PR Newswire | Aug 10, 2020 04:06PM EDT

08/10 15:05 CDT

Farmer Mac Reports Second Quarter 2020 Results- Grew Outstanding Business Volume by over $500 million to $22.0 Billion - WASHINGTON, Aug. 10, 2020

WASHINGTON, Aug. 10, 2020 /PRNewswire/ -- 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 June 30, 2020.

Second Quarter 2020 Highlights

* Provided $1.7 billion in liquidity and lending capacity in second quarter 2020, resulting in net outstanding business volume growth of $502.8 million; * Net income attributable to common stockholders was $31.7 million, or $2.94 per diluted common share; * Core earnings, a non-GAAP measure was $26.3 million, or $2.45 per diluted common share; * Net interest income grew $5.3 million year-over-year to $48.3 million; * Net effective spread, a non-GAAP measure, increased 12% from the prior-year period to $46.5 million; * 90-day delinquencies were 0.31% of total outstanding business volume as of June 30, 2020; * Continued strong liquidity position, as evidenced by quarter-end cash position of $0.8 billion; * Issued $79.5 million of Tier 1 capital through the public offering of 5.750% Series E non-cumulative preferred stock; and * Executed COVID-19 payment deferments for $241.7 million of unpaid principal balance related to Farm & Ranch loans, Farm & Ranch LTSPCs, and USDA Securities to provide relief to borrowers.

"We are very pleased with our second quarter performance, generating strong earnings and asset growth across multiple lines of business, despite operating in these challenging times," said President and Chief Executive Officer Brad Nordholm. "Our outstanding business volume growth to $22.0 billion this quarter is a testament to our strategic initiatives and reflects our continued focus on fulfilling our mission by building on our customer relationships and product suite. We grew responsibly while also maintaining a robust liquidity position and consistent credit standards. I am proud of our entire team's tireless efforts in supporting agricultural and rural communities nationwide."

Second Quarter 2020 Results

Business Volume

Farmer Mac added $502.8 million net business volume growth in second quarter 2020, resulting in total outstanding business volume of $22.0 billion as of June 30, 2020. The increase in net business volume was primarily attributable to historically low interest rates that drove strong market demand by borrowers seeking to take advantage of low interest rates on long-term funding.

Net growth this quarter consisted of increases of $306.2 million in Rural Utilities, $206.3 million in Farm & Ranch, and $31.6 million in the USDA Guarantees line of business, partially offset by a decrease of $41.3 million in Institutional Credit.

The $306.2 million net growth in our Rural Utilities line of business was primarily due to the purchase of $339.4 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.

The $206.3 million net increase in our Farm & Ranch line of business was comprised of a $259.1 million net increase in outstanding loan purchase volume, partially offset by a $52.8 million net decrease in loans under LTSPCs. The net growth 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. Our net growth of 18.2% in Farm & Ranch loan purchases over the twelve months ended June 30, 2020 is significantly higher than the 3.1% net growth of the overall agricultural mortgage loan market over the twelve months ended March 31, 2020 (based on our analysis of bank and Farm Credit System call report data).

Our USDA Guarantees line of business grew by $31.6 million, driven by record gross volume of $224.0 million. This growth reflected 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.

The $41.3 million net decrease in the Institutional Credit line of business was due primarily to two large counterparties who reduced their amount of outstanding credit in connection with the maturity of one bond and regularly scheduled payments on multiple bonds. We also experienced a slight net increase from smaller fund counterparties.

Spreads

Net interest income for second quarter 2020 was $48.3 million, a $5.3 million increase compared to $43.0 million in the prior-year period, primarily driven by net growth across most lines of business. Net interest yield was 0.87% in both second quarter 2020 and second quarter 2019.

Net effective spread, a non-GAAP measure, for second quarter 2020 was $46.5 million, a $5.1 million increase from $41.4 million in the prior year period. This increase was primarily attributable to growth in outstanding business volume, which increased net effective spread by approximately $5.5 million. In percentage terms, net effective spread was 0.89% for second quarter 2020, as compared to 0.91% in second quarter 2019. The decrease of 0.02% was primarily attributable to an increase in funding and liquidity costs of 0.05%, offset by an increase of 0.03% related to net volume growth.

