Note 1.

Accounting Policies

The interim unaudited condensed consolidated financial statements of the Federal Agricultural Mortgage Corporation (“Farmer Mac” or the “Corporation”) and subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These interim unaudited condensed 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 condensed or omitted as permitted by SEC rules and regulations. On June 1, 2011, Farmer Mac filed with the SEC an amendment to its Annual Report on Form 10-K/A for the year ended December 31, 2010 to correct prior misclassifications of proceeds from the repayments of certain loans between operating activities and investing activities on the consolidated statements of cash flows. These misclassifications had no impact on the net increase or decrease in cash and cash equivalents as previously reported and had no effect on Farmer Mac’s previously issued condensed consolidated interim or annual consolidated balance sheets, statements of operations or statements of equity. See Note 1(a) for further information. The December 31, 2010 condensed consolidated balance sheet presented in this report has been derived from the Corporation’s 2010 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the condensed consolidated financial statements as of the dates and for the periods presented. These interim unaudited condensed consolidated financial statements should be read in conjunction with the 2010 consolidated financial statements of Farmer Mac and subsidiaries included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 16, 2011, as amended by Amendment No. 1 on Form 10-K/A filed on June 1, 2011. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Below is a summary of Farmer Mac’s significant accounting policies.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries: (1) Farmer Mac Mortgage Securities Corporation (“FMMSC”), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities and to act as a registrant under registration statements filed with the Securities and Exchange Commission, and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the Farmer Mac II program – primarily the acquisition of the portions of loans (the “USDA-guaranteed portions”) guaranteed by the U.S. Department of Agriculture (“USDA”) presented as “USDA Guaranteed Securities” on the condensed consolidated balance sheets. Farmer Mac II LLC was formed as a Delaware limited liability company on December 10, 2009. The business operations of Farmer Mac II LLC began in January 2010. The condensed consolidated financial statements also include the accounts of variable interest entities (“VIEs”) in which Farmer Mac determined itself to be the primary beneficiary. See Note 2(g) for more information on consolidated VIEs.

A Farmer Mac guarantee of timely payment of principal and interest is an explicit element of the terms of all Farmer Mac Guaranteed Securities. When Farmer Mac retains such securities in its portfolio, that guarantee is not extinguished. For Farmer Mac Guaranteed Securities in the Corporation’s portfolio, Farmer Mac has entered into guarantee arrangements with FMMSC. The guarantee fee rate established between Farmer Mac and FMMSC is an element in determining the fair value of these Farmer Mac Guaranteed Securities, and guarantee fees related to these securities are reflected in guarantee and commitment fees in the condensed consolidated statements of operations. These guarantee fees totaled $2.0 million and $4.1 million for the three and six months ended June 30, 2011, respectively, compared to $1.5 million and $3.2 million for the same periods in 2010, respectively. The corresponding expense of FMMSC has been eliminated against interest income in consolidation. All other inter-company balances and transactions have been eliminated in consolidation.

(a) Cash and Cash Equivalents and Statements of Cash Flows

Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents. The carrying value of cash and cash equivalents is a reasonable estimate of their fair value. Changes in the balance of cash and cash equivalents are reported in the condensed consolidated statements of cash flows. The following table sets forth information regarding certain cash and non-cash transactions for the six months ended June 30, 2011 and 2010.

	For the Six Months Ended
	June 30, 2011		June 30, 2010
	(in thousands)
Cash paid during the period for:
Interest	$	49,261	$	37,989
Income taxes		11,500		12,000
Non-cash activity:
Real estate owned acquired through loan liquidation		2,639		3,580
Loans acquired and securitized as loans held for investment in consolidated trusts		8,729		1,288
Consolidation of Farmer Mac I Guaranteed Securities from off-balance sheet to
loans held for investment in consolidated trusts		8,729		1,401,659
Consolidation of Farmer Mac I Guaranteed Securities from off-balance sheet to
debt securities of consolidated trusts held by third parties		8,729		1,401,659
Transfers of available-for-sale Farmer Mac I Guaranteed Securities to loans held for
investment in consolidated trusts, upon the adoption of new consolidation guidance		-		5,385
Transfers of trading Farmer Mac Guaranteed Securities - Rural Utilities to loans held
for investment in consolidated trusts, upon the adoption of new
consolidation guidance		-		451,448
Deconsolidation of loans held for investment in consolidated trusts - transferred to off-
balance sheet Farmer Mac I Guaranteed Securities		-		414,462
Deconsolidation of debt securities of consolidated trusts held by third
parties - transferred to off-balance sheet Farmer Mac I Guaranteed Securities		-		414,462
Transfers of loans held for sale to loans held for investment		878,798		-

Effective January 1, 2011, Farmer Mac transferred $878.8 million of loans in the Farmer Mac I program from held for sale to held for investment because Farmer Mac no longer has the intent to securitize or sell these loans in the foreseeable future. Farmer Mac transferred these loans at their cost, which was lower than the estimated fair value at the time of transfer.

At the time of purchase, loans are classified as either held for sale or held for investment depending upon management’s intent and ability to hold the loans for the foreseeable future. On two occasions, once in first quarter 2009 and again in first quarter 2011, consistent with a change in management’s intent, Farmer Mac reclassified loans from one classification to the other on the balance sheet. Prior to first quarter 2011, cash receipts from the repayment of loans were classified within the statements of cash flows consistent with the then current balance sheet classification as opposed to the original balance sheet classification assigned based on management's intent upon purchase of the loan, as prescribed by accounting guidance related to the statement of cash flows. As a result of these incorrect classifications, Farmer Mac restated its previously issued interim condensed consolidated statements of cash flows for the six and nine month periods ended June 30, and September 30, 2009 and 2010, respectively, and its consolidated statements of cash flows for the years ended December 31, 2009 and 2010 by amending its Annual Report on Form 10-K for the year ended December 31, 2010, which included the interim periods, on Amendment No.1 of Form 10-K/A filed on June 1, 2011. The restatements impacted only the classification of items in operating activities and investing activities and had no impact on the net increase or decrease in cash and cash equivalents as previously reported and had no effect on Farmer Mac’s previously issued condensed consolidated interim or annual consolidated balance sheets, statements of operations or statements of changes in equity.

