Federal Agricultural Mortgage
Annual Report 2016

Plain-text annual report

WE’RE THERE. AS SURE AS THE WIND BLOWS. ANNUAL REPORT 2016 WE’RE THERE. As sure as the wind blows. Farmer Mac is committed to serving the financial needs of our customers—in times of agricultural growth and just as faithully during market downturns. As the ag market faces challenges, Farmer Mac remains steadfast in our mission of improving the financial strength of America’s rural communities. Farmer Mac has helped fund loans to over 76,000 rural borrowers in all 50 STATES, $43 BILLION of investments in rural America. which has resulted in more than 01 2016 N B O R A T I O N PASSION FOR RUR AL A A L L O M E R I C A THE COMPASS FOR OUR ACTIONS OUR CORE VALUES HIP COLLE GIA L C S D R A W E T S W C A M R E M R A F E N O Y T I R G E T E IN T ARALLELED SERVICE ABSOLU C E U N P S WHO WE ARE Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of capital for the benefit of American agricultural and rural communities. As the nation’s premier 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 E management tools. Farmer Mac’s customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. In fact, we are often able to provide the lowest cost of borrowing to agricultural and rural borrowers. For more than a quarter-century, Farmer Mac has been delivering the capital and commitment rural America deserves. I N N O V A T I V E T H I N K I N G U N R E L E N TIN G EXCELLEN WE’RE THERE. As sure as the wind blows. Farmer Mac is committed to serving the financial needs of our customers—in times of agricultural growth and just as faithully during market downturns. As the ag market faces challenges, Farmer Mac remains steadfast in our mission of improving the financial strength of America’s rural communities. Farmer Mac has helped fund loans to over 76,000 rural borrowers in all 50 STATES, $43 BILLION of investments in rural America. which has resulted in more than 01 2016 N B O R A T I O N PASSION FOR RUR AL A A L L O M E R I C A THE COMPASS FOR OUR ACTIONS OUR CORE VALUES HIP COLLE GIA L C S D R A W E T S W C A M R E M R A F E N O Y T I R G E T E IN T ARALLELED SERVICE ABSOLU C E U N P S WHO WE ARE Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of capital for the benefit of American agricultural and rural communities. As the nation’s premier 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 E management tools. Farmer Mac’s customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. In fact, we are often able to provide the lowest cost of borrowing to agricultural and rural borrowers. For more than a quarter-century, Farmer Mac has been delivering the capital and commitment rural America deserves. I N N O V A T I V E T H I N K I N G U N R E L E N TIN G EXCELLEN Letter from Chairman and President THE THE TO THE STOCKHOLDERS OF FARMER MAC : In 2016, Farmer Mac continued to play a vital role in financing rural America by increasing the availability of credit to, and reducing the cost of capital for, the benefit of American agricultural and rural communities. Our commitment to that mission has never been stronger or more important as the agricultural economy’s challenges extend into a fourth year. WE’RE THERE. AS SURE AS THE WIND BLOWS. Farm incomes have fallen over the last year, as certain sectors have seen lower commodity prices stemming from excess supply. Throughout inevitable agricultural economic cycles, Farmer Mac remains resolute in our commitment to provide financial tools to extend the type of flexible, low-cost financing that is necessary to allow rural America to adapt, grow, and flourish. As cash flows in farming operations softened in certain sectors, and as rural credit markets have tightened, the increased demand for our innovative financial solutions affirms the appeal of our broad offerings throughout market cycles. At Farmer Mac, we’re honored to collaborate with our customers in helping to build a stronger rural America for the resilient people who make up those communities. We will stand by them in good times and bad. The theme of this year’s annual report—“We’re There. As Sure as The Wind Blows.”— signifies this strong commitment. STRENGTH IN DIVERSITY Farmer Mac’s unique market position reflects our distinctive business model, and the breadth of our customers, products, and portfolio—a diversity that helps to mitigate the inherent volatility of the agricultural economy. Our broad customer base ranges from small community banks and Farm Credit System institutions to large banks and insurance companies and a large rural utilities cooperative. We offer a wide array of products and solutions to support the evolving, varied needs of these different groups. We understand that our customers — whether big or small— need access to low-cost credit and effective risk management tools. From loan purchases to credit protection to wholesale financing, our flexible and efficient solutions help ensure that our customers, and, ultimately, rural America’s farmers, ranchers, and broader community can grow and thrive. And by delivering effectively upon our mission, Farmer Mac and its stockholders are able to share in these returns. Farmer Mac’s portfolio is diversified both geographically and by commodity, and we believe it is well-positioned to endure fluctuations in farmland values and commodity prices. Our reach extends across the United States, with a proportional mix of business across geographic regions that reflects the immense diversification of the American agricultural economy. Accordingly, our portfolio is also diversified across a vast variety of commodities, from alfalfa to barley, almonds to apples, beans to dairy cattle, and over a hundred more. The breadth, strict underwriting