Earnings

Farmer Mac's net income attributable to common stockholders for second quarter 2020 were $31.7 million ($2.94 per diluted common share), compared to $28.3 million ($2.63 per diluted common share) in second quarter 2019. The $3.4 million year-over-year increase in net income attributable to common stockholders was primarily due to a $4.2 million after-tax increase in net interest income, the absence of $2.0 million in deferred issuance costs related to the redemption of Series B Preferred Stock in the prior-year period, and a $0.7 million after-tax increase in other income. These increases were partially offset by a $1.9 million after-tax decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates and a $1.6 million after-tax increase in operating expenses.

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 second quarter 2020 was $26.3 million ($2.45 per diluted common share), compared to $23.6 million ($2.20 per diluted common share) in second quarter 2019. The $2.7 million year-over-year increase in core earnings was primarily due to a $4.0 million after-tax increase in net effective spread and a $0.3 million after-tax decrease in the total provision for losses. These increases were partially offset by a $1.6 million after-tax increase in operating expenses.

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 June 30, 2020, Farmer Mac's total allowance for losses was $18.8 million, compared to $19.1 million as of March 31, 2020. In the second quarter, our forecasts continue to include the effects of the COVID-19 pandemic on economic factors such as land values, gross domestic product, credit spreads, and unemployment. The total provision for losses in the second quarter was approximately $0.1 million, primarily due to the impact of net new loan volume in the Rural Utilities portfolio of $311.8 million, partially offset by improving economic factors that uniquely impacted the on-balance sheet Farm & Ranch portfolio and repayments and payoffs that occurred in the LTSPC portfolio during the quarter. In addition, there was a $0.4 million charge-off to the allowance related to the foreclosure of a single Farm & Ranch loan. 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 June 30, 2020, compared to 0.04% as of June 30, 2019.

As of June 30, 2020, substandard assets were $304.9 million, compared to $312.3 million as of March 31, 2020. The $7.4 million decrease in substandard assets was primarily driven by repayments during the quarter on loans that had been classified as substandard as of the first quarter, partially offset by credit downgrades during the quarter. Across all of Farmer Mac's lines of business, substandard assets represented 1.4% of total outstanding business volume as of June 30, 2020, compared to 1.5% as of March 31, 2020.

As of June 30, 2020, Farmer Mac's 90-day delinquencies were $68.7 million, compared to $79.7 million as of March 31, 2020 and $28.0 million as of June 30, 2019. The sequential decrease in 90-day delinquencies is primarily due to the seasonal payment pattern associated with loans that have annual (January 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 0.31% of total outstanding business volume as of June 30, 2020, compared to 0.37% as of March 31, 2020 and 0.14% as of June 30, 2019. Loans under COVID-19 deferment are not considered past due and are not included in our delinquent loan statistics.

Capital

As of June 30, 2020, Farmer Mac's core capital level was $915.6 million, which was $247.9 million above the minimum capital level required by our statutory charter. This compares to $815.1 million as of March 31, 2020, which was $165.8 million above the minimum capital requirement. Farmer Mac's Tier 1 capital ratio was 13.4% as of June 30, 2020. The increase in capital in excess of the minimum capital level required was primarily due to the Board-authorized issuance of Series E Preferred Stock and the increase in retained earnings, partially offset by growth in our outstanding business volume.

Preferred Stock

In May 2020, Farmer Mac issued 3.2 million shares of 5.750% Non-Cumulative Preferred Stock, Series E ("Series E Preferred Stock"), which has a par value and liquidation preference of $25.00 per share, or $79.5 million aggregate outstanding. Farmer Mac incurred direct costs of $2.5 million related to the issuance of the Series E preferred stock. The dividend rate on the Series E preferred stock will remain at a non-cumulative, fixed rate of 5.750% per year, when, as, and if a dividend is declared by the Board of Directors of Farmer Mac, for so long as the Series E preferred stock remains outstanding. The Series E preferred stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock at any time on any dividend payment date on and after July 17, 2025.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's second quarter 2020 financial results will be held beginning at 5:00 p.m. Eastern time on Monday, August 10, 2020 and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616Telephone (International): (412) 902-4254Webcast: 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 second quarter 2020 is in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended June 30, 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.