(b) Allowance for Losses

Farmer Mac maintains an allowance for losses to cover estimated probable losses on loans held (“allowance for loan losses”) and loans underlying Long Term Standby Purchase Commitments (“LTSPCs”) and Farmer Mac Guaranteed Securities (“reserve for losses”) based on available information. Farmer Mac’s methodology for determining the allowance for losses separately considers its portfolio segments - Farmer Mac I, Farmer Mac II, and Rural Utilities, and disaggregates its analysis, where relevant, into classes of financing receivables, which currently include loans and AgVantage securities. Further disaggregation to commodity type is performed, where appropriate, in analyzing the need for an allowance for losses.

The allowance for losses is increased through periodic provisions for loan losses that are charged against net interest income and provisions for losses that are charged to non-interest expense and are reduced by charge-offs for actual losses, net of recoveries. Negative provisions, or releases of allowance for losses, are recorded in the event that the estimate of probable losses as of the end of a period is lower than the estimate at the beginning of the period.

The total allowance for losses consists of a general allowance for losses and a specific allowance for impaired loans.

General Allowance for Losses

Farmer Mac I

Farmer Mac’s methodology for determining its allowance for losses incorporates the Corporation’s automated loan classification system. That system scores loans based on criteria such as historical repayment performance, indicators of current financial condition, loan seasoning, loan size and loan-to-value ratio. For the purposes of the loss allowance methodology, the loans in the Farmer Mac I portfolio and loans underlying Farmer Mac I Guaranteed Securities and LTSPCs have been scored and classified for each calendar quarter since first quarter 2000. The allowance methodology captures the migration of loan scores across concurrent and overlapping three-year time horizons and calculates loss rates separately within each loan classification for (1) loans underlying LTSPCs and (2) loans held and loans underlying Farmer Mac I Guaranteed Securities. The calculated loss rates are applied to the current classification distribution of unimpaired loans in Farmer Mac’s portfolio to estimate inherent losses, on the assumption that the historical credit losses and trends used to calculate loss rates will continue in the future. Management evaluates this assumption by taking into consideration factors, including:

economic conditions;

geographic and agricultural commodity/product concentrations in the portfolio;

the credit profile of the portfolio;

delinquency trends of the portfolio;

historical charge-off and recovery activities of the portfolio; and

other factors to capture current portfolio trends and characteristics that differ from historical experience.

Management believes that its use of this methodology produces a reasonable estimate of probable losses, as of the balance sheet date, for all loans held in the Farmer Mac I portfolio and loans underlying Farmer Mac I Guaranteed Securities and LTSPCs. There were no purchases or sales during the first half of 2011 that materially affected the credit profile of the Farmer Mac I portfolio.

Farmer Mac has not provided an allowance for losses for loans underlying Farmer Mac I AgVantage securities. Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is collateralized by eligible loans in an amount at least equal to the outstanding principal amount of the security, with some level of overcollateralization also required for Farmer Mac I AgVantage securities. Farmer Mac excludes the loans that secure AgVantage securities from the credit risk metrics it discloses because of the credit quality of the issuing institutions, the collateralization level for the securities, and because delinquent loans are required to be removed from the pool of pledged loans and replaced with current eligible loans.

Farmer Mac II

No allowance for losses has been provided for USDA Guaranteed Securities or Farmer Mac II Guaranteed Securities. The USDA-guaranteed portions presented as “USDA Guaranteed Securities” on the condensed consolidated balance sheets, as well as those that collateralize Farmer Mac II Guaranteed Securities, are guaranteed by the USDA. Each USDA guarantee is an obligation backed by the full faith and credit of the United States. Farmer Mac excludes these guaranteed portions from the credit risk metrics it discloses because of the USDA guarantee.

Rural Utilities

Farmer Mac separately evaluates the rural utilities loans it owns, as well as the lender obligations and loans underlying or securing its Farmer Mac Guaranteed Securities – Rural Utilities, including AgVantage securities, to determine if there are probable losses inherent in those assets. Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is collateralized by eligible loans in an amount at least equal to the outstanding principal amount of the security. No allowance for losses has been provided for this portfolio segment based on the credit quality of the collateral supporting rural utilities assets and Farmer Mac’s counterparty risk analysis. As of June 30, 2011, there were no delinquencies and no probable losses inherent in Farmer Mac’s rural utilities loans held or in any Farmer Mac Guaranteed Securities – Rural Utilities.

Specific Allowance for Impaired Loans

Farmer Mac also analyzes assets in its portfolio for impairment in accordance with the Financial Accounting Standards Board (“FASB”) standard on measuring individual impairment of a loan. Farmer Mac’s impaired assets generally include:

non-performing assets (loans 90 days or more past due, in foreclosure, restructured, in bankruptcy – including loans performing under either their original loan terms or a court-approved bankruptcy plan);

loans for which Farmer Mac has adjusted the timing of borrowers’ payment schedules, but still expects to collect all amounts due and has not made economic concessions; and

additional performing loans that have previously been delinquent or are secured by real estate that produces agricultural commodities or products currently under stress.