discipline, and quality of our business is a core strength of Farmer Mac. We have cultivated a balanced portfolio designed to overcome regional market and commodity fluctuations to ensure that we can fulfill our mission in all market conditions and deliver strong value to our stockholders. STRENGTH IN CHARACTER Just as we stand by our customers, we also stand by our employees. Given the diversity of our customers, products, and portfolio, we at Farmer Mac understand that our success as a vital secondary market credit provider in agricultural and rural communities requires the tireless efforts of a world-class team. In 2016, we continued our efforts to recruit and foster the best talent in rural finance to ensure that we maintain and grow that position in our industry. Over the past several years, we have successfully filled key roles and created new positions to proactively address the ever-changing demands of those we serve. While it is important to seek fresh talent and new perspectives, we are proud that over one-quarter of our employees have dedicated more than ten years of their career to Farmer Mac, bringing to bear a deep knowledge of the industry and our business that is extremely valuable and difficult to replicate. Ultimately, it is this diverse experience that fosters a culture of innovative thinking, encourages collaboration, and bolsters a shared passion for our important mission, enabling us to quickly respond to rural America’s complex and ever-changing financing needs with unrelenting excellence. STRENGTH IN OUR FINANCIAL PERFORMANCE Farmer Mac’s commitment to our mission, our “can-do” ethos, and an intense focus on providing value to our stockholders continues to produce the results we seek to achieve. We’re happy to report that the financial results that Farmer Mac achieved in 2016 continued this strong trend. Since last year, our core earnings increased by more than 14% to $53.8 million, and outstanding business volume grew by over $1.5 billion to $17.4 billion, representing an all-time high for the company. In fact, our assets have grown by an average annual rate of more than 12 percent over the last 17 years! And while we have begun to see the expected normalization of credit metrics— from historically favorable levels of the past several years — we are well positioned to grow and thrive and believe that our business model is well designed to deliver upon our mission in markets where the environment is a bit more challenging and credit is somewhat tighter. In early 2017, we also increased our quarterly common stock dividend 38% to $0.36 per share, which equates to $1.44 per share per year. Considering this increase along with last year’s change to our stated dividend policy and quarterly dividend increase of 63%, we believe we are on track to reach our targeted 30% core earnings payout in 2018. Farmer Mac’s earnings potential and growing capital position provide capacity for future growth and support these higher dividends, demonstrating our commitment to enhancing stockholder value over the long-term. MOVING FORWARD No matter what challenges the agricultural community faces, Farmer Mac has shown itself to be a durable and vibrant part of the agricultural economy, and we are committed to being a trusted partner to rural America. We will continue to deliver on our mission by demonstrating the value of our products and solutions to our current and prospective customers. “ No matter what challenges the agricultural community faces, Farmer Mac has shown itself to be a durable and vibrant part of the agricultural economy, and we are committed to being a trusted partner to rural America.” Over the last year, we have made great strides in increasing our name recognition and brand awareness in the marketplace as a leading national expert in agriculture financing. We have also significantly expanded our investment in the technology and capacity to better grow our business and more fully deliver upon our mission. We plan to build on this momentum to increase rural America’s access to our products and solutions. The future holds significant opportunity for our suite of financing and risk management solutions, and we strongly believe that this will continue to improve our market share and our success in bringing new, low-cost capital to the agricultural and rural communities that we so proudly serve. The American agricultural economy has always been cyclical in nature, going through both prosperous and stressful periods for generations. But one thing is sure, as sure as the wind blows …we at Farmer Mac will continue to devote our energy to improving the lives and livelihoods of rural Americans and to delivering value to our stockholders and customers alike. TIMOTHY L. BUZBY President and Chief Executive Officer LOWELL L. JUNKINS Chairman of the Board Letter from Chairman and President THE THE TO THE STOCKHOLDERS OF FARMER MAC : In 2016, Farmer Mac continued to play a vital role in financing rural America by increasing the availability of credit to, and reducing the cost of capital for, the benefit of American agricultural and rural communities. Our commitment to that mission has never been stronger or more important as the agricultural economy’s challenges extend into a fourth year. WE’RE THERE. AS SURE AS THE WIND BLOWS. Farm incomes have fallen over the last year, as certain sectors have seen lower commodity prices stemming from excess supply. Throughout inevitable agricultural economic cycles, Farmer Mac remains resolute in our commitment to provide financial tools to extend the type of flexible, low-cost financing that is necessary to allow rural America to adapt, grow, and flourish. As cash flows in farming operations softened in certain sectors, and as rural credit markets have tightened, the increased demand for our innovative financial solutions affirms the appeal of our broad offerings throughout market cycles. At Farmer Mac, we’re honored to collaborate with our customers in helping to build a stronger rural America for the resilient people who make up those communities. We will stand by them in good times and bad. The theme of this year’s annual report—“We’re There. As Sure as The Wind Blows.”