EX-99.1 2 a2020q1pressrelease.htm EX-99.1
Farmer Mac Reports First Quarter 2020 Results
- Grew Outstanding Business Volume to $21.5 Billion -
- Provides COVID-19 Update -
WASHINGTON, May 11, 2020 — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation's secondary market provider that increases the availability and affordability of credit for the benefit of rural America, today announced its results for the fiscal quarter ended March 31, 2020.
First Quarter 2020 Highlights
•Provided $1.3 billion in liquidity and lending capacity in first quarter 2020, resulting in net outstanding business volume growth of $421.4 million;
•Net income attributable to common stockholders was $9.4 million, or $0.87 per diluted common share;
•Core earnings, a non-GAAP measure was $20.1 million, or $1.87 per diluted common share;
•Net interest income grew $0.7 million year-over-year to $41.3 million;
•Net effective spread, a non-GAAP measure, increased 14% from the prior-year period to $44.2 million;
•90-day delinquencies were 0.37% of total outstanding business volume as of March 31, 2020; and
•First quarter provision for credit losses of $3.8 million, largely driven by expected COVID-19 impact.
COVID-19 Update
•Maintaining uninterrupted access to the debt capital markets;
•Continued strong liquidity position, as evidenced by quarter-end cash position of $1.2 billion;
•Preserving capital and liquidity by indefinitely suspending Farmer Mac's share repurchase program;
•Working with loan servicers to respond to and facilitate payment deferment requests from borrowers; and
•Approved 71 payment deferments through May 1, 2020 in the Farm & Ranch line of business with a total principal balance of $78.9 million.
"Our top priorities during this challenging time are to support agricultural and rural communities nationwide, and ensuring our employees continue to remain safe, healthy and productive,” said President and Chief Executive Officer Brad Nordholm. “Our consistent first quarter results underscored by strong business volume and continued access to capital markets, illustrate our ability to respond dynamically to customer needs during this time of market volatility and increased uncertainty. We have a resilient business model based on our consistent, conservative underwriting approach, as well as robust liquidity, that we believe will allow us to navigate through these challenging times and be well-positioned to deliver value to our shareholders and customers over the long-term. "
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First Quarter 2020 Results
Business Volume
Farmer Mac added $421.4 million net business volume growth in first quarter 2020, resulting in total outstanding business volume of $21.5 billion as of March 31, 2020. First quarter 2020 growth compares to net growth of $782.4 million in first quarter 2019, which included one large, unique transaction – the purchase of a $546.2 million portfolio of participations in seasoned Rural Utilities loans from CoBank. Excluding the impact from the CoBank transaction in first quarter 2019, Farmer Mac's net growth in first quarter 2020 compared to first quarter 2019 was $185.2 million.
Net growth this quarter was across all four lines of business: $255.9 million in Institutional Credit, $104.8 million in Rural Utilities, $34.6 million in Farm & Ranch, and $26.0 million in USDA Guarantees.
The $255.9 million net growth in Institutional Credit during first quarter 2020 was due primarily to two large counterparties who either upsized in connection with the refinancing of maturing bonds or issued new bonds that Farmer Mac purchased. We also experienced net growth from smaller fund counterparties.
The $104.8 million net growth in Rural Utilities during first quarter 2020 was attributable to the purchase of $152.7 million in loans from the two main counterparties in that line of business, partially offset by regularly scheduled payments, prepayments, and maturities of loans previously purchased and loans under LTSPCs. Net growth in Rural Utilities also included the financing of a renewable energy project.
The $34.6 million net increase in Farm & Ranch was comprised of a $81.8 million net increase in outstanding loan purchase volume, partially offset by a $47.2 million net decrease in loans under LTSPCs. The net growth in first quarter 2020 reflected our ability to retain borrowers in a decreasing interest rate environment by proactively engaging with our customers and adjusting their rates and loan sizes to reflect current market conditions and their specific funding needs.
USDA Guarantees grew by $26.0 million in first quarter 2020 due primarily to gross volume of $147.9 million, reflecting the positive effect of adjustments that we made to our product structure in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and in response to increased loan limits mandated by the 2018 Farm Bill.
Spreads
Net interest income for first quarter 2020 was $41.3 million, compared to $40.6 million in the prior year period. The increase was primarily driven by net growth across all lines of business. Net interest yield was 0.78% for first quarter 2020, as compared to 0.86% in first quarter 2019.
Net effective spread, a non-GAAP measure, for first quarter 2020 was $44.2 million, a $5.4 million increase from $38.8 million in the prior year period. This increase was primarily attributable to growth in outstanding business volume, which increased net effective spread by approximately $5.2 million. In percentage terms, net effective spread was 0.89% in both first quarter 2020 and first quarter 2019.
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Earnings
Farmer Mac's net income attributable to common stockholders for first quarter 2020 were $9.4 million ($0.87 per diluted common share), compared to $21.9 million ($2.03 per diluted common share) in first quarter 2019. The $12.5 million year-over-year decrease in net income attributable to common stockholders was primarily due to a $7.1 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates, a $2.6 million after-tax increase in operating expenses, and a $3.3 million after-tax increase in the total provision for losses. Farmer Mac enters into financial derivatives transactions to hedge interest rate risks inherent in its business and carries its financial derivatives at fair value in its consolidated financial statements. As these fluctuations are not expected to have a cumulative impact on Farmer Mac's earnings, Farmer Mac uses non-GAAP core earnings as a useful alternative measure to understand the business.
Farmer Mac's non-GAAP core earnings for first quarter 2020 was $20.1 million ($1.87 per diluted common share), compared to $22.2 million ($2.06 per diluted common share) in first quarter 2019. The $2.1 million year-over-year decrease in core earnings was primarily due to a $3.3 million after-tax increase in the total provision for losses and a $2.6 million after-tax increase in operating expenses. These decreases were partially offset by a $4.2 million after-tax increase in net effective spread resulting primarily from an increase in outstanding business volume.