For loans with an updated appraised value, other updated collateral valuation or management’s estimate of discounted collateral value, this analysis includes the measurement of the fair value of the underlying collateral for individual loans relative to the total recorded investment, including principal, interest and advances and net of any charge-offs. In the event that the collateral value does not support the total recorded investment, Farmer Mac provides an allowance for the loan for the difference between the recorded investment and its fair value, less estimated costs to liquidate the collateral. For the remaining impaired assets without updated valuations, this analysis is performed in the aggregate in consideration of the similar risk characteristics of the assets and historical statistics.

As of June 30, 2011 and 2010, Farmer Mac’s specific allowances for losses were $7.5 million and $3.0 million, respectively.

Allowance for Losses

The following is a summary of the changes in the allowance for losses for the three and six months ended June 30, 2011 and 2010:

	June 30, 2011									June 30, 2010
	Allowance						Total			Allowance					Total
	for Loan			Reserve			Allowance			for Loan			Reserve		Allowance
	Losses			for Losses			for Losses			Losses			for Losses		for Losses
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	11,084		$	8,378		$	19,462		$	9,142		$	6,427	$	15,569
Provision for/(release of) losses		160			(935	)		(775	)		(1,870	)		3,043		1,173
Charge-offs		(191	)		-			(191	)		-			-		-
Recoveries		-			-			-			2,223			-		2,223
Ending Balance	$	11,053		$	7,443		$	18,496		$	9,495		$	9,470	$	18,965

For the Six Months Ended:
Beginning Balance	$	9,803		$	10,312		$	20,115		$	6,292		$	7,895	$	14,187
Provision for/(release of) losses		1,441			(2,869	)		(1,428	)		980			1,575		2,555
Charge-offs		(191	)		-			(191	)		-			-		-
Recoveries		-			-			-			2,223			-		2,223
Ending Balance	$	11,053		$	7,443		$	18,496		$	9,495		$	9,470	$	18,965

During second quarter 2011, Farmer Mac recorded provisions to its allowance for loan losses of $0.2 million and releases from its reserve for losses of $0.9 million. The net release from the allowance for losses in second quarter 2011 was primarily due to a decline in estimated probable losses related to Farmer Mac’s exposure to the ethanol and dairy industries. Farmer Mac also charged off $0.2 million of losses upon acquisition of real estate owned (“REO”) during second quarter 2011. In first quarter 2011, Farmer Mac purchased two defaulted loans pursuant to the terms of an LTSPC agreement. This resulted in the reclassification of $1.8 million of specific allowance, which had been recorded in fourth quarter 2010, from the reserve for losses to the allowance for loan losses. The provision for/(release of) losses for the six months ended June 30, 2011 reflects this reclassification as well as the decline in estimated probable losses related to Farmer Mac’s exposure to the ethanol and dairy industries.

During second quarter 2010, Farmer Mac recorded releases from its allowance for loan losses of $1.9 million and provisions to its reserve for losses of $3.0 million. Farmer Mac also recorded recoveries of $2.2 million on a loan secured by an ethanol plant during second quarter 2010. For the six months ended June 30, 2010, Farmer Mac recorded provisions to its allowance for loan losses and its reserve for losses of $1.0 million and $1.6 million, respectively. These amounts include the reclassification of $2.0 million from the reserve for losses to the allowance for loan losses upon adoption of the new consolidation guidance in first quarter 2010.

Farmer Mac’s reserve for losses for off-balance sheet Farmer Mac I Guaranteed Securities and LTSPCs as of June 30, 2011 were $0.5 million and $6.9 million, respectively, compared to $0.6 million and $9.7 million, respectively as of December 31, 2010.

The following tables present the ending balances of Farmer Mac I loans held and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities and the related allowance for losses by impairment method and commodity type as of June 30, 2011 and December 31, 2010 and changes in the allowance for losses for the three and six months ended June 30, 2011.

	As of June 30, 2011
												AgStorage and
												Processing
				Permanent						Part-time		(including ethanol
	Crops			Plantings			Livestock			Farm		facilities)			Other			Total
	(in thousands)
Ending Balance
Evaluated collectively
for impairment	$	1,771,634		$	813,080		$	1,138,248		$	259,825	$	218,938		$	19,322		$	4,221,047
Evaluated individually
for impairment		31,611			30,788			13,553			11,532		6,316			1,140			94,940
	$	1,803,245		$	843,868		$	1,151,801		$	271,357	$	225,254		$	20,462		$	4,315,987

Allowance for Losses:
Evaluated collectively
for impairment	$	1,637		$	1,204		$	1,118		$	782	$	6,250		$	8		$	10,999
Evaluated individually
for impairment		2,078			2,599			656			313		1,850			1			7,497
	$	3,715		$	3,803		$	1,774		$	1,095	$	8,100		$	9		$	18,496

For the Three Months Ended:
Beginning balance	$	3,922		$	3,802		$	1,850		$	1,053	$	8,823		$	12		$	19,462
Provision for/(release of) losses		(31	)		8			(68	)		42		(723	)		(3	)		(775	)
Charge-offs		(176	)		(7	)		(8	)		-		-			-			(191	)
Ending balance	$	3,715		$	3,803		$	1,774		$	1,095	$	8,100		$	9		$	18,496

For the Six Months Ended:
Beginning balance	$	3,572		$	3,537		$	2,749		$	445	$	9,797		$	15		$	20,115
Provision for/(release of) losses		319			273			(967	)		650		(1,697	)		(6	)		(1,428	)
Charge-offs		(176	)		(7	)		(8	)		-		-			-			(191	)
Ending balance	$	3,715		$	3,803		$	1,774		$	1,095	$	8,100		$	9		$	18,496

Farmer Mac recognized interest income of approximately $0.3 million and $1.1 million on impaired loans during the three months and six months ended June 30, 2011, respectively, compared to $0.4 million and $0.9 million, respectively, for the same periods in 2010. During the three and six months ended June 30, 2011, Farmer Mac’s average investment in impaired loans was $89.1 million and $94.4 million, respectively, compared to $115.7 million and $124.3 million, respectively, for the same periods in 2010.