— signifies this strong commitment. STRENGTH IN DIVERSITY Farmer Mac’s unique market position reflects our distinctive business model, and the breadth of our customers, products, and portfolio—a diversity that helps to mitigate the inherent volatility of the agricultural economy. Our broad customer base ranges from small community banks and Farm Credit System institutions to large banks and insurance companies and a large rural utilities cooperative. We offer a wide array of products and solutions to support the evolving, varied needs of these different groups. We understand that our customers — whether big or small— need access to low-cost credit and effective risk management tools. From loan purchases to credit protection to wholesale financing, our flexible and efficient solutions help ensure that our customers, and, ultimately, rural America’s farmers, ranchers, and broader community can grow and thrive. And by delivering effectively upon our mission, Farmer Mac and its stockholders are able to share in these returns. Farmer Mac’s portfolio is diversified both geographically and by commodity, and we believe it is well-positioned to endure fluctuations in farmland values and commodity prices. Our reach extends across the United States, with a proportional mix of business across geographic regions that reflects the immense diversification of the American agricultural economy. Accordingly, our portfolio is also diversified across a vast variety of commodities, from alfalfa to barley, almonds to apples, beans to dairy cattle, and over a hundred more. The breadth, strict underwriting discipline, and quality of our business is a core strength of Farmer Mac. We have cultivated a balanced portfolio designed to overcome regional market and commodity fluctuations to ensure that we can fulfill our mission in all market conditions and deliver strong value to our stockholders. STRENGTH IN CHARACTER Just as we stand by our customers, we also stand by our employees. Given the diversity of our customers, products, and portfolio, we at Farmer Mac understand that our success as a vital secondary market credit provider in agricultural and rural communities requires the tireless efforts of a world-class team. In 2016, we continued our efforts to recruit and foster the best talent in rural finance to ensure that we maintain and grow that position in our industry. Over the past several years, we have successfully filled key roles and created new positions to proactively address the ever-changing demands of those we serve. While it is important to seek fresh talent and new perspectives, we are proud that over one-quarter of our employees have dedicated more than ten years of their career to Farmer Mac, bringing to bear a deep knowledge of the industry and our business that is extremely valuable and difficult to replicate. Ultimately, it is this diverse experience that fosters a culture of innovative thinking, encourages collaboration, and bolsters a shared passion for our important mission, enabling us to quickly respond to rural America’s complex and ever-changing financing needs with unrelenting excellence. STRENGTH IN OUR FINANCIAL PERFORMANCE Farmer Mac’s commitment to our mission, our “can-do” ethos, and an intense focus on providing value to our stockholders continues to produce the results we seek to achieve. We’re happy to report that the financial results that Farmer Mac achieved in 2016 continued this strong trend. Since last year, our core earnings increased by more than 14% to $53.8 million, and outstanding business volume grew by over $1.5 billion to $17.4 billion, representing an all-time high for the company. In fact, our assets have grown by an average annual rate of more than 12 percent over the last 17 years! And while we have begun to see the expected normalization of credit metrics— from historically favorable levels of the past several years — we are well positioned to grow and thrive and believe that our business model is well designed to deliver upon our mission in markets where the environment is a bit more challenging and credit is somewhat tighter. In early 2017, we also increased our quarterly common stock dividend 38% to $0.36 per share, which equates to $1.44 per share per year. Considering this increase along with last year’s change to our stated dividend policy and quarterly dividend increase of 63%, we believe we are on track to reach our targeted 30% core earnings payout in 2018. Farmer Mac’s earnings potential and growing capital position provide capacity for future growth and support these higher dividends, demonstrating our commitment to enhancing stockholder value over the long-term. MOVING FORWARD No matter what challenges the agricultural community faces, Farmer Mac has shown itself to be a durable and vibrant part of the agricultural economy, and we are committed to being a trusted partner to rural America. We will continue to deliver on our mission by demonstrating the value of our products and solutions to our current and prospective customers. “ No matter what challenges the agricultural community faces, Farmer Mac has shown itself to be a durable and vibrant part of the agricultural economy, and we are committed to being a trusted partner to rural America.” Over the last