The increase in the provision for credit losses for the quarter was primarily due to the recent developments related to COVID-19 and the resulting impact on the economic assumptions used in the Current Expected Credit Losses ("CECL") model, which Farmer Mac adopted on January 1, 2020 to replace the incurred loss model. The economic effects from the COVID-19 pandemic were due to the adverse economic shock assumptions and the resulting impact on credit spreads and higher unemployment. Of the $3.8 million expected credit loss provision that we recorded in first quarter 2020, $3.5 million was attributable to updated economic factors, predominantly related to COVID-19.
See "Use of Non-GAAP Measures" below for more information about core earnings, core earnings per share, and net effective spread and for reconciliations of the comparable GAAP measures to these non-GAAP measures.
Credit
As of March 31, 2020, Farmer Mac's allowance for losses was $19.1 million, compared to $12.6 million as of December 31, 2019. The increase was primarily due to the adoption of CECL and the economic uncertainty related to the COVID-19 pandemic and resulting expected losses. Across all of Farmer Mac's lines of business, Farmer Mac's allowance for losses represented 0.09% of total outstanding business volume as of March 31, 2020, compared to 0.06% as of December 31, 2019.
As of March 31, 2020, substandard assets were $317.4 million, compared to $315.0 million as of December 31, 2019. The increase of $2.4 million in substandard assets during first quarter 2020 reflected overall business volume growth. Across all of Farmer Mac's lines of business, substandard assets represented 1.5% of total outstanding business volume for both periods.
As of March 31, 2020, Farmer Mac's 90-day delinquencies were $79.7 million, compared to $61.0 million as of December 31, 2019 and $52.4 million as of March 31, 2019. The sequential increase in 90-day delinquencies is primarily due to seasonal delinquencies associated with loans that have annual (January
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1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio. Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.37% of total outstanding business volume as of March 31, 2020, compared to 0.29% as of December 31, 2019 and 0.26% as of March 31, 2019.
Capital
As of March 31, 2020, Farmer Mac's core capital level was $815.1 million, which was $165.8 million above the minimum capital level required by our statutory charter. This compares to $815.4 million as of December 31, 2019, which was $196.6 million above the minimum capital requirement. Farmer Mac's Tier 1 capital ratio was 12.6% as of March 31, 2020. The modest decrease in capital in excess of the minimum capital level required was primarily due to net growth in outstanding business volume of $421.4 million, requiring additional consumption of capital, coupled with a decrease in retained earnings primarily related to the adoption of CECL.
Earnings Conference Call Information
The conference call to discuss Farmer Mac's first quarter 2020 financial results will be held beginning at 8:30 a.m. Eastern time on Tuesday, May 12, 2020 and can be accessed by telephone or live webcast as follows:
Telephone (Domestic): (888) 346-2616
Telephone (International): (412) 902-4254
Webcast: https://www.farmermac.com/investors/events-presentations/
When dialing in to the call, please ask for the "Farmer Mac Earnings Conference Call." The call can be heard live and will also be available for replay on Farmer Mac’s website for two weeks following the conclusion of the call.
More complete information about Farmer Mac's performance for first quarter 2020 is in Farmer Mac's Annual Report on Form 10-Q for the quarter ended March 31, 2020 filed today with the SEC.
Use of Non-GAAP Measures
In the accompanying analysis of its financial information, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures 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.
Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected.
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Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, 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. For example, we have excluded from core earnings losses on retirement of preferred stock and the re-measurement of the deferred tax asset.
Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship.
Net effective spread also principally differs from net interest income and net interest yield because it includes: (1) the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"); and (2) the net effects of terminations or net settlements on financial derivatives. More information about Farmer Mac’s use of non-GAAP measures is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019 filed February 25, 2020 with the SEC.
For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, and net interest income and net interest yield to net effective spread, see "Reconciliations" below.
Forward-Looking Statements
Management's expectations for Farmer Mac's future necessarily involve assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements in this release, including uncertainties about:
•the effects of the novel coronavirus disease 2019 ("COVID-19") pandemic on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations;
•the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;
•legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries;
•fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;
•the level of lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac;
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•the general rate of growth in agricultural mortgage and rural utilities indebtedness;
•the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products, and volatility in commodity prices;
•the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac's borrowing costs relative to market indexes;
•developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
•the effect of any changes in Farmer Mac's executive leadership; and
•other factors that could have a negative effect on agricultural mortgage lending or borrower repayment capacity, including the effects of weather and fluctuations in agricultural real estate values.
Other risk factors are discussed in "Risk Factors" in Part I, Item 1A in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019. Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this release. The forward-looking statements contained in this release represent management's expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements included in this release to reflect new information or any future events or circumstances, except as otherwise required by applicable law. The information in this release is not necessarily indicative of future results.
About Farmer Mac
F armer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities. As the nation’s secondary market for agricultural credit, we provide financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac's customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. For more than thirty years, Farmer Mac has been delivering the capital and commitment rural America deserves. More information about Farmer Mac (including the Quarterly Report on Form 10-Q and the Annual Report on Form 10-K referenced above) is available on Farmer Mac's website at www.farmermac.com.
CONTACT: Jalpa Nazareth, Investor Relations
Megan Murray-Pelaez, Media Inquiries
(202) 872-7700
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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)