The following tables present by commodity type the unpaid principal balances, recorded investment and specific allowance for losses related to impaired loans, the recorded investment in loans on nonaccrual status as of June 30, 2011 and December 31, 2010 and the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2011.

In accordance with the terms of all applicable trust agreements, Farmer Mac generally acquires all loans that collateralize Farmer Mac Guaranteed Securities that become and remain either 90 or 120 days or more past due (depending on the provisions of the applicable agreement) on the next subsequent loan payment date. In accordance with the terms of all LTSPCs, Farmer Mac acquires loans that are either 90 days or 120 days delinquent (depending on the provisions of the applicable agreement) upon the request of the counterparty.

Farmer Mac records all such defaulted loans at their unpaid principal balance during the period in which Farmer Mac becomes entitled to purchase the loans and therefore regains effective control over the transferred loans.

During the three and six months ended June 30, 2011, Farmer Mac purchased 5 defaulted loans having an unpaid principal balance of $1.4 million and 13 defaulted loans having an unpaid principal balance of $18.3 million, respectively, from pools underlying Farmer Mac I Guaranteed Securities and LTSPCs. During the three and six months ended June 30, 2010, Farmer Mac purchased 2 defaulted loans having an unpaid principal balance of $0.9 million and 7 defaulted loans having an unpaid principal balance of $3.4 million, respectively, from pools underlying Farmer Mac I Guaranteed Securities and LTSPCs. The following table presents Farmer Mac’s purchases of defaulted loans underlying Farmer Mac I Guaranteed Securities and LTSPCs.

	For the Three Months Ended				For the Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2011		2010		2011		2010
	(in thousands)
Defaulted loans purchased underlying
off-balance sheet Farmer Mac I
Guaranteed Securities	$	-	$	-	$	1,369	$	2,323
Defaulted loans purchased
underlying LTSPCs		1,420		913		16,976		1,080
Total defaulted loan purchases	$	1,420	$	913	$	18,345	$	3,403

Credit Quality Indicators

The following tables present credit quality indicators related to Farmer Mac I loans held and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities (excluding AgVantage securities) as of June 30, 2011 and December 31, 2010. Farmer Mac uses 90-day delinquency information to evaluate its credit risk exposure on these assets because historically it has been the best measure of borrower credit quality deterioration. Most of the Farmer Mac I loans held and underlying LTSPCs and Farmer Mac I Guaranteed Securities have annual (January 1) or semi-annual (January 1 and July 1) payment dates and are supported by less frequent and less predictable revenue sources, such as the cash flows generated from the maturation of crops, sales of livestock and government farm support programs. Taking into account the reduced frequency of payment due dates and revenue sources, Farmer Mac considers the 90-day delinquency point to be the most significant observation point when evaluating its credit risk exposure.

	As of June 30, 2011
									AgStorage and
									Processing
			Permanent				Part-time		(including ethanol
	Crops		Plantings		Livestock		Farm		facilities)		Other		Total
	(in thousands)
Credit risk profile by internally assigned grade (1)
Grade:
Acceptable	$	1,705,342	$	758,248	$	997,538	$	239,603	$	116,498	$	17,797	$	3,835,026
Other assets especially mentioned ("OAEM") (2)		51,229		31,452		94,127		13,380		64,435		1,296		255,919
Substandard (2)		46,674		54,168		60,136		18,374		44,321		1,369		225,042
Total	$	1,803,245	$	843,868	$	1,151,801	$	271,357	$	225,254	$	20,462	$	4,315,987

Commodity analysis of past due loans (1)
Greater than 90 days	$	17,060	$	22,072	$	7,773	$	7,077	$	-	$	651	$	54,633
In bankruptcy and REO		5,099		4,683		1,618		1,221		-		-		12,621
Total non-performing	$	22,159	$	26,755	$	9,391	$	8,298	$	-	$	651	$	67,254

(1)	Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its Farmer Mac I portfolio, and recorded investment of past due loans. Amounts include real estate owned, at lower of cost or fair value less estimated selling costs, of $4.1 million.

(2)

Assets in the OAEM category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected.

	As of December 31, 2010
									AgStorage and
									Processing
			Permanent				Part-time		(including ethanol
	Crops		Plantings		Livestock		Farm		facilities)		Other		Total
	(in thousands)
Credit risk profile by internally assigned grade (1)
Grade:
Acceptable	$	1,625,995	$	792,061	$	993,542	$	268,111	$	116,248	$	20,321	$	3,816,278
Other assets especially mentioned ("OAEM") (2)		59,768		17,112		86,500		9,652		76,947		639		250,618
Substandard (2)		45,617		56,302		66,416		13,382		53,528		1,979		237,224
Total	$	1,731,380	$	865,475	$	1,146,458	$	291,145	$	246,723	$	22,939	$	4,304,120

Commodity analysis of past due loans (1)
Greater than 90 days	$	21,423	$	26,312	$	7,177	$	3,803	$	10,892	$	641	$	70,248
In bankruptcy and REO		4,886		3,712		1,395		1,537		-		-		11,530
Total non-performing	$	26,309	$	30,024	$	8,572	$	5,340	$	10,892	$	641	$	81,778

(1)	Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its Farmer Mac I portfolio, and recorded investment of past due loans. Amounts include real estate owned, at lower of cost or fair value less estimated selling costs, of $2.0 million.