year, we have made great strides in increasing our name recognition and brand awareness in the marketplace as a leading national expert in agriculture financing. We have also significantly expanded our investment in the technology and capacity to better grow our business and more fully deliver upon our mission. We plan to build on this momentum to increase rural America’s access to our products and solutions. The future holds significant opportunity for our suite of financing and risk management solutions, and we strongly believe that this will continue to improve our market share and our success in bringing new, low-cost capital to the agricultural and rural communities that we so proudly serve. The American agricultural economy has always been cyclical in nature, going through both prosperous and stressful periods for generations. But one thing is sure, as sure as the wind blows …we at Farmer Mac will continue to devote our energy to improving the lives and livelihoods of rural Americans and to delivering value to our stockholders and customers alike. TIMOTHY L. BUZBY President and Chief Executive Officer LOWELL L. JUNKINS Chairman of the Board 02 03 U.S. ag economy in 2016 1 Farmer Mac’s position in 2016 We continue to provide solutions to help lenders mitigate risk and increase access to capital in the face of challenging economic conditions. WHILE THE FARM ECONOMY CONTINUED TO CONTRACT IN 2016, FARMER MAC WAS THERE, AS ALWAYS, WITH THE RIGHT SOLUTIONS TO HELP FARMERS, RANCHERS, AND RESIDENTS OF RURAL COMMUNITIES NATIONWIDE. Ag producers are accustomed to market swings that test the resolve of the most resilient farm and ranch owners, but we’re here to help make those market fluctuations less of a challenge. The 2016 farm economy has resulted in falling farm income, lower land values, fewer farm operations, and increased debt, placing strains on rural communities. Ag lenders across the country use Farmer Mac’s flexible and diverse solutions to help mitigate the risks of tighter credit conditions resulting from a market downturn. Farmer Mac was created to extend capital and increase lending capacity in rural America, regardless of market conditions, and we deliver on that commitment every day. The American agricultural community is a rich and diverse part of our country’s heritage. It has always shown itself to be a durable and vibrant part of the economy, and Farmer Mac will continue to be there as a trusted partner. NET FARM INCOME $68.3 BILLION NUMBER OF FARM OPERATIONS 2.1 MILLION TOTAL FARM ASSETS $2.9 TRILLION TOTAL FARM DEBT $375.7 BILLION DOWN 15.6% DOWN 0.4% DOWN 1.4% UP 5.3% TOTAL OUTSTANDING FARM & RANCH LOAN PURCHASE VOLUME TOTAL OUTSTANDING INSTITUTIONAL CREDIT VOLUME 19% ~$3.5 BILLION 8% ~$7.3 BILLION NEW FARM & RANCH LOAN PURCHASES: ~$1.0 BILLION NEW AGVANTAGE SECURITIES PURCHASES: ~$2.1 BILLION TOTAL OUTSTANDING USDA GUARANTEED LOAN PURCHASE VOLUME TOTAL OUTSTANDING RURAL UTILITIES VOLUME 9% ~$2.1 BILLION 23% ~$1.9 BILLION NEW USDA GUARANTEED LOAN PURCHASES: ~$481.3 MILLION NEW RURAL UTILITIES VOLUME: ~$491.9 MILLION FARMER MAC ENJOYS A UNIQUE POSITION AS OUR DIVERSE SOLUTIONS PROVIDE OPPORTUNITIES DURING BOTH STRONG AND WEAK MARKETS, ENABLING LENDERS TO HELP THEIR BORROWERS GROW, AS WELL AS MANAGE RISK, AND PROVIDE LOW-COST CAPITAL TO THE RURAL CREDIT MARKET. 1 SOURCE: USDA Economic Research Service Farm Income & Wealth Statistics (as of February 2017); comparing 2016 to 2015 Plotted points represent Annual Net Farm Income from 2012-2016 Plotted points represent Farmer Mac Outstanding Business Volume from 2012-2016 As of December 31, 2016 New business volume in 2016 20162016ANNUAL GROWTHANNUAL GROWTHANNUAL GROWTHANNUAL GROWTH02 03 U.S. ag economy in 2016 1 Farmer Mac’s position in 2016 We continue to provide solutions to help lenders mitigate risk and increase access to capital in the face of challenging economic conditions. WHILE THE FARM ECONOMY CONTINUED TO CONTRACT IN 2016, FARMER MAC WAS THERE, AS ALWAYS, WITH THE RIGHT SOLUTIONS TO HELP FARMERS, RANCHERS, AND RESIDENTS OF RURAL COMMUNITIES NATIONWIDE. Ag producers are accustomed to market swings that test the resolve of the most resilient farm and ranch owners, but we’re here to help make those market fluctuations less of a challenge. The 2016 farm economy has resulted in falling farm income, lower land values, fewer farm operations, and increased debt, placing strains on rural communities. Ag lenders across the country use Farmer Mac’s flexible and diverse solutions to help mitigate the risks of tighter credit conditions resulting from a market downturn. Farmer Mac was created to extend capital and increase lending capacity in rural America, regardless of market conditions, and we deliver on that commitment every day. The American agricultural community is a rich and diverse part of our country’s heritage. It has always shown itself to be a durable and vibrant part of the economy, and Farmer Mac will continue to be there as a trusted partner. NET FARM INCOME $68.3 BILLION NUMBER OF FARM OPERATIONS 2.1 MILLION TOTAL FARM ASSETS $2.9 TRILLION TOTAL FARM DEBT $375.7 BILLION DOWN 15.6% DOWN 0.4% DOWN 1.4% UP 5.3% TOTAL OUTSTANDING FARM & RANCH LOAN PURCHASE VOLUME TOTAL OUTSTANDING INSTITUTIONAL CREDIT VOLUME 19% ~$3.5 BILLION 8% ~$7.3 BILLION NEW FARM & RANCH LOAN PURCHASES: ~$1.0 BILLION NEW AGVANTAGE SECURITIES PURCHASES: ~$2.1 BILLION TOTAL OUTSTANDING USDA GUARANTEED LOAN PURCHASE VOLUME TOTAL OUTSTANDING RURAL UTILITIES VOLUME 9% ~$2.1 BILLION 23% ~$1.9 BILLION NEW USDA GUARANTEED LOAN PURCHASES: ~$481.3 MILLION NEW RURAL UTILITIES VOLUME: ~$491.9 MILLION FARMER MAC ENJOYS A UNIQUE POSITION AS OUR DIVERSE SOLUTIONS PROVIDE OPPORTUNITIES DURING BOTH STRONG AND WEAK MARKETS, ENABLING LENDERS TO HELP THEIR BORROWERS GROW, AS WELL AS MANAGE RISK, AND PROVIDE LOW-COST CAPITAL TO THE RURAL CREDIT MARKET. 