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 duration, spread, and severity of the COVID-19 pandemic; * the actions taken to address the COVID-19 pandemic, including government actions to mitigate the economic impact of the pandemic, how quickly and to what extent normal economic and operating conditions can resume, the possibility of future disruptions to economic recovery caused by additional outbreaks, regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, and the duration and efficacy of such restrictions; * the effects of the 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; * 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, filed February 25, 2020 and in Part II, Item 1A in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed today with the SEC. 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 MacFarmer 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.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

As of

June 30, December 31,

2020 2019

(in thousands)

Assets:

Cash and cash equivalents $ 827,600 $ 604,381

Investment securities

Available-for-sale, at fair value (amortized cost 3,467,378 2,959,843 of $3,458,957 and $2,961,430, respectively)

Held-to-maturity, at amortized cost 45,032 45,032

Total Investment Securities 3,512,410 3,004,875

Farmer Mac Guaranteed Securities

Available-for-sale, at fair value (amortized cost 7,898,387 7,143,025 of $7,539,944 and $7,016,971, respectively)

Held-to-maturity, at amortized cost 1,140,718 1,447,451

Total Farmer Mac Guaranteed Securities 9,039,105 8,590,476

USDA Securities

Trading, at fair value 7,786 8,913

Held-to-maturity, at amortized cost 2,339,923 2,232,160

Total USDA Securities 2,347,709 2,241,073

Loans:

Loans held for investment, at amortized cost 6,469,997 5,390,977

Loans held for investment in consolidated trusts, 1,436,090 1,600,917 at amortized cost

Allowance for loan losses (14,939) (10,454)

Total loans, net of allowance 7,891,148 6,981,440

Financial derivatives, at fair value 16,588 10,519

Interest receivable (includes $17,415 and $20,568, 175,659 199,195 respectively, related to consolidated trusts)

Guarantee and commitment fees receivable 36,612 38,442

Deferred tax asset, net 38,790 16,510

Prepaid expenses and other assets 47,035 22,463

Total Assets $ 23,932,656 $ 21,709,374

Liabilities and Equity:

Liabilities:

Notes payable 21,421,550 19,098,648

Debt securities of consolidated trusts held by 1,476,964 1,616,504 third parties

Financial derivatives, at fair value 47,543 27,042

Accrued interest payable (includes $15,007 and $18,018, respectively, related to consolidated 100,134 106,959 trusts)

Guarantee and commitment obligation 35,162 36,700

Accounts payable and accrued expenses 24,167 22,081

Reserve for losses 3,020 2,164

Total Liabilities 23,108,540 20,910,098

Commitments and Contingencies

Equity:

Preferred stock:

Series A, par value $25 per share, 2,400,000 58,333 58,333 shares authorized, issued and outstanding

Series C, par value $25 per share, 3,000,000 73,382 73,382 shares authorized, issued and outstanding

Series D, par value $25 per share, 4,000,000 96,659 96,659 shares authorized, issued and outstanding

Series E, par value $25 per share, 3,180,000 77,003 - shares authorized, issued and outstanding

Common stock:

Class A Voting, $1 par value, no maximum 1,031 1,031 authorization, 1,030,780 shares outstanding

Class B Voting, $1 par value, no maximum 500 500 authorization, 500,301 shares outstanding

Class C Non-Voting, $1 par value, no maximum authorization, 9,201,623 shares and 9,180,744 9,202 9,181 shares outstanding, respectively

Additional paid-in capital 120,856 119,304

Accumulated other comprehensive loss, net of tax (91,497) (16,161)

Retained earnings 478,647 457,047

Total Equity 824,116 799,276

Total Liabilities and Equity $ 23,932,656 $ 21,709,374

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

For the Three Months Ended For the Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

(in thousands, except per share amounts)

Interest income:

Investments and cash $ 10,399 $ 20,156 $ 28,140 $ 38,863 equivalents

Farmer Mac Guaranteed 61,792 85,569 133,309 170,980 Securities and USDA Securities

Loans 55,430 59,403 116,026 110,800

Total interest income 127,621 165,128 277,475 320,643

Total interest expense 79,273 122,074 187,815 236,990

Net interest income 48,348 43,054 89,660 83,653

Provision for losses (451) (578) (3,889) (314)