(2)

Concentrations of Credit Risk

The following table sets forth the geographic and commodity/collateral diversification, as well as the range of original loan-to-value ratios, for all Farmer Mac I loans held and loans underlying Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and LTSPCs as of June 30, 2011 and December 31, 2010:

	June 30,		December 31,
	2011		2010
	(in thousands)
By commodity/collateral type:
Crops	$	1,803,245	$	1,731,380
Permanent plantings		843,868		865,475
Livestock		1,151,801		1,146,458
Part-time farm		271,357		291,145
AgStorage and processing
(including ethanol facilities)		225,254		246,723
Other		20,462		22,939
Total	$	4,315,987	$	4,304,120

By geographic region (1):
Northwest	$	768,974	$	660,845
Southwest		1,578,702		1,626,398
Mid-North		928,976		934,879
Mid-South		502,724		521,294
Northeast		300,177		317,715
Southeast		236,434		242,989
Total	$	4,315,987	$	4,304,120

By original loan-to-value ratio:
0.00% to 40.00%	$	1,034,365	$	1,030,580
40.01% to 50.00%		772,677		770,744
50.01% to 60.00%		1,241,290		1,246,675
60.01% to 70.00%		1,067,894		1,056,132
70.01% to 80.00%		147,255		155,363
80.01% to 90.00%		52,506		44,626
Total	$	4,315,987	$	4,304,120

(1)	Geographic regions: Northwest (AK, ID, MT, ND, NE, OR, SD,
	WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT);
	Mid-North (IA, IL, IN, MI, MN, MO, WI); Mid-South (KS, OK,
	TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY,
	OH, PA, RI, TN, VA, VT, WV); Southeast (AL, AR, FL, GA, LA,
	MS, SC).

The original loan-to-value ratio is calculated by dividing the loan principal balance at the time of guarantee, purchase or commitment by the appraised value at the date of loan origination or, when available, the updated appraised value at the time of guarantee, purchase or commitment. Current loan-to-value ratios may be higher or lower than the original loan-to-value ratios.

Farmer Mac enters into transactions involving financial derivatives principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets, future cash flows or debt issuance, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk and often times deriving an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market. Farmer Mac also recognizes certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative.

Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet purchased and permanently funded, through the use of forward sale contracts on the debt of other government-sponsored enterprises (“GSEs”), futures contracts involving U.S. Treasury securities and interest rate swap contracts. Farmer Mac uses forward sale contracts on GSE securities to reduce its interest rate exposure to changes in both U.S. Treasury rates and spreads on Farmer Mac debt. The notional amounts of these contracts are determined based on a duration-matched hedge ratio between the hedged item and the hedge instrument. Gains or losses generated by these hedge transactions should offset changes in funding costs.

All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability. Farmer Mac does not designate its financial derivatives as fair value hedges or cash flow hedges; therefore, the changes in the fair values of financial derivatives are reported as gains or losses on financial derivatives in the condensed consolidated statements of operations without any corresponding changes in the fair values of the hedged items.

The following tables summarize information related to Farmer Mac’s financial derivatives as of June 30, 2011 and December 31, 2010:

	June 30, 2011
																	Weighted-
									Weighted-			Weighted-			Weighted-		Average
									Average			Average			Average		Remaining
	Notional		Fair Value						Pay			Receive			Forward		Life
	Amount		Asset			(Liability)			Rate			Rate			Price		(in years)
	(dollars in thousands)
Interest rate swaps:
Pay fixed non-callable	$	1,721,842	$	2,317		$	(107,896	)		3.96	%		0.27	%				3.87
Receive fixed non-callable		3,305,910		41,976			(20	)		0.38	%		1.24	%				1.35
Receive fixed callable		100,000		76			-			0.19	%		0.48	%				0.82
Basis swaps		319,117		163			(1,763	)		0.92	%		0.40	%				1.62
Credit default swaps		30,000		-			(118	)		1.00	%		0.00	%				0.56
Agency forwards		17,248		266			-									113.41
Treasury futures		4,200		28			-									122.99
Credit valuation adjustment		-		(850	)		646
Total financial derivatives	$	5,498,317	$	43,976		$	(109,151	)

	December 31, 2010
																	Weighted-
									Weighted-			Weighted-			Weighted-		Average
									Average			Average			Average		Remaining
	Notional		Fair Value						Pay			Receive			Forward		Life
	Amount		Asset			(Liability)			Rate			Rate			Price		(in years)
	(dollars in thousands)
Interest rate swaps:
Pay fixed callable	$	13,144	$	-		$	(69	)		5.11	%		0.29	%				7.12
Pay fixed non-callable		1,275,108		2,814			(108,503	)		4.69	%		0.30	%				3.93
Receive fixed non-callable		2,874,534		39,551			(1,828	)		0.44	%		1.40	%				1.70
Basis swaps		254,991		52			(3,411	)		1.34	%		0.38	%				1.71
Credit default swaps		30,000		-			(216	)		1.00	%		0.00	%				1.05
Agency forwards		37,336		-			(174	)								101.03
Treasury futures		1,300		-			(6	)								119.95
Credit valuation adjustment		-		(925	)		520
Total financial derivatives	$	4,486,413	$	41,492		$	(113,687	)

In the normal course of business, collateral requirements contained in Farmer Mac’s derivative contracts are enforced by Farmer Mac and its counterparties. Upon enforcement of the collateral requirements, the amount of collateral posted is typically based on the net fair value of all derivative contracts with the counterparty, i.e., derivative assets net of derivative liabilities at the counterparty level. If Farmer Mac were to be in violation of certain provisions of the derivative contracts, the related counterparty could request payment or full collateralization on the derivative contracts. As of June 30, 2011, the fair value of Farmer Mac’s derivatives in a net liability position at the counterparty level, which includes accrued interest but excludes any adjustment for nonperformance risk, was $87.2 million. As of June 30, 2011, Farmer Mac posted cash of $5.1 million as collateral for its derivatives in net liability positions. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. If Farmer Mac had breached certain provisions of the derivative contracts as of June 30, 2011, it could have been required to settle its obligations under the agreements or post additional collateral of $82.1 million.