1 SOURCE: USDA Economic Research Service Farm Income & Wealth Statistics (as of February 2017); comparing 2016 to 2015 Plotted points represent Annual Net Farm Income from 2012-2016 Plotted points represent Farmer Mac Outstanding Business Volume from 2012-2016 As of December 31, 2016 New business volume in 2016 20162016ANNUAL GROWTHANNUAL GROWTHANNUAL GROWTHANNUAL GROWTH04 THE DIVERSITY OF OUR BUSINESS IS OUR STRENGTH 05 OUR CUSTOMERS From small, rural community banks to large ag financing institutions, Farmer Mac’s customers mirror the rural American landscape. COMMERCIAL & COMMUNITY BANKS NON-BANK LENDERS INSURANCE COMPANIES RURAL UTILITIES AG FUNDS FARM CREDIT SYSTEM INSTITUTIONS OUR SOLUTIONS Farmer Mac’s solutions reflect the sweeping scope of our customers’ needs and our core promise to be stalwart in the face of changing economic conditions. LOAN PURCHASE USDA GUARANTEED LOAN PURCHASE CREDIT PROTECTION WHOLESALE FINANCING A SMALL SAMPLING OF OUR CUSTOMERS ACROSS THE COUNTRY $ REPRESENTS TOTAL ASSETS AS PROVIDED BY THE INSTITUTION AG VENTURE FINANCIAL SERVICES, INC. $104.0 MILLION WE PROCESSED3,878 LOAN SUBMISSIONS IN 2016. COLUMBIA BANK $9.5 BILLION SECURITY BANK $200.0 MILLION HNB NATIONAL BANK $477.0 MILLION RABO AGRIFINANCE, LLC $8.0 BILLION YOSEMITE FARM CREDIT, ACA $2.7 BILLION CAL COASTAL $15.0 MILLION $20K $1B TO JUST LIKE OUR CUSTOMERS, OUR TRANSACTIONS VARY IN SIZE AND SCOPE FROM SMALL AGRICULTURAL MORTGAGE PURCHASES TO LARGE, SOPHISTICATED WHOLESALE FINANCING DEALS. FARM CREDIT OF NEW MEXICO, ACA $1.7 BILLION FIRST FINANCIAL BANK $915.0 MILLION METLIFE, INC. $890.0 BILLION CFC $24.0 BILLION AGAMERICA $360.0 MILLION OUR DIVERSE FARM & RANCH PORTFOLIO 1 11% NORTHWEST 4% NORTHEAST 34% MID-NORTH 96% OF OUR CURRENT FARM & RANCH AND USDA GUARANTEED LOANS ARE TO FAMILY FARMS. WE’VE UNDERWRITTEN 139 COMMODITIES FROM CATTLE TO CASABA MELONS. 1 4IN OF OUR LENDING PARTNERS HAVE USED MULTIPLE SOLUTIONS. 1 As of December 31, 2016 Historic average 29% SOUTHWEST 14% MID-SOUTH 8% SOUTHEAST FARMERS, RANCHERS, AND LENDERS IN 2,510 COUNTIES ACROSS THE COUNTRY HAVE BENEFITED FROM OUR FARM & RANCH AND USDA LOAN PURCHASE SOLUTIONS. THAT’S 80% OF U.S. COUNTIES! 2016201606 Solutions LOAN PURCHASE USDA GUARANTEED LOAN PURCHASE AND 07 MANY LENDERS IN RURAL AMERICA face a daunting challenge when competing against the wide array of financial products offered by other financial institutions. Farmer Mac helps even that playing field with solutions like FARM & RANCH LOAN PURCHASE and USDA GUARANTEED LOAN PURCHASE, equipping lenders with the ability to offer competitive rates and favorable terms from a broad suite of products. Our solutions also help minimize credit risk and increase liquidity, affording our lenders the freedom to reallocate capital to the benefit of the farmers, ranchers, and residents of rural communities that we’re committed to supporting. NEW FARM & RANCH AND USDA GUARANTEED LOANS PURCHASED INCREASED NEARLY IN 2016 COMPARED TO THE PRIOR YEAR. 30% “ Our community bank has experienced significant growth over the past few years and Farmer Mac’s Loan Purchase solution has been an integral component of that success. Since becoming an approved seller in 2014 and offering Farmer Mac’s attractive loan products, we’ve acquired new clients we would not have otherwise secured.” DAVID BUMAN, CHIEF LENDING OFFICER & SVP TS AG FINANCE, TS BANKING GROUP WHAT IS A LOAN PURCHASE? Farmer Mac purchases loans, as well as USDA-guaranteed portions of loans, from our approved lenders that are secured by first lien mortgages on eligible agricultural real estate assets. This solution provides attractive long-term financing at favorable rates, enabling lenders to not only maintain the borrower relationship, but also grow with their existing ag customers while attracting new ones. GROW WITH FARM CUSTOMERS Farmer Mac purchases ag real estate loans of up to $50 MILLION per borrower, enabling lenders to accomodate their borrowers’ growing financing needs. IMPROVE THE BOTTOM LINE When utilizing our Loan Purchase solutions, lenders may earn origination and servicing fees for the life of the loan. ATTRACT NEW BORROWERS Our competitive rates, terms, and loan products match today’s farmers’ needs. In 2016, 95% of Farmer Mac lenders locked in fixed rates between 10 and 30 years. FAST TURNAROUND We understand that timing is everything in farming, proven by our average Loan Purchase approval time of less than 2 DAYS. 2016201608 Solution CREDIT PROTECTION MANAGING CREDIT RISK EFFECTIVELY is inexorably tied to a lender’s financial strength and opportunity for growth. Farmer Mac provides credit protection through products like our PURCHASE COMMITMENT to ensure lenders have the flexibility to mitigate credit risk and manage portfolio concentration while retaining loans on their balance sheets and maintaining direct customer relationships. This innovative financial tool provides our lenders peace of mind knowing they can expand along with their customer base. “ Innovative financial solutions and quick credit decisions attracted Bank of the West to Farmer Mac. We now have the ability to leverage financial tools like Credit Protection that enable us to manage the credit risk associated with our large-scale farm operators who have significant lending needs.” ROGER STURDEVANT, EXECUTIVE VICE PRESIDENT - AGRIBUSINESS BANKING DIVISION BANK OF THE WEST WHAT IS A PURCHASE COMMITMENT? The Purchase Commitment product allows lenders to obtain credit protection for eligible loans through Farmer Mac. If the loan goes into default, Farmer Mac commits to purchase it, making this an effective portfolio risk management tool that assists lenders with obligor limits, capital relief, and commodity concentration. 