Net interest income after 47,897 42,476 85,771 83,339 provision for losses

Non-interest income/(expense):

Guarantee and commitment fees 3,140 3,403 6,336 6,916

Gains/(losses) on financial 6,523 8,913 (2,775) 8,553 derivatives

(Losses)/gains on trading (21) 61 85 105 securities

Gains on sale of real estate - - 485 - owned

Release of reserve for losses 400 158 7 287

Other income 1,229 355 2,045 848

Non-interest income 11,271 12,890 6,183 16,709

Operating expenses:

Compensation and employee 8,087 6,770 18,214 14,376 benefits

General and administrative 5,295 4,689 10,658 9,285

Regulatory fees 725 687 1,450 1,375

Real estate owned operating - 64 - 64 costs, net

Operating expenses 14,107 12,210 30,322 25,100

Income before income taxes 45,061 43,156 61,632 74,948

Income tax expense 9,435 9,111 13,176 15,733

Net income attributable to 35,626 34,045 48,456 59,215 Farmer Mac

Preferred stock dividends (3,939) (3,785) (7,370) (7,081)

Loss on retirement of preferred - (1,956) - (1,956)stock

Net income attributable to $ 31,687 $ 28,304 $ 41,086 $ 50,178 common stockholders

Earnings per common share:

Basic earnings per common $ 2.95 $ 2.65 $ 3.83 $ 4.70 share

Diluted earnings per common $ 2.94 $ 2.63 $ 3.81 $ 4.66 share

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 CoreEarnings

For the Three Months Ended

June 30, 2020 March 31, 2020 June 30, 2019

(in thousands, except per share amounts)

Net income attributable to common $ 31,687 $ 9,399 $ 28,304stockholders

Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair 8,700 (6,484) 10,485 value changes

Losses on hedging activities due (2,676) (5,925) (1,438) to fair value changes

Unrealized (losses)/gains on (20) 106 61 trading securities

Amortization of premiums/discounts and deferred gains on assets 35 3 (139) consolidated at fair value

Net effects of terminations or net settlements on financial 720 (1,300) (592) derivatives

Issuance costs on the retirement - - (1,956) of preferred stock

Income tax effect related to (1,419) 2,856 (1,759) reconciling items

Sub-total 5,340 (10,744) 4,662

Core earnings $ 26,347 $ 20,143 $ 23,642

Composition of Core Earnings:

Revenues:

Net effective spread^(1) $ 46,469 $ 44,163 $ 41,355

Guarantee and commitment fees^(2) 4,943 4,896 5,276

Other^(3) 1,048 674 777

Total revenues 52,460 49,733 47,408

Credit related expense (GAAP):

Provision for losses 51 3,831 420

REO operating expenses - - 64

Gains on sale of REO - (485) -

Total credit related expense 51 3,346 484

Operating expenses (GAAP):

Compensation and employee benefits 8,087 10,127 6,770

General and administrative 5,295 5,363 4,689

Regulatory fees 725 725 687

Total operating expenses 14,107 16,215 12,146

Net earnings 38,302 30,172 34,778

Income tax expense^(4) 8,016 6,598 7,351

Preferred stock dividends (GAAP) 3,939 3,431 3,785

Core earnings $ 26,347 $ 20,143 $ 23,642

Core earnings per share:

Basic $ 2.46 $ 1.88 $ 2.21

Diluted 2.45 1.87 2.20

Net effective spread is a non-GAAP measure. See "Use of Non-GAAP ^(1)Measures" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.

Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to ^(2)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.

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 ^(3)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 Net Income Attributable to Common Stockholders to CoreEarnings

For the Six Months Ended

June 30, 2020 June 30, 2019

(in thousands, except per share amounts)

Net income attributable to common $ 41,086 $ 50,178stockholders

Less reconciling items:

Gains on undesignated financial 2,216 12,725 derivatives due to fair value changes

Losses on hedging activities due to (8,601) (4,255) fair value changes

Unrealized gains on trading securities 86 105

Amortization of premiums/discounts and deferred gains on assets consolidated 38 (155) at fair value

Net effects of terminations or net (580) (482) settlements on financial derivatives

Issuance costs on the retirement of - (1,956) preferred stock

Income tax effect related to 1,437 (1,667) reconciling items

Sub-total (5,404) 4,315

Core earnings $ 46,490 $ 45,863

Composition of Core Earnings:

Revenues:

Net effective spread^(1) $ 90,632 $ 80,156

Guarantee and commitment fees^(2) 9,839 10,695

Other^(3) 1,722 1,286

Total revenues 102,193 92,137

Credit related expense (GAAP):

Provision for losses 3,882 27

REO operating expenses - 64

Gain on sale of REO (485) -

Total credit related expense 3,397 91

Operating expenses (GAAP):

Compensation and employee benefits 18,214 14,376

General and administrative 10,658 9,285

Regulatory fees 1,450 1,375

Total operating expenses 30,322 25,036

Net earnings 68,474 67,010

Income tax expense^(4) 14,614 14,066

Preferred stock dividends (GAAP) 7,370 7,081

Core earnings $ 46,490 $ 45,863

Core earnings per share:

Basic $ 4.34 $ 4.29

Diluted 4.31 4.26

^ Net effective spread is a non-GAAP measure. See "Use of Non-GAAP (1)Measures" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.

Includes interest income and interest expense related to consolidated ^ trusts owned by third parties reclassified from net interest income to (2)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.

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(3)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.

^ Includes the tax impact of non-GAAP reconciling items between net income (4)attributable to common stockholders and core earnings.

Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - BasicEarnings Per Share

For the Three Months Ended For the Six Months Ended

June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019

(in thousands, except per share amounts)

GAAP - Basic EPS $ 2.95 $ 0.88 $ 2.65 $ 3.83 $ 4.70

Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to 0.81 (0.61) 0.98 0.21 1.19 fair value changes

Losses on hedging activities due (0.25) (0.55) (0.13) (0.80) (0.39) to fair value changes

Unrealized gains on trading - 0.01 0.01 0.01 0.01 securities

Amortization of premiums/ discounts and deferred gains on - - (0.01) - (0.01) assets consolidated at fair value

Net effects of terminations or net settlements on financial 0.06 (0.12) (0.06) (0.06) (0.05) derivatives

Issuance costs on the retirement - - (0.18) - (0.18) of preferred stock

Income tax effect related to (0.13) 0.27 (0.17) 0.13 (0.16) reconciling items

Sub-total 0.49 (1.00) 0.44 (0.51) 0.41

Core Earnings - Basic EPS $ 2.46 $ 1.88 $ 2.21 $ 4.34 $ 4.29

Shares used in per sharecalculation (GAAP and Core 10,730 10,712 10,698 10,721 10,684Earnings)

Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - DilutedEarnings Per Share

For the Three Months Ended For the Six Months Ended

June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019

(in thousands, except per share amounts)

GAAP - Diluted EPS $ 2.94 $ 0.87 $ 2.63 $ 3.81 $ 4.66

Less reconciling items:

Gains/(losses) on undesignated financial derivatives due to 0.81 (0.60) 0.96 0.21 1.17 fair value changes

Losses on hedging activities due (0.25) (0.55) (0.14) (0.80) (0.40) to fair value changes

Unrealized gains on trading - 0.01 0.01 0.01 0.01 securities

Amortization of premiums/ discounts and deferred gains on - - (0.01) - (0.01) assets consolidated at fair value

Net effects of terminations or net settlements on financial 0.06 (0.12) (0.05) (0.05) (0.04) derivatives

Issuance costs on the retirement - - (0.18) - (0.18) of preferred stock

Income tax effect related to (0.13) 0.26 (0.16) 0.13 (0.15) reconciling items

Sub-total 0.49 (1.00) 0.43 (0.50) 0.40

Core Earnings - Diluted EPS $ 2.45 $ 1.87 $ 2.20 $ 4.31 $ 4.26

Shares used in per sharecalculation (GAAP and Core 10,776 10,782 10,770 10,779 10,774Earnings)

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 For the Six Months Ended

June 30, 2020 March 31, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield

(dollars in thousands)

Net interest $ 48,348 0.87 % $ 41,312 0.78 % $ 43,054 0.87 % $ 89,660 0.82 % $ 83,653 0.87 %income/yield

Net effects ofconsolidated (1,804) 0.02 % (1,700) 0.02 % (1,873) 0.03 % (3,505) 0.03 % (3,778) 0.03 %trusts