The following table summarizes the effects of Farmer Mac’s financial derivatives on the condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010:

	Losses on Financial Derivatives
	For the Three Months Ended						For the Six Months Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	(in thousands)

Interest rate swaps	$	(16,451	)	$	(14,624	)	$	(11,721	)	$	(19,390	)
Agency forwards		(1,153	)		(1,339	)		(2,001	)		(1,938	)
Treasury futures		(211	)		(393	)		(26	)		(641	)
Credit default swaps		9			561			(53	)		405
		(17,806	)		(15,795	)		(13,801	)		(21,564	)
Amortization of derivatives transition adjustment		-			(45	)		-			(80	)
Total	$	(17,806	)	$	(15,840	)	$	(13,801	)	$	(21,644	)

As of June 30, 2011, Farmer Mac had outstanding basis swaps with Zions First National Bank, a related party, with a total notional amount of $74.1 million and a fair value of $(1.8) million, compared to $85.0 million and $(3.4) million, respectively, as of December 31, 2010. Under the terms of those basis swaps, Farmer Mac pays Constant Maturity Treasury-based rates and receives LIBOR. Those swaps economically hedge most of the interest rate basis risk related to loans Farmer Mac purchases that pay a Constant Maturity Treasury based-rate and the discount notes Farmer Mac issues to fund the loan purchases (the pricing of discount notes is closely correlated to LIBOR rates). Farmer Mac recorded unrealized losses of $0.1 million and unrealized gains of $1.6 million on those outstanding basis swaps for the three and six months ended June 30, 2011, respectively, compared to unrealized losses of $0.1 million and $25,000, respectively, for the same periods in 2010.

(d) Earnings Per Common Share

Basic earnings per common share is based on the weighted-average number of shares of common stock outstanding. Diluted earnings per common share is based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights (“SARs”) and nonvested restricted stock awards. The following schedule reconciles basic and diluted earnings per common share (“EPS”) for the three and six months ended June 30, 2011 and 2010:

	For the Three Months Ended
	June 30, 2011							June 30, 2010
	Net				$ per			Net				$ per
	Income		Shares		Share			Income		Shares		Share
	(in thousands, except per share amounts)
Basic EPS
Net income available
to common stockholders	$	5,170		10,343	$	0.50		$	1,824		10,210	$	0.18
Effect of dilutive securities(1):
Stock options, SARs
and restricted stock				376		(0.02	)				400		(0.01	)
Diluted EPS	$	5,170		10,719	$	0.48		$	1,824		10,610	$	0.17

(1)

For the three months ended June 30, 2011 and 2010, stock options and SARs of 652,234 and 1,650,050, 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 June 30, 2011 and 2010, contingent shares of non-vested restricted stock of 170,760 and 126,000, respectively, were outstanding but not included in the computation of diluted earnings per share because the performance conditions were not met.

	For the Six Months Ended
	June 30, 2011							June 30, 2010
	Net				$ per			Net				$ per
	Income		Shares		Share			Income		Shares		Share
	(in thousands, except per share amounts)
Basic EPS
Net income/(loss) available
to common stockholders	$	23,493		10,314	$	2.28		$	3,591		10,177	$	0.35
Effect of dilutive securities(1):
Stock options, SARs
and restricted stock				378		(0.08	)				354		(0.01	)
Diluted EPS	$	23,493		10,692	$	2.20		$	3,591		10,531	$	0.34

(1)

For the six months ended June 30, 2011 and 2010, stock options and SARs of 705,515 and 1,616,008, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the six months ended June 30, 2011 and 2010, contingent shares of non-vested restricted stock of 148,380 and 104,250, respectively, were outstanding but not included in the computation of diluted earnings per share because the performance conditions were not met.

(e) Stock-Based Compensation

Farmer Mac’s 2008 Omnibus Incentive Compensation Plan authorizes the grants of restricted stock, stock options and SARs, among other alternative forms of equity-based compensation, to directors, officers and other employees. SARs awarded to officers and employees vest annually in thirds. If not exercised or terminated earlier due to the termination of employment, SARs granted to officers or employees expire after ten years. For all SARs granted, the exercise price is equal to the closing price of Farmer Mac’s Class C Non-Voting Common Stock on the date of grant. SARs granted to officers in second quarter 2011 have an exercise price of $18.77. As of June 30, 2011, there were no outstanding SARs awarded to directors. Restricted stock awarded to directors during second quarter 2011 vests fully on March 31, 2012, approximately one year after grant. Restricted stock awarded to officers during second quarter 2011 vests after approximately three years and only vests if certain performance conditions are met. Restricted stock awards granted to both directors and officers are not issued until full vesting occurs.

For the three and six months ended June 30, 2011, Farmer Mac recognized $0.8 million and $1.5 million, respectively, of compensation expense related to stock options, SARs and restricted stock, compared to $0.8 million and $1.5 million, respectively, for the same periods in 2010.