32,389 LOANS HAVE RECEIVED CREDIT PROTECTION SINCE THE PROGRAM STARTED IN 1999. 09 REDUCED REGULATORY RISK WEIGHTING With Farmer Mac’s Purchase Commitment product, the capital risk weighting on a loan may drop from 100% to as little as 20%. RISK A PROVEN RISK MANAGEMENT TOOL FOR TODAY’S LENDERS TO HELP MANAGE LOAN LIMITS AND COMMODITY CONCENTRATIONS In 2016, Farmer Mac completed over $840 MILLION in Rural Utilities and Farm & Ranch Purchase Commitment transactions. SERVICING THE NEEDS OF ALL CUSTOMERS, REGARDLESS OF SIZE Lenders use Purchase Commitments to reduce reliance on loan participations and mitigate credit exposure. 2016201610 Solution WHOLESALE FINANCING Our partnership with CFC exemplifies the value of our diverse financial solutions and its positive effect on rural America. 11 BY LEVERAGING THE FULL POWER OF THEIR AG REAL ESTATE ASSETS, agricultural lenders, agribusinesses, and investment firms can access funding for a broad range of applications through Farmer Mac’s Wholesale Financing solutions. This distinct and valuable tool provides fast, efficient, and low-cost funding. To meet the specific financing needs of our customers— from the expansion of farm operations to acquisitions to debt refinancing— Farmer Mac provides customizable solutions through innovative products such as AGVANTAGE. Wholesale Financing has two core products from which to choose. Both can be customized to fit the exact needs of the borrower. AGVANTAGE® tailored for mortgage lenders FARM EQUITY AGVANTAGE® designed for investors or owners of agricultural real estate assets LENDERS GAIN ACCESS TO FARMER MAC’S LOW BORROWING RATES, WHICH CAN SAVE THEM 25 75 TO BASIS POINTS OR MORE. “ Working with Farmer Mac provides a distinct advantage for CFC and our members. Their collaborative approach ensures we always find the best solution to meet our specific financing needs. Farmer Mac has proven to be an invaluable resource to the rural electric cooperative network and the 42 million Americans in 47 states that we serve.” SHELDON PETERSEN, CHIEF EXECUTIVE OFFICER, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) was created to provide additional financing options to America’s electric CREDIT PROTECTION, and WHOLESALE FINANCING as an additional source of funding for its members, ensuring they receive the most favorable interest cooperative network, effectively serving the diverse rates and best financing terms available. As a private capital demands of the nation’s rural electric systems. cooperative lender representing not-for-profit electric These financing needs vary by regions, seasons, and cooperatives, these savings are passed directly to the market conditions, and thus the ability to access capital 18 million American farms, homes, businesses, and in flexible ways is critical. schools their members serve, helping to boost the economies of U.S. rural communities. CFC TAPS INTO FARMER MAC’S SOLUTIONS LOAN PURCHASE CREDIT PROTECTION WHOLESALE FINANCING MORE THAN 900 NOT-FOR-PROFIT ELECTRIC COOPERATIVES DELIVER SAFE, AFFORDABLE, AND RELIABLE ELECTRICITY TO 18 MILLION HOMES, FARMS, BUSINESSES, AND SCHOOLS IN 47 STATES Since 2005, CFC has relied on Farmer Mac’s suite of adaptive solutions, including LOAN PURCHASE, BENEFITTING THE 42 MILLION AMERICANS THEIR MEMBERS SERVE. 20162016 10 Solution WHOLESALE FINANCING Our partnership with CFC exemplifies the value of our diverse financial solutions and its positive effect on rural America. 11 BY LEVERAGING THE FULL POWER OF THEIR AG REAL ESTATE ASSETS, agricultural lenders, agribusinesses, and investment firms can access funding for a broad range of applications through Farmer Mac’s Wholesale Financing solutions. This distinct and valuable tool provides fast, efficient, and low-cost funding. To meet the specific financing needs of our customers— from the expansion of farm operations to acquisitions to debt refinancing— Farmer Mac provides customizable solutions through innovative products such as AGVANTAGE. Wholesale Financing has two core products from which to choose. Both can be customized to fit the exact needs of the borrower. AGVANTAGE® tailored for mortgage lenders FARM EQUITY AGVANTAGE® designed for investors or owners of agricultural real estate assets LENDERS GAIN ACCESS TO FARMER MAC’S LOW BORROWING RATES, WHICH CAN SAVE THEM 25 75 TO BASIS POINTS OR MORE. “ Working with Farmer Mac provides a distinct advantage for CFC and our members. Their collaborative approach ensures we always find the best solution to meet our specific financing needs. Farmer Mac has proven to be an invaluable resource to the rural electric cooperative network and the 42 million Americans in 47 states that we serve.” SHELDON PETERSEN, CHIEF EXECUTIVE OFFICER, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (CFC) was created to provide additional financing options to America’s electric CREDIT PROTECTION, and WHOLESALE FINANCING as an additional source of funding for its members, ensuring they receive the most favorable interest cooperative network, effectively serving the diverse rates and best financing terms available. As a private capital demands of the nation’s rural electric systems. cooperative lender representing not-for-profit electric These financing needs vary by regions, seasons, and cooperatives, these savings are passed directly to the market conditions, and thus the ability to access capital 18 million American farms, homes, businesses, and in flexible ways is critical. schools their members serve, helping to boost the economies of U.S. rural communities. CFC TAPS INTO FARMER MAC’S SOLUTIONS LOAN PURCHASE CREDIT PROTECTION WHOLESALE FINANCING MORE THAN 900 NOT-FOR-PROFIT ELECTRIC COOPERATIVES DELIVER SAFE, AFFORDABLE, AND RELIABLE ELECTRICITY TO 18 MILLION HOMES, FARMS, BUSINESSES, AND SCHOOLS IN 47 STATES Since 2005, CFC has relied on Farmer Mac’s suite of adaptive solutions, including LOAN PURCHASE, BENEFITTING THE 42 MILLION AMERICANS THEIR MEMBERS SERVE. 