Expenserelated toundesignated (2,413) (0.05) % (1,190) (0.02) % (1,557) (0.03) % (3,603) (0.04) % (4,102) (0.05) %financialderivatives

Amortizationof premiums/discounts on (21) - % 11 - % 289 0.01 % (10) - % 311 - %assetsconsolidatedat fair value

Amortizationof losses duetoterminations (22) - % 49 - % 14 - % 27 - % (56) - %or netsettlements onfinancialderivatives

Fair valuechanges onfair value 2,381 0.05 % 5,681 0.11 % 1,428 0.03 % 8,063 0.08 % 4,128 0.05 %hedgerelationships

Net effective $ 46,469 0.89 % $ 44,163 0.89 % $ 41,355 0.91 % $ 90,632 0.89 % $ 80,156 0.90 % spread

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 June 30, 2020:

Core Earnings by Business Segment

For the Three Months Ended June 30, 2020

Farm & USDA Rural Institutional Corporate Reconciling Consolidated Ranch Guarantees Utilities Credit Adjustments Net Income

(in thousands)

Net interest $ 19,310 $ 5,403 $ 2,322 $ 20,084 $ 1,229 $ - $ 48,348income

Less: reconciling (2,577) (714) 3,194 (1,302) (480) 1,879 - adjustments^ (1)(2)(3)

Net effective 16,733 4,689 5,516 18,782 749 1,879 -spread

Guarantee andcommitment 4,394 210 332 7 - (1,803) 3,140fees^(2)

Other income/ 585 617 5 - (159) 6,683 7,731(expense)^(3)

Non-interest 4,979 827 337 7 (159) 4,880 10,871 income/(loss)

Provision for 920 - (1,397) 41 (15) - (451)loan losses

Provision forreserve for 370 - 30 - - - 400losses

Othernon-interest (5,254) (1,584) (1,386) (2,083) (3,800) - (14,107)expense

Non-interest (4,884) (1,584) (1,356) (2,083) (3,800) - (13,707) expense^(4)

Core earningsbefore income 17,748 3,932 3,100 16,747 (3,225) 6,759 (5) 45,061taxes

Income tax(expense)/ (3,727) (826) (651) (3,517) 705 (1,419) (9,435)benefit

Core earnings before preferred 14,021 3,106 2,449 13,230 (2,520) 5,340 (5) 35,626 stock dividends

Preferredstock - - - - (3,939) - (3,939)dividends

Segment core earnings/ $ 14,021 $ 3,106 $ 2,449 $ 13,230 $ (6,459) $ 5,340 (5) $ 31,687 (losses)

Total assetsat carrying $ 5,746,556 $ 2,408,713 $ 2,281,490 $ 9,049,393 $ 4,446,504 $ - $ 23,932,656value

Total on-andoff-balancesheet program $ 8,017,850 $ 2,677,807 $ 2,691,621 $ 8,654,830 $ - $ - $ 22,042,108assets atprincipalbalance

^ Excludes the amortization of premiums and discounts on assets (1)consolidated at fair value, originally included in interest income, to reflect core earnings amounts.

Includes the reclassification of interest income and interest expense ^ from consolidated trusts owned by third parties to guarantee and (2)commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee.

Includes the reclassification of interest expense related to interest ^ rate swaps not designated as hedges, which are included in "Gains/ (3)(Losses) on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.

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

Net adjustments to reconcile to the corresponding income measures: core ^ earnings before income taxes reconciled to income before income taxes; (5)core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders.

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 June 30, 2020 As of December 31, 2019

(in thousands)

Farm & Ranch:

Loans $ 4,181,422 $ 3,675,640

Loans held in trusts:

Beneficial interests owned by 1,436,090 1,600,917 third party investors

LTSPCs 2,310,113 2,393,071

Guaranteed Securities 90,225 107,322

USDA Guarantees:

USDA Securities 2,314,961 2,199,072

Farmer Mac Guaranteed USDA 362,846 421,103 Securities

Rural Utilities:

Loans 2,101,568 1,671,293

LTSPCs^(1) 590,053 609,278

Institutional Credit:

AgVantage securities 8,654,830 8,440,246

Total $ 22,042,108 $ 21,117,942

^ As of both June 30, 2020 and December 31, 2019, includes $20.0 million (1)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 quarterended:

June 30, 2020^ $ 16,733 1.71 % $ 4,689 0.81 % $ 5,516 1.15 % $ 18,782 0.86 % $ 749 0.08 % $ 46,469 0.89 % (1)

March 31, 2020 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, 16,374 1.90 % 4,363 0.78 % 4,871 1.17 % 18,008 0.85 % 2,375 0.27 % 45,991 0.95 % 2019

September 30, 13,181 1.66 % 4,314 0.79 % 4,502 1.16 % 17,807 0.84 % 2,657 0.30 % 42,461 0.90 % 2019

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, 13,288 1.79 % 4,630 0.85 % 2,833 1.19 % 15,751 0.80 % 2,353 0.36 % 38,855 0.93 % 2018

September 30, 13,887 1.91 % 4,627 0.86 % 2,877 1.18 % 15,642 0.78 % 2,044 0.30 % 39,077 0.93 % 2018

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 %

^ See above for a reconciliation of GAAP net interest income by line of (1)business to net effective spread by line of business for the three months ended June 30, 2020.

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

Core Earnings by Quarter End

June March December September June March December September June 2020 2020 2019 2019 2019 2019 2018 2018 2018

(in thousands)

Revenues:

Net effective $ 46,469 $ 44,163 $ 45,991 $ 42,461 $ 41,355 $ 38,801 $ 38,855 $ 39,077 $ 36,162 spread

Guarantee and commitment 4,943 4,896 5,432 5,208 5,276 5,419 5,309 5,170 5,171 fees

Other 1,048 674 100 389 777 509 (129) 110 111

Total 52,460 49,733 51,523 48,058 47,408 44,729 44,035 44,357 41,444 revenues

Credit relatedexpense/(income):

Provision for/ (release of) 51 3,831 2,851 623 420 (393) 166 (3) 582 losses

REO operating - - - - 64 - - - - expenses

(Gains)/losses - (485) - - - - - 41 (34) on sale of REO

Total credit related 51 3,346 2,851 623 484 (393) 166 38 548 expense/ (income)

Operatingexpenses:

Compensation and employee 8,087 10,127 6,732 7,654 6,770 7,606 7,167 6,777 6,936 benefits

General and 5,295 5,363 5,773 5,253 4,689 4,596 5,829 4,350 5,202 administrative

Regulatory 725 725 725 688 687 688 687 625 625 fees

Total operating 14,107 16,215 13,230 13,595 12,146 12,890 13,683 11,752 12,763 expenses

Net earnings 38,302 30,172 35,442 33,840 34,778 32,232 30,186 32,567 28,133

Income tax 8,016 6,598 7,526 7,018 7,351 6,715 6,431 6,891 5,477expense

Preferred stock 3,939 3,431 3,432 3,427 3,785 3,296 3,296 3,295 3,296dividends

Core earnings $ 26,347 $ 20,143 $ 24,484 $ 23,395 $ 23,642 $ 22,221 $ 20,459 $ 22,381 $ 19,360

Reconcilingitems:

Gains/ (losses) on undesignated financial 8,700 (6,484) 4,469 (7,117) 10,485 2,240 (96) 3,625 6,709 derivatives due to fair value changes

(Losses)/ gains on hedging (2,676) (5,925) (220) (4,535) (1,438) (2,817) (853) 1,051 1,687 activities due to fair value changes

Unrealized (losses)/ gains on (20) 106 172 49 64 44 57 (3) 11 trading assets

Amortization of premiums/ discounts and deferred 35 3 40 (7) (139) (16) 67 (38) 196 gains on assets consolidated at fair value

Net effects of terminations or net 720 (1,300) 232 232 (592) 110 (312) 546 232 settlements on financial derivatives

Issuance costs on the retirement of - - - - (1,956) - - - - preferred stock

Income tax effect related to (1,419) 2,856 (1,218) 2,389 (1,759) 92 238 (1,088) (1,855) reconciling items

Net income attributable $ 31,687 $ 9,399 $ 29,066 $ 14,406 $ 28,304 $ 21,874 $ 19,560 $ 26,474 $ 26,340 to common stockholders

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SOURCE Farmer Mac