| As of |  |
| March 31, 2020 |  | December 31, 2019
| (in thousands) |  |
Assets: |  |  |
Cash and cash equivalents | $ | 1,231,585 |  |  | $ | 604,381 |
Investment securities: |  |  |
Available-for-sale, at fair value (amortized cost of $2,959,694 and $2,961,430, respectively) | 2,961,157 |  |  | 2,959,843 |
Held-to-maturity, at amortized cost | 45,032 |  |  | 45,032 |
Total Investment Securities | 3,006,189 |  |  | 3,004,875 |
Farmer Mac Guaranteed Securities: |  |  |
Available-for-sale, at fair value (amortized cost of $7,273,303 and $7,016,971, respectively) | 7,587,186 |  |  | 7,143,025 |
Held-to-maturity, at amortized cost | 1,447,883 |  |  | 1,447,451 |
Total Farmer Mac Guaranteed Securities | 9,035,069 |  |  | 8,590,476 |
USDA Securities: |  |  |
Trading, at fair value | 8,408 |  |  | 8,913 |
Held-to-maturity, at amortized cost | 2,269,611 |  |  | 2,232,160 |
Total USDA Securities | 2,278,019 |  |  | 2,241,073 |
Loans: |  |  |
Loans held for investment, at amortized cost | 5,789,391 |  |  | 5,390,977 |
Loans held for investment in consolidated trusts, at amortized cost | 1,540,689 |  |  | 1,600,917 |
Allowance for losses | (14,856) |  |  | (10,454) |
Total loans, net of allowance | 7,315,224 |  |  | 6,981,440 |
Financial derivatives, at fair value | 12,692 |  |  | 10,519 |
Interest receivable (includes $11,944 and $20,568, respectively, related to consolidated trusts) | 154,836 |  |  | 199,195 |
Guarantee and commitment fees receivable | 37,521 |  |  | 38,442 |
Deferred tax asset, net | 47,842 |  |  | 16,510 |
Prepaid expenses and other assets | 61,133 |  |  | 22,463 |
Total Assets | $ | 23,180,110 |  |  | $ | 21,709,374 |
Liabilities and Equity: |  |  |
Liabilities: |  |  |
Notes payable | 20,665,020 |  |  | 19,098,648 |
Debt securities of consolidated trusts held by third parties | 1,549,527 |  |  | 1,616,504 |
Financial derivatives, at fair value | 53,795 |  |  | 27,042 |
Accrued interest payable (includes $9,588 and $18,018, respectively, related to consolidated trusts) | 104,380 |  |  | 106,959 |
Guarantee and commitment obligation | 35,939 |  |  | 36,700 |
Accounts payable and accrued expenses | 74,412 |  |  | 22,081 |
Reserve for losses | 3,420 |  |  | 2,164 |
Total Liabilities | 22,486,493 |  |  | 20,910,098 |
Commitments and Contingencies |  |  |
Equity: |  |  |
Preferred stock: |  |  |  |  |
Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding | 58,333 |  |  | 58,333 |
Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,382 |  |  | 73,382 |
Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding | 96,659 |  |  | 96,659 |
Common stock: |  |  |  |  |
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding | 1,031 |  |  | 1,031 |
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding | 500 |  |  | 500 |
Class C Non-Voting, $1 par value, no maximum authorization, 9,192,047 shares and 9,180,744 shares outstanding, respectively | 9,192 |  |  | 9,181 |
Additional paid-in capital | 120,412 |  |  | 119,304 |
Accumulated other comprehensive (loss)/income, net of tax | (121,437) |  |  | (16,161) |
Retained earnings | 455,545 |  |  | 457,047 |
Total Equity | 693,617 |  |  | 799,276 |
Total Liabilities and Equity | $ | 23,180,110 |  |  | $ | 21,709,374 |