The following tables summarize activity related to stock options, SARs and nonvested restricted stock awards for the three and six months ended June 30, 2011 and 2010:

	June 30, 2011					June 30, 2010
	Stock			Weighted-		Stock			Weighted-
	Options			Average		Options			Average
	and			Exercise		and			Exercise
	SARs			Price		SARs			Price
For the Three Months Ended:
Outstanding, beginning of period		1,322,461		$	19.37		1,799,465		$	22.68
Granted		113,000			18.77		247,000			12.20
Exercised		-			-		(21,331	)		13.15
Canceled		(106,561	)		28.83		(102,084	)		20.88
Outstanding, end of period		1,328,900		$	18.57		1,923,050		$	21.53
For the Six Months Ended:
Outstanding, beginning of period		1,924,133		$	21.16		1,799,465		$	22.68
Granted		113,000			18.77		247,000			12.20
Exercised		(5,667	)		7.48		(21,331	)		13.15
Canceled		(702,566	)		25.79		(102,084	)		20.88
Outstanding, end of period		1,328,900		$	18.57		1,923,050		$	21.53

Options and SARs
exercisable at end of period		886,237		$	21.68		1,433,792		$	25.04

	June 30, 2011					June 30, 2010
				Weighted-					Weighted-
	Non-vested			Average		Non-vested			Average
	Restricted			Grant-date		Restricted			Grant-date
	Stock			Fair Value		Stock			Fair Value
For the Three Months Ended:
Outstanding, beginning of period		126,000		$	8.47		200,548		$	5.93
Granted		73,060			18.77		111,085			12.28
Canceled		-			-		(11,599	)		8.15
Vested and issued		-			-		(118,048	)		5.93
Outstanding, end of period		199,060		$	12.25		181,986		$	9.66
For the Six Months Ended:
Outstanding, beginning of period		182,609		$	9.63		200,548		$	5.93
Granted		73,060			18.77		111,085			12.28
Canceled		-			-		(11,599	)		8.15
Vested and issued		(56,609	)		12.22		(118,048	)		5.93
Outstanding, end of period		199,060		$	12.25		181,986		$	9.66

The cancellations of stock options, SARs and nonvested restricted stock during the first six months of 2011 were due to vested options terminating unexercised on their expiration dates.

For the three and six months ended June 30, 2011 adjustments to additional paid-in capital from exercises or expiration of stock options and SARs and the vesting or expiration of restricted stock was $0.1 million and $(0.5) million, respectively, compared to $0.3 million for the three and six months ended June 30, 2010. The reduction of income taxes to be paid as a result of the deduction for exercises of stock options and SARs was $0.4 million for the six months ended June 30, 2011. The reduction of income taxes to be paid as a result of the deduction for exercises of stock options and SARs and the vesting or accelerated tax elections of restricted stock was $0.9 million for the three and six months ended June 30, 2010.

The following tables summarize information regarding stock options, SARs and nonvested restricted stock outstanding as of June 30, 2011:

Outstanding

Exercisable

Vested or Expected to Vest

Weighted-

Stock

Average

Stock

Average

Stock

Average

Range of

Options

Remaining

Options

Remaining

Options

Remaining

Exercise

and

Contractual

and

Contractual

and

Contractual

Prices

SARs

Life

SARs

Life

SARs

Life

$5.00 - $ 9.99

261,666

7.8 years

151,670

7.8 years

238,667

7.8 years

10.00 - 14.99

302,000

8.8 years

82,333

8.8 years

269,030

8.8 years

15.00 - 19.99

163,786

7.7 years

50,786

3.1 years

155,876

7.6 years

20.00 - 24.99

172,289

3.7 years

172,289

3.7 years

172,289

3.7 years

25.00 - 29.99

400,159

4.3 years

400,159

4.3 years

400,159

4.3 years

30.00 - 34.99

29,000

5.2 years

29,000

5.2 years

29,000

5.2 years

1,328,900

886,237

1,265,021

Outstanding

Expected to Vest

Weighted-

Average

Nonvested

Remaining

Nonvested

Remaining

Grant-Date

Restricted

Contractual

Restricted

Contractual

Fair Value

Stock

Life

Stock

Life

$5.00 - $ 9.99

75,000

1.0 years

67,500

1.0 years

10.00 - 14.99

51,000

2.0 years

45,900

2.0 years

15.00 - 19.99

73,060

2.2 years

63,024

2.2 years

199,060

176,424

The weighted-average grant date fair value of SARs granted during the first six months of 2011 and 2010 were $13.75 and $8.31 per share, respectively. The fair values for SARs were estimated using the Black-Scholes option pricing model based on the following assumptions:

	2011	2010
Risk-free interest rate	2.6%	3.3%
Expected years until exercise	6 years	7 years
Expected stock volatility	97.8%	88.3%
Dividend yield	1.0%	1.8%

(f) Fair Value Measurement

Farmer Mac follows accounting guidance for fair value measurements that defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy that ranks the quality and reliability of the inputs to valuation techniques used to measure fair value. The hierarchy gives highest rank to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest rank to unobservable inputs (level 3 measurements).

Farmer Mac’s assessment of the significance of the input to the fair value measurement requires judgment, and considers factors specific to the financial instrument. Both observable and unobservable inputs may be used to determine the fair value of positions that Farmer Mac has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in long-dated volatilities) inputs.

See Note 7 for more information regarding fair value measurement.

(g) Consolidation of Variable Interest Entities

Farmer Mac has interests in various entities that are considered to be VIEs. These interests include investments in securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed securities created pursuant to Farmer Mac’s securitization transactions and mortgage and asset-backed trusts that Farmer Mac did not create. Effective January 1, 2010, Farmer Mac adopted two new accounting standards that eliminated the concept of qualifying special purpose entities (“QSPEs”) and amended the accounting for transfers of financial assets and the consolidation model for VIEs. All formerly designated QSPEs were evaluated for consolidation in accordance with the new consolidation model, which changed the method of analyzing which party to a VIE should consolidate the VIE. The new consolidation model uses a qualitative evaluation that requires consolidation of an entity when the reporting enterprise both (1) has the power to direct matters which significantly impact the activities and success of the entity, and (2) has exposure to benefits and/or losses that could potentially be significant to the entity. The reporting enterprise that meets both these conditions is deemed the primary beneficiary of the VIE.