20162016 12 13 OUTSTANDING BUSINESS VOLUME BY LINES OF BUSINESS As of December 31, 2016 OUTSTANDING FARM & RANCH BUSINESS VOLUME BY COMMODITY TYPE As of December 31, 2016 INSTITUTIONAL CREDIT $7.3 BILLION FARM & RANCH $6.1 BILLION 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 DOLLARS IN BILLIONS $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 DOLLARS IN BILLIONS $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $6.1 BILLION USDA GUARANTEES $2.1 BILLION RURAL UTILITIES $1.9 BILLION 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 DOLLARS IN BILLIONS $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 DOLLARS IN BILLIONS $0.0 $0.5 $1.0 $1.5 $2.0 OUR PORTFOLIO OF COMMODITIES 56% CROPS 17% PERMANENT PLANTINGS 21% LIVESTOCK 5% PART-TIME FARM 1% AG STORAGE & PROCESSING $17.4 BILLION 60 CROPS 39 PERMANENT PLANTINGS 17 LIVESTOCK 2016201612 13 OUTSTANDING BUSINESS VOLUME BY LINES OF BUSINESS As of December 31, 2016 OUTSTANDING FARM & RANCH BUSINESS VOLUME BY COMMODITY TYPE As of December 31, 2016 INSTITUTIONAL CREDIT $7.3 BILLION FARM & RANCH $6.1 BILLION 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 DOLLARS IN BILLIONS $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 DOLLARS IN BILLIONS $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $6.1 BILLION USDA GUARANTEES $2.1 BILLION RURAL UTILITIES $1.9 BILLION 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 DOLLARS IN BILLIONS $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 DOLLARS IN BILLIONS $0.0 $0.5 $1.0 $1.5 $2.0 OUR PORTFOLIO OF COMMODITIES 56% CROPS 17% PERMANENT PLANTINGS 21% LIVESTOCK 5% PART-TIME FARM 1% AG STORAGE & PROCESSING $17.4 BILLION 60 CROPS 39 PERMANENT PLANTINGS 17 LIVESTOCK 2016201614 OUTSTANDING BUSINESS VOLUME As of December 31 of each year depicted PROVEN CREDIT PERFORMANCE As of December 31, 2016 $17.4 BILLION $15.9 $14.6 $13.9 $13.0 $12.2 $11.9 $10.7 $10.1 $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 S N O I L L I B N I S R A L L O D $8.5 $7.2 $5.5 $5.8 $5.5 $5.3 $4.2 $3.1 $2.3 $22 BILLION OF CUMULATIVE FARM & RANCH LOANS, GUARANTEES, AND PURCHASE COMMITMENTS 15 0.16% IN CUMULATIVE LOSSES 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FARMER MAC’S OUTSTANDING BUSINESS VOLUME GROWTH REPRESENTS A 12.4% COMPOUND ANNUAL GROWTH RATE OVER THE LAST 17 YEARS. OUR HISTORICAL CREDIT LOSSES, WHICH EQUATE TO LESS THAN ONE BASIS POINT PER YEAR, CONTINUE TO DEMONSTRATE OUR LONG-STANDING FOCUS ON HIGH CREDIT QUALITY. 20162016 14 OUTSTANDING BUSINESS VOLUME As of December 31 of each year depicted PROVEN CREDIT PERFORMANCE As of December 31, 2016 $17.4 BILLION $15.9 $14.6 $13.9 $13.0 $12.2 $11.9 $10.7 $10.1 $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 S N O I L L I B N I S R A L L O D $8.5 $7.2 $5.5 $5.8 $5.5 $5.3 $4.2 $3.1 $2.3 $22 BILLION OF CUMULATIVE FARM & RANCH LOANS, GUARANTEES, AND PURCHASE COMMITMENTS 15 0.16% IN CUMULATIVE LOSSES 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FARMER MAC’S OUTSTANDING BUSINESS VOLUME GROWTH REPRESENTS A 12.4% COMPOUND ANNUAL GROWTH RATE OVER THE LAST 17 YEARS. OUR HISTORICAL CREDIT LOSSES, WHICH EQUATE TO LESS THAN ONE BASIS POINT PER YEAR, CONTINUE TO DEMONSTRATE OUR LONG-STANDING FOCUS ON HIGH CREDIT QUALITY. 20162016 EXECUTIVE OFFICERS TIMOTHY L. BUZBY President and Chief Executive Officer R. DALE LYNCH Executive Vice President – Chief Financial Officer and Treasurer STEPHEN P. MULLERY Senior Vice President – General Counsel and Secretary JOHN C. COVINGTON Senior Vice President – Agricultural Finance BOARD OF DIRECTORS As of April 1, 2017 LOWELL L. JUNKINS, CHAIRMAN 1 Political Affairs Consultant Lowell Junkins & Associates Donnellson, Iowa MYLES J. WATTS, VICE CHAIRMAN 1 Professor Emeritus, Agricultural Economics Montana State University Bozeman, Montana DENNIS L. BRACK 2 Director Bath State Bank and Bath State Bancorp Bath, Indiana CHESTER J. CULVER 1 Founder Chet Culver Group Des Moines, Iowa RICHARD H. DAVIDSON 3 Director AgriBank, FCB St. Paul, Minnesota CORPORATE INFORMATION CORPORATE HEADQUARTERS 1999 K Street, N.W. Fourth Floor Washington, DC 20006 Phone: 202.872.7700 or 800.879.3276 Website: www.farmermac.com ANNUAL MEETING OF STOCKHOLDERS Thursday, May 4, 2017 8:00 a.m. The Town Hall 1999 K Street, N.W. First Floor Washington, DC 20006 STOCK EXCHANGE Farmer Mac’s Class A voting common stock and Class C non-voting common stock trade on the New York Stock Exchange under the symbols AGM.A and AGM, respectively. Formal notice of the meeting, the proxy statement, and the proxy card are being mailed to each stockholder of record entitled to vote at the meeting simultaneously with the mailing of this Annual Report. JAMES R. ENGEBRETSEN 2 Retired Professor, Finance Marriott School of Management Brigham Young University Provo, Utah DENNIS A. EVERSON 2 Director First Dakota National Bank Yankton, South Dakota SARA L. FAIVRE 1 Founder and President Sara Faivre Executive Mentoring Cameron, Texas DOUGLAS A. FELTON 3 President and Owner D&T Enterprises of Minnesota, Inc. Northfield, Minnesota DOUGLAS L. FLORY 3 Former Farm Credit Administration Board Member Former Farm Credit System Insurance Corporation Board Chairman McLean, Virginia THOMAS W. HILL 3 Former Chief Financial and Operations Officer Farm Credit Bank of Texas Austin, Texas MITCHELL A. JOHNSON 2 Financial Consultant Washington, District of Columbia CLARK B. MAXWELL 2 