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

| For the Three Months Ended |  |  |  |  |  |
| March 31, 2020 |  | March 31, 2019 |  |  |  |
| (in thousands, except per share amounts) |  |  |  |  |  |
Interest income: |  |  |  |  |  |  |
Investments and cash equivalents | $ | 17,741 |  |  | $ | 18,707 |  |  |  |  |
Farmer Mac Guaranteed Securities and USDA Securities | 71,517 |  |  | 85,411 |  |  |  |  |
Loans | 60,596 |  |  | 51,397 |  |  |  |  |
Total interest income | 149,854 |  |  | 155,515 |  |  |  |  |
Total interest expense | 108,542 |  |  | 114,916 |  |  |  |  |
Net interest income | 41,312 |  |  | 40,599 |  |  |  |  |
(Provision for)/release of losses | (3,438) |  |  | 264 |  |  |  |  |
Net interest income after (provision for)/release of losses | 37,874 |  |  | 40,863 |  |  |  |  |
Non-interest (expense)/income: |  |  |  |  |  |  |
Guarantee and commitment fees | 3,196 |  |  | 3,513 |  |  |  |  |
Losses on financial derivatives | (9,298) |  |  | (360) |  |  |  |  |
Gains on trading securities | 106 |  |  | 44 |  |  |  |  |
Gains on sale of real estate owned | 485 |  |  | — |  |  |  |  |
(Provision for)/release of reserve for losses | (393) |  |  | 129 |  |  |  |  |
Other income | 816 |  |  | 493 |  |  |  |  |
Non-interest (expense)/income | (5,088) |  |  | 3,819 |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |
Compensation and employee benefits | 10,127 |  |  | 7,606 |  |  |  |  |
General and administrative | 5,363 |  |  | 4,596 |  |  |  |  |
Regulatory fees | 725 |  |  | 688 |  |  |  |  |
Operating expenses | 16,215 |  |  | 12,890 |  |  |  |  |
Income before income taxes | 16,571 |  |  | 31,792 |  |  |  |  |
Income tax expense | 3,741 |  |  | 6,622 |  |  |  |  |
Net income attributable to Farmer Mac | 12,830 |  |  | 25,170 |  |  |  |  |
Preferred stock dividends | (3,431) |  |  | (3,296) |  |  |  |  |
Net income attributable to common stockholders | $ | 9,399 |  |  | $ | 21,874 |  |  |  |  |
Earnings per common share: |  |  |  |  |  |  |
Basic earnings per common share | $ | 0.88 |  |  | $ | 2.05 |  |  |  |  |
Diluted earnings per common share | $ | 0.87 |  |  | $ | 2.03 |  |  |  |  |

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Reconciliations
Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings for the periods indicated:

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings |  |  |  |  |
| For the Three Months Ended |  |  |  |
| March 31, 2020 |  | December 31, 2019 |  | March 31, 2019
| (in thousands, except per share amounts) |  |  |  |
Net income attributable to common stockholders | $ | 9,399 |  |  | $ | 29,066 |  |  | $ | 21,874 |
Less reconciling items: |  |  |  |  |
(Losses)/gains on undesignated financial derivatives due to fair value changes | (6,484) |  |  | 4,469 |  |  | 2,240 |
Losses on hedging activities due to fair value changes | (5,925) |  |  | (220) |  |  | (2,817) |
Unrealized gains on trading securities | 106 |  |  | 172 |  |  | 44 |
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 3 |  |  | 40 |  |  | (16) |
Net effects of terminations or net settlements on financial derivatives | (1,300) |  |  | 1,339 |  |  | 110 |
Income tax effect related to reconciling items | 2,856 |  |  | (1,218) |  |  | 92 |
Sub-total | (10,744) |  |  | 4,582 |  |  | (347) |
Core earnings | $ | 20,143 |  |  | $ | 24,484 |  |  | $ | 22,221 |
Composition of Core Earnings: |  |  |  |  |
Revenues: |  |  |  |  |
Net effective spread(1) | $ | 44,163 |  |  | $ | 45,991 |  |  | $ | 38,801 |
Guarantee and commitment fees(2) | 4,896 |  |  | 5,432 |  |  | 5,419 |
Other(3) | 674 |  |  | 100 |  |  | 509 |
Total revenues | 49,733 |  |  | 51,523 |  |  | 44,729 |
Credit related expense/(income) (GAAP): |  |  |  |  |
Provision for/(release of) losses | 3,831 |  |  | 2,851 |  |  | (393) |
Gains on sale of REO | (485) |  |  | — |  |  | — |
Total credit related expense/(income) | 3,346 |  |  | 2,851 |  |  | (393) |
Operating expenses (GAAP): |  |  |  |  |
Compensation and employee benefits | 10,127 |  |  | 6,732 |  |  | 7,606 |
General and administrative | 5,363 |  |  | 5,773 |  |  | 4,596 |
Regulatory fees | 725 |  |  | 725 |  |  | 688 |
Total operating expenses | 16,215 |  |  | 13,230 |  |  | 12,890 |
Net earnings | 30,172 |  |  | 35,442 |  |  | 32,232 |
Income tax expense(4) | 6,598 |  |  | 7,526 |  |  | 6,715 |
Preferred stock dividends (GAAP) | 3,431 |  |  | 3,432 |  |  | 3,296 |
Core earnings | $ | 20,143 |  |  | $ | 24,484 |  |  | $ | 22,221 |
Core earnings per share: |  |  |  |  |
Basic | $ | 1.88 |  |  | $ | 2.29 |  |  | $ | 2.08 |
Diluted | 1.87 |  |  | 2.27 |  |  | 2.06 |