The new consolidation standard requires the incremental assets and liabilities consolidated upon adoption to initially be reported at their carrying amounts. Carrying amount refers to the amount at which the assets and liabilities would have been carried in the consolidated financial statements if the new guidance had been effective when Farmer Mac first met the conditions to be the primary beneficiary of the VIE. If determining the carrying amounts is not practicable, the assets and liabilities of the VIE shall be measured at fair value at the date the new standards first apply. For the outstanding trusts consolidated effective January 1, 2010, Farmer Mac initially recorded the assets and liabilities on the consolidated balance sheet at their carrying amounts, adjusted, where applicable, for fair value option elections that had been made previously. Accrued interest and allowance for losses have also been recognized as appropriate.

Although these new accounting standards did not change the economic risk to Farmer Mac’s business, specifically Farmer Mac’s liquidity, credit and interest rate risks, the adoption of these new accounting standards had a significant impact on the presentation of Farmer Mac’s consolidated financial statements. On the consolidated balance sheet, there was an increase in loans held for investment, interest receivable, debt and accrued interest payable, and a decrease in available-for-sale and trading Farmer Mac Guaranteed Securities, the reclassification of a portion of the reserve for losses to allowance for loan losses, and the elimination of the guarantee and commitment fees receivable and guarantee and commitment obligations related to the consolidated trusts. On the income statement, there was an increase in interest income and interest expense attributable to the assets and liabilities of the consolidated trusts and a reclassification of a portion of guarantee fee income to interest income.

The VIEs in which Farmer Mac has a variable interest are limited to securitization trusts. The major judgment in determining if Farmer Mac is the primary beneficiary was whether Farmer Mac had the power to direct the activities of the trust that potentially had the most significant impact on the economic performance of the trust. Generally, the ability to make decisions regarding default mitigation was evidence of that power. Farmer Mac determined that it was the primary beneficiary for the securitization trusts related to most Farmer Mac I and all Rural Utilities securitization transactions because of its rights as guarantor under both programs to control the default mitigation activities of the trusts. For certain securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities, Farmer Mac determined that it was not the primary beneficiary since the power to make decisions regarding default mitigation was shared among unrelated parties. For similar securitization transactions where the power to make decisions regarding default mitigation was shared with a related party, Farmer Mac determined that it was the primary beneficiary because the applicable accounting guidance does not permit parties within a related party group to conclude that the power is shared.

For those trusts that Farmer Mac is the primary beneficiary, the assets and liabilities are presented on the condensed consolidated balance sheet as “Loans held for investment in consolidated trusts” and “Debt securities of consolidated trusts held by third parties,” respectively. These assets can only be used to satisfy the obligations of the related trust.

For those trusts where Farmer Mac has a variable interest but has not been determined to be the primary beneficiary, Farmer Mac’s interests are presented as either “Farmer Mac Guaranteed Securities” or “Investment securities” on the condensed consolidated balance sheets. Farmer Mac’s involvement in on-balance sheet VIEs classified as Farmer Mac Guaranteed Securities include securitization trusts under the Farmer Mac II program and trusts related to AgVantage securities. In the case of Farmer Mac II trusts, Farmer Mac was not determined to be the primary beneficiary because it does not have the decision-making power over default mitigation activities. For the AgVantage trusts, Farmer Mac currently does not have the power to direct the activities that have the most significant economic impact to the trust unless, as guarantor, there is a default by the issuer of the trust securities. Should there be a default, Farmer Mac would reassess whether it is the primary beneficiary of those trusts. For VIEs classified as investment securities, which include auction-rate certificates, asset-backed securities and GSE-guaranteed mortgage-backed securities, Farmer Mac was determined not to be the primary beneficiary because of the lack of voting rights or other powers to direct the activities of the trust. As of June 30, 2011, these Farmer Mac Guaranteed Securities trusts and investment securities trusts have carrying amounts on the condensed consolidated balance sheet totaling $1.8 billion and $867.6 million, respectively, which is Farmer Mac’s maximum exposure to loss. In addition, Farmer Mac has a variable interest in off-balance sheet VIEs, which include a guarantee of timely payment of principal and interest, totaling $2.7 billion as of June 30, 2011.

(h) New Accounting Standards

Troubled Debt Restructurings

In January 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (discussed below). The effective date of the new disclosures about troubled debt restructurings was delayed to coordinate the disclosures with the FASB project on determining what constitutes a troubled debt restructuring. In April 2011, the FASB completed that project and issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 states that a troubled debt restructuring exists when a creditor concludes that both the restructuring constitutes a concession and the debtor is experiencing financial difficulties and clarifies the guidance on evaluating these criteria. ASU 2011-02 is effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption (i.e., for Farmer Mac, it will be effective for third quarter 2011 reporting). The troubled debt restructuring disclosures in ASU 2010-20 also will be effective in third quarter 2011. Farmer Mac does not expect the adoption of these standards to have a significant impact on the Corporation’s financial position, results of operations or cash flows.

Fair Value Measurement and Disclosure

On May 12, 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which provides converged guidance on how to measure fair value and on what disclosures to provide about fair value measurements. The new guidance is largely consistent with existing fair value measurement principles, but expands existing disclosure requirements for fair value measurement. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. Farmer Mac does not expect the adoption of the new accounting guidance to have a significant impact on Farmer Mac’s fair value disclosures.

Comprehensive Income

On June 16, 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which revised the manner in which entities present comprehensive income in their financial statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. Farmer Mac does not expect the adoption of the new accounting guidance to have a material effect on Farmer Mac’s financial position, results of operations or cash flows.

(i) Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.