest income(5)	(5,337)		(1,120)		(4,217)		(5,569)		(1,171)		(4,398)
Total	$	(17,569)	$	(3,689)	$	(13,880)	$	7,566	$	1,588	$	5,978
Other comprehensive income/(loss)	$	8,338	$	1,751	$	6,587	$	(1,883)	$	(395)	$	(1,488)

(1)Represents realized gains and losses on sales of available-for-sale securities.

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

(3)Represents the accumulated unrealized loss on the AgVantage Securities transferred from available-for-sale to held-to-maturity.

(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, 2024						September 30, 2023
	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
	(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding gains on available-for-sale securities	$	62,079	$	13,037	$	49,042	$	46,084	$	9,678	$	36,406
Less reclassification adjustments included in:
Gains on sale of available-for-sale investment securities(1)	(1,052)		(221)		(831)		—		—		—
Other income(2)	(12)		(3)		(9)		(16)		(3)		(13)
Total	$	61,015	$	12,813	$	48,202	$	46,068	$	9,675	$	36,393
Held-to-maturity securities:
Change in fair value(3)	$	—	$	—	$	—	$	(31,898)	$	(6,699)	$	(25,199)
Less reclassification adjustments included in:
Net interest income(4)	(757)		(159)		(598)		(730)		(153)		(577)
Total	$	(757)	$	(159)	$	(598)	$	(32,628)	$	(6,852)	$	(25,776)
Cash flow hedges
Unrealized gains on cash flow hedges	$	3,488	$	733	$	2,755	$	20,604	$	4,327	$	16,277
Less reclassification adjustments included in:
Net interest income(5)	(16,163)		(3,395)		(12,768)		(15,051)		(3,161)		(11,890)
Total	$	(12,675)	$	(2,662)	$	(10,013)	$	5,553	$	1,166	$	4,387
Other comprehensive income	$	47,583	$	9,992	$	37,591	$	18,993	$	3,989	$	15,004

(1)Represents realized gains and losses on sales of available-for-sale securities.

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

(3)Represents the accumulated unrealized loss on the AgVantage Securities transferred from available-for-sale to held-to-maturity.

(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 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method	The amendments in this Update permit an entity to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met, regardless of the tax credit program from which the income tax credits are received.	January 1, 2024	The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements


Standard	Description	Effect on Consolidated Financial Statements
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures	The amendments in this Update require disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. This Update also requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively. Early adoption is permitted.	Farmer Mac does not expect the adoption of this Update to have a material impact on Farmer Mac's financial position, results of operations, or cash flows.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures	The Update provides guidance on improvements to annual income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. Additionally, public entities must provide a separate disclosure for any reconciling item that meets a quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. Early adoption is permitted.	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 impact on Farmer Mac's financial position, results of operations, or cash flows.

Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation. The reclassifications of prior period information were not material to the consolidated financial statements.