(1)Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.
(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.
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(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Reconciliation of GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per Share |  |  |  |  |  |  |  |  |
| For the Three Months Ended |  |  |  |  |  |  |  |
| March 31, 2020 |  | December 31, 2019 |  | March 31, 2019 |  |  |  |
| (in thousands, except per share amounts) |  |  |  |  |  |  |  |
GAAP - Basic EPS | $ | 0.88 |  |  | $ | 2.72 |  |  | $ | 2.05 |  |  |  |  |
Less reconciling items: |  |  |  |  |  |  |  |  |
(Losses)/gains on undesignated financial derivatives due to fair value changes | (0.61) |  |  | 0.42 |  |  | 0.21 |  |  |  |  |
Losses on hedging activities due to fair value changes | (0.55) |  |  | (0.02) |  |  | (0.26) |  |  |  |  |
Unrealized gains on trading securities | 0.01 |  |  | 0.02 |  |  | — |  |  |  |  |
Net effects of terminations or net settlements on financial derivatives | (0.12) |  |  | 0.13 |  |  | 0.01 |  |  |  |  |
Income tax effect related to reconciling items | 0.27 |  |  | (0.12) |  |  | 0.01 |  |  |  |  |
Sub-total | (1.00) |  |  | 0.43 |  |  | (0.03) |  |  |  |  |
Core Earnings - Basic EPS | $ | 1.88 |  |  | $ | 2.29 |  |  | $ | 2.08 |  |  |  |  |
Shares used in per share calculation (GAAP and Core Earnings) | 10,712 |  |  | 10,711 |  |  | 10,670 |  |  |  |  |

Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings Per Share |  |  |  |  |  |  |  |  |
| For the Three Months Ended |  |  |  |  |  |  |  |
| March 31, 2020 |  | December 31, 2019 |  | March 31, 2019 |  |  |  |
| (in thousands, except per share amounts) |  |  |  |  |  |  |  |
GAAP - Diluted EPS | $ | 0.87 |  |  | $ | 2.70 |  |  | $ | 2.03 |  |  |  |  |
Less reconciling items: |  |  |  |  |  |  |  |  |
(Losses)/gains on undesignated financial derivatives due to fair value changes | (0.60) |  |  | 0.42 |  |  | 0.21 |  |  |  |  |
Losses on hedging activities due to fair value changes | (0.55) |  |  | (0.02) |  |  | (0.26) |  |  |  |  |
Unrealized gains on trading securities | 0.01 |  |  | 0.02 |  |  | — |  |  |  |  |
Net effects of terminations or net settlements on financial derivatives | (0.12) |  |  | 0.12 |  |  | 0.01 |  |  |  |  |
Income tax effect related to reconciling items | 0.26 |  |  | (0.11) |  |  | 0.01 |  |  |  |  |
Sub-total | (1.00) |  |  | 0.43 |  |  | (0.03) |  |  |  |  |
Core Earnings - Diluted EPS | $ | 1.87 |  |  | $ | 2.27 |  |  | $ | 2.06 |  |  |  |  |
Shares used in per share calculation (GAAP and Core Earnings) | 10,782 |  |  | 10,784 |  |  | 10,777 |  |  |  |  |

10

The following table presents a reconciliation of net interest income and net yield to net effective spread for the periods indicated:

Reconciliation of GAAP Net Interest Income/Yield to Net Effective Spread |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| For the Three Months Ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| March 31, 2020 |  |  |  | December 31, 2019 |  |  |  | March 31, 2019 |  |  |  |  |  |  |  |  |  |
| Dollars |  | Yield |  | Dollars |  | Yield |  | Dollars |  | Yield |  |  |  |  |  |  |  |
| (dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net interest income/yield | $ | 41,312 |  |  | 0.78 | % |  | $ | 49,370 |  |  | 0.95 | % |  | $ | 40,599 |  |  | 0.86 | % |  |  |  |  |  |  |  |
Net effects of consolidated trusts | (1,700) |  |  | 0.02 | % |  | (2,031) |  |  | 0.03 | % |  | (1,905) |  |  | 0.03 | % |  |  |  |  |  |  |  |
Expense related to undesignated financial derivatives | (1,190) |  |  | (0.02) | % |  | (725) |  |  | (0.02) | % |  | (2,544) |  |  | (0.06) | % |  |  |  |  |  |  |  |
Amortization of premiums/discounts on assets consolidated at fair value | 11 |  |  | — | % |  | 58 |  |  | — | % |  | 23 |  |  | — | % |  |  |  |  |  |  |  |
Amortization of losses due to terminations or net settlements on financial derivatives | 49 |  |  | — | % |  | 30 |  |  | — | % |  | (71) |  |  | — | % |  |  |  |  |  |  |  |
Fair value changes on fair value hedge relationships | 5,681 |  |  | 0.11 | % |  | (711) |  |  | (0.01) | % |  | 2,699 |  |  | 0.06 | % |  |  |  |  |  |  |  |
Net effective spread | $ | 44,163 |  |  | 0.89 | % |  | $ | 45,991 |  |  | 0.95 | % |  | $ | 38,801 |  |  | 0.89 | % |  |  |  |  |  |  |  |

11

The following table presents core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three months ended March 31, 2020:

Core Earnings by Business Segment |  |  |  |  |  |  |  |  |  |  |  |  |
For the Three Months Ended March 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
| Farm & Ranch |  | USDA Guarantees |  | Rural Utilities |  | Institutional Credit |  | Corporate |  | Reconciling Adjustments |  | Consolidated Net Income
| (in thousands) |  |  |  |  |  |  |  |  |  |  |  |
Net interest income | $ | 16,365 |  |  | $ | 4,541 |  |  | $ | 4,747 |  |  | $ | 13,804 |  |  | $ | 1,855 |  |  | $ | — |  |  | $ | 41,312 |
Less: reconciling adjustments(1)(2)(3) | (1,427) |  |  | 84 |  |  | 173 |  |  | 3,898 |  |  | 123 |  |  | (2,851) |  |  | — |
Net effective spread | 14,938 |  |  | 4,625 |  |  | 4,920 |  |  | 17,702 |  |  | 1,978 |  |  | (2,851) |  |  |
Guarantee and commitment fees(2) | 4,317 |  |  | 235 |  |  | 335 |  |  | 9 |  |  | — |  |  | (1,700) |  |  | 3,196 |
Other income/(expense)(3) | 1,169 |  |  | 112 |  |  | 7 |  |  | — |  |  | (129) |  |  | (9,050) |  |  | (7,891) |
Non-interest income/(loss) | 5,486 |  |  | 347 |  |  | 342 |  |  | 9 |  |  | (129) |  |  | (10,750) |  |  | (4,695) |
Provision for loan losses | (808) |  |  | — |  |  | (2,125) |  |  | (491) |  |  | (14) |  |  | — |  |  | (3,438) |
Provision for reserve for losses | (4) |  |  | — |  |  | (389) |  |  | — |  |  | — |  |  | — |  |  | (393) |
Other non-interest expense | (5,997) |  |  | (1,818) |  |  | (1,604) |  |  | (2,363) |  |  | (4,433) |  |  | — |  |  | (16,215) |
Non-interest expense(4) | (6,001) |  |  | (1,818) |  |  | (1,993) |  |  | (2,363) |  |  | (4,433) |  |  | — |  |  | (16,608) |
Core earnings before income taxes | 13,615 |  |  | 3,154 |  |  | 1,144 |  |  | 14,857 |  |  | (2,598) |  |  | (13,601) |  | (5) | 16,571 |
Income tax (expense)/benefit | (2,859) |  |  | (662) |  |  | (240) |  |  | (3,120) |  |  | 283 |  |  | 2,857 |  |  | (3,741) |
Core earnings before preferred stock dividends | 10,756 |  |  | 2,492 |  |  | 904 |  |  | 11,737 |  |  | (2,315) |  |  | (10,744) |  | (5) | 12,830 |
Preferred stock dividends | — |  |  | — |  |  | — |  |  | — |  |  | (3,431) |  |  | — |  |  | (3,431) |
Segment core earnings/(losses) | $ | 10,756 |  |  | $ | 2,492 |  |  | $ | 904 |  |  | $ | 11,737 |  |  | $ | (5,746) |  |  | $ | (10,744) |  | (5) | $ | 9,399 |
Total assets at carrying value | $ | 5,457,134 |  |  | $ | 2,341,698 |  |  | $ | 1,964,901 |  |  | $ | 9,049,154 |  |  | $ | 4,367,223 |  |  | $ | — |  |  | $ | 23,180,110 |
Total on- and off-balance sheet program assets at principal balance | $ | 7,811,594 |  |  | $ | 2,646,206 |  |  | $ | 2,385,411 |  |  | $ | 8,696,101 |  |  | $ | — |  |  | $ | — |  |  | $ | 21,539,312 |

(1)Excludes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts.
(2)Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee.
(3)Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "Losses on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders.
12

Supplemental Information
The following table sets forth information about outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:

Lines of Business - Outstanding Business Volume |  |  |
| As of March 31, 2020 |  | As of December 31, 2019
| (in thousands) |  |
Farm & Ranch: |  |  |
Loans | $ | 3,817,693 |  |  | $ | 3,675,640 |
Loans held in trusts: |  |  |
Beneficial interests owned by third party investors | 1,540,689 |  |  | 1,600,917 |
LTSPCs | 2,355,910 |  |  | 2,393,071 |
Guaranteed Securities | 97,302 |  |  | 107,322 |
USDA Guarantees: |  |  |
USDA Securities | 2,241,863 |  |  | 2,199,072 |
Farmer Mac Guaranteed USDA Securities | 404,343 |  |  | 421,103 |
Rural Utilities: |  |  |
Loans | 1,789,726 |  |  | 1,671,293 |
LTSPCs(1) | 595,685 |  |  | 609,278 |
Institutional Credit |  |  |
AgVantage Securities | 8,696,101 |  |  | 8,440,246 |
Total | $ | 21,539,312 |  |  | $ | 21,117,942 |

(1)As of both March 31, 2020 and December 31, 2019, includes $20.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee.
The following table presents the quarterly net effective spread by segment:

| Net Effective Spread by Line of Business |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Farm & Ranch |  |  |  | USDA Guarantees |  |  |  | Rural Utilities |  |  |  | Institutional Credit |  |  |  | Corporate |  |  |  | Net Effective Spread |  |
| Dollars |  | Yield |  | Dollars |  | Yield |  | Dollars |  | Yield |  | Dollars |  | Yield |  | Dollars |  | Yield |  | Dollars |  | Yield
| (dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
For the quarter ended: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2020(1) | $ | 14,938 |  |  | 1.64 | % |  | $ | 4,625 |  |  | 0.81 | % |  | $ | 4,920 |  |  | 1.14 | % |  | $ | 17,702 |  |  | 0.84 | % |  | $ | 1,978 |  |  | 0.21 | % |  | $ | 44,163 |  |  | 0.89 | %
December 31, 2019 | 16,374 |  |  | 1.90 | % |  | 4,363 |  |  | 0.78 | % |  | 4,871 |  |  | 1.17 | % |  | 18,008 |  |  | 0.85 | % |  | 2,375 |  |  | 0.27 | % |  | 45,991 |  |  | 0.95 | %
September 30, 2019 | 13,181 |  |  | 1.66 | % |  | 4,314 |  |  | 0.79 | % |  | 4,502 |  |  | 1.16 | % |  | 17,807 |  |  | 0.84 | % |  | 2,657 |  |  | 0.30 | % |  | 42,461 |  |  | 0.90 | %
June 30, 2019 | 13,335 |  |  | 1.72 | % |  | 4,097 |  |  | 0.76 | % |  | 3,996 |  |  | 1.10 | % |  | 17,371 |  |  | 0.82 | % |  | 2,556 |  |  | 0.34 | % |  | 41,355 |  |  | 0.91 | %
March 31, 2019 | 12,737 |  |  | 1.70 | % |  | 3,964 |  |  | 0.74 | % |  | 3,233 |  |  | 1.12 | % |  | 16,373 |  |  | 0.79 | % |  | 2,494 |  |  | 0.35 | % |  | 38,801 |  |  | 0.89 | %
December 31, 2018 | 13,288 |  |  | 1.79 | % |  | 4,630 |  |  | 0.85 | % |  | 2,833 |  |  | 1.19 | % |  | 15,751 |  |  | 0.80 | % |  | 2,353 |  |  | 0.36 | % |  | 38,855 |  |  | 0.93 | %
September 30, 2018 | 13,887 |  |  | 1.91 | % |  | 4,627 |  |  | 0.86 | % |  | 2,877 |  |  | 1.18 | % |  | 15,642 |  |  | 0.78 | % |  | 2,044 |  |  | 0.30 | % |  | 39,077 |  |  | 0.93 | %
June 30, 2018 | 13,347 |  |  | 1.86 | % |  | 4,398 |  |  | 0.83 | % |  | 2,923 |  |  | 1.15 | % |  | 15,220 |  |  | 0.76 | % |  | 274 |  |  | 0.04 | % |  | 36,162 |  |  | 0.86 | %
March 31, 2018 | 12,540 |  |  | 1.80 | % |  | 4,400 |  |  | 0.82 | % |  | 2,950 |  |  | 1.12 | % |  | 14,824 |  |  | 0.78 | % |  | 2,387 |  |  | 0.36 | % |  | 37,101 |  |  | 0.91 | %

(1)See above for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended March 31, 2020.
13

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:

Core Earnings by Quarter Ended |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| March 2020 |  | December 2019 |  | September 2019 |  | June 2019 |  | March 2019 |  | December 2018 |  | September 2018 |  | June 2018 |  | March 2018
| (in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net effective spread | $ | 44,163 |  |  | $ | 45,991 |  |  | $ | 42,461 |  |  | $ | 41,355 |  |  | $ | 38,801 |  |  | $ | 38,855 |  |  | $ | 39,077 |  |  | $ | 36,162 |  |  | $ | 37,101 |
Guarantee and commitment fees | 4,896 |  |  | 5,432 |  |  | 5,208 |  |  | 5,276 |  |  | 5,419 |  |  | 5,309 |  |  | 5,170 |  |  | 5,171 |  |  | 5,083 |
Other | 674 |  |  | 100 |  |  | 389 |  |  | 777 |  |  | 509 |  |  | (129) |  |  | 110 |  |  | 111 |  |  | 428 |
Total revenues | 49,733 |  |  | 51,523 |  |  | 48,058 |  |  | 47,408 |  |  | 44,729 |  |  | 44,035 |  |  | 44,357 |  |  | 41,444 |  |  | 42,612 |
Credit related expense/(income): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for/(release of) losses | 3,831 |  |  | 2,851 |  |  | 623 |  |  | 420 |  |  | (393) |  |  | 166 |  |  | (3) |  |  | 582 |  |  | (410) |
REO operating expenses | — |  |  | — |  |  | — |  |  | 64 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 16 |
(Gains)/losses on sale of REO | (485) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 41 |  |  | (34) |  |  | — |
Total credit related expense/(income) | 3,346 |  |  | 2,851 |  |  | 623 |  |  | 484 |  |  | (393) |  |  | 166 |  |  | 38 |  |  | 548 |  |  | (394) |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation and employee benefits | 10,127 |  |  | 6,732 |  |  | 7,654 |  |  | 6,770 |  |  | 7,606 |  |  | 7,167 |  |  | 6,777 |  |  | 6,936 |  |  | 6,654 |
General and administrative | 5,363 |  |  | 5,773 |  |  | 5,253 |  |  | 4,689 |  |  | 4,596 |  |  | 5,829 |  |  | 4,350 |  |  | 5,202 |  |  | 4,326 |
Regulatory fees | 725 |  |  | 725 |  |  | 688 |  |  | 687 |  |  | 688 |  |  | 687 |  |  | 625 |  |  | 625 |  |  | 625 |
Total operating expenses | 16,215 |  |  | 13,230 |  |  | 13,595 |  |  | 12,146 |  |  | 12,890 |  |  | 13,683 |  |  | 11,752 |  |  | 12,763 |  |  | 11,605 |
Net earnings | 30,172 |  |  | 35,442 |  |  | 33,840 |  |  | 34,778 |  |  | 32,232 |  |  | 30,186 |  |  | 32,567 |  |  | 28,133 |  |  | 31,401 |
Income tax expense | 6,598 |  |  | 7,526 |  |  | 7,018 |  |  | 7,351 |  |  | 6,715 |  |  | 6,431 |  |  | 6,891 |  |  | 5,477 |  |  | 6,259 |
Preferred stock dividends | 3,431 |  |  | 3,432 |  |  | 3,427 |  |  | 3,785 |  |  | 3,296 |  |  | 3,296 |  |  | 3,295 |  |  | 3,296 |  |  | 3,295 |
Core earnings | $ | 20,143 |  |  | $ | 24,484 |  |  | $ | 23,395 |  |  | $ | 23,642 |  |  | $ | 22,221 |  |  | $ | 20,459 |  |  | $ | 22,381 |  |  | $ | 19,360 |  |  | $ | 21,847 |
Reconciling items: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gains/(losses) on undesignated financial derivatives due to fair value changes | (6,484) |  |  | 4,469 |  |  | (7,117) |  |  | 10,485 |  |  | 2,240 |  |  | (96) |  |  | 3,625 |  |  | 6,709 |  |  | (2,279) |
(Losses)/gains on hedging activities due to fair value changes | (5,925) |  |  | (220) |  |  | (4,535) |  |  | (1,438) |  |  | (2,817) |  |  | (853) |  |  | 1,051 |  |  | 1,687 |  |  | 2,564 |
Unrealized gains/(losses) on trading assets | 106 |  |  | 172 |  |  | 49 |  |  | 61 |  |  | 44 |  |  | 57 |  |  | (3) |  |  | 11 |  |  | 16 |
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 3 |  |  | 40 |  |  | (7) |  |  | (139) |  |  | (16) |  |  | 67 |  |  | (38) |  |  | 196 |  |  | (686) |
Net effects of terminations or net settlements on financial derivatives | (1,300) |  |  | 1,339 |  |  | 232 |  |  | (592) |  |  | 110 |  |  | (312) |  |  | 546 |  |  | 232 |  |  | 1,242 |
Issuance costs on the retirement of preferred stock | — |  |  | — |  |  | — |  |  | (1,956) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Income tax effect related to reconciling items | 2,856 |  |  | (1,218) |  |  | 2,389 |  |  | (1,759) |  |  | 92 |  |  | 238 |  |  | (1,088) |  |  | (1,855) |  |  | (180) |
Net income attributable to common stockholders | $ | 9,399 |  |  | $ | 29,066 |  |  | $ | 14,406 |  |  | $ | 28,304 |  |  | $ | 21,874 |  |  | $ | 19,560 |  |  | $ | 26,474 |  |  | $ | 26,340 |  |  | $ | 22,524 |

14