Chief Operating Officer Chatham Financial Corp. Kennett Square, Pennsylvania BRUCE J. SHERRICK 1 Professor, Agricultural and Applied Finance University of Illinois Champaign, Illinois DOUGLAS E. WILHELM 3 Former Chief Risk Officer CoBank, ACB Denver, Colorado 1 Presidential Appointee 2 Director elected by holders of Class A Common Stock 3 Director elected by holders of Class B Common Stock TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 17 Battery Place Eighth Floor New York, NY 10004 Phone: 212.509.4000 800.509.5586 Website: www.continentalstock.com CERTIFICATION Farmer Mac has included as Exhibit 31 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC the certifications of the Chief Executive Officer and Chief Financial Officer certifying the quality of Farmer Mac’s financial disclosures. FORM 10-K Stockholders may obtain, without charge, a copy of Farmer Mac’s 2016 Annual Report on Form 10-K, as filed with the SEC on March 9, 2017, from Farmer Mac’s website or by contacting Farmer Mac’s Secretary at Farmer Mac’s Corporate Headquarters. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDED DECEMBER 31, 2016 PricewaterhouseCoopers LLP 1800 Tysons Boulevard McLean, VA 22102 NON-GAAP PERFORMANCE MEASURES RECONCILIATION OF NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS TO CORE EARNINGS ($ in thousands) 2016 2015 2014 2013 Net income attributable to common stockholders $64,152 $47,371 $38,251 $71,833 Less reconciling items: Unrealized gains/(losses) on financial derivatives and hedging activities 13,628 10,924 (9,968) 45,181 Unrealized gains/(losses) on trading securities Amortization of premiums/discounts and deferred gains on assets consolidated at fair value Net effects of settlements on agency forward contracts Loss on retirement of Farmer Mac II LLC Preferred Stock Income tax effect related to reconciling items Core Earnings 1,460 (849) 1,699 - (5,577) $53,791 1,220 1,596 (820) (1,319) (14,549) (19,180) (607) (8,147) (1,675) 159 - 882 - 7,966 (9,122) $46,975 $53,047 $54,892 RECONCILIATION OF NET INTEREST INCOME AND NET YIELD TO NET EFFECTIVE SPREAD ($ in thousands) 2016 2015 2014 2013 Net interest income/yield 140,274 0.90% 125,807 0.88% 70,347 0.51% 109,453 0.89% Net effects of consolidated trusts (4,302) 0.03% (3,078) 0.01% (2,086) - (964) - Dollars Yield Dollars Yield Dollars Yield Dollars Yield Expense related to undesignated financial derivatives Amortization of premiums/discounts on assets consolidated at fair value Interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased (11,480) -0.08% (5,649) -0.04% (9,425) -0.07% (12,325) -0.10% 610 0.01% 2,300 0.02% 15,482 0.12% 20,418 0.17% - - - - 39,375 0.35% - - Net Effective Spread 125,102 0.86% 119,380 0.87% 113,693 0.91% 116,582 0.96% inside back cover Farmer Mac reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP). In addition to GAAP measures, Farmer Mac uses the following non-GAAP financial 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. These 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 financial 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. 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; and (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.” EXECUTIVE OFFICERS TIMOTHY L. BUZBY President and Chief Executive Officer R. DALE LYNCH Executive Vice President – Chief Financial Officer and Treasurer STEPHEN P. MULLERY Senior Vice President – General Counsel and Secretary JOHN C. COVINGTON Senior Vice President – Agricultural Finance BOARD OF DIRECTORS As of April 1, 2017 LOWELL L. JUNKINS, CHAIRMAN 1 Political Affairs Consultant Lowell Junkins & Associates Donnellson, Iowa MYLES J. WATTS, VICE CHAIRMAN 1 Professor Emeritus, Agricultural Economics Montana State University Bozeman, Montana DENNIS L. BRACK 2 Director Bath State Bank and Bath State Bancorp Bath, Indiana CHESTER J. CULVER 1 Founder Chet Culver Group Des Moines, Iowa RICHARD H. DAVIDSON 3 Director AgriBank, FCB St. Paul, Minnesota CORPORATE INFORMATION CORPORATE HEADQUARTERS 1999 K Street, N.W. Fourth Floor Washington, DC 20006 Phone: 202.872.7700 or 800.879.3276 Website: www.farmermac.com ANNUAL MEETING OF STOCKHOLDERS Thursday, May 4, 2017 8:00 a.m. The Town Hall 1999 K Street, N.W. First Floor Washington, DC 20006 STOCK EXCHANGE Farmer Mac’s Class A voting common stock and Class C non-voting common stock trade on the New York Stock Exchange under the symbols AGM.A and AGM, respectively. Formal notice of the meeting, the proxy statement, and the proxy card are being mailed to each stockholder of record entitled to vote at the meeting simultaneously with the mailing of this Annual Report. JAMES R. ENGEBRETSEN 2 Retired Professor, Finance Marriott School of Management Brigham Young University Provo, Utah DENNIS A. EVERSON 2 Director First Dakota National Bank Yankton, South Dakota SARA L. FAIVRE 1 Founder and President Sara Faivre Executive Mentoring Cameron, Texas DOUGLAS A. FELTON 3 President and Owner D&T Enterprises of Minnesota, Inc. Northfield, Minnesota DOUGLAS L. FLORY 3 Former Farm Credit Administration Board Member Former Farm Credit System Insurance Corporation Board Chairman McLean, Virginia THOMAS W. HILL 3 Former Chief Financial and Operations Officer Farm Credit Bank of Texas Austin, Texas MITCHELL A. JOHNSON 2 Financial Consultant Washington, District of Columbia CLARK B. MAXWELL 2 Chief Operating Officer Chatham Financial Corp. Kennett Square, Pennsylvania BRUCE J. SHERRICK 1 Professor, Agricultural and Applied Finance University of Illinois Champaign, Illinois DOUGLAS E. WILHELM 3 Former Chief Risk Officer CoBank, ACB Denver, Colorado 1 Presidential Appointee 2 Director elected by holders of Class A Common Stock 3 Director elected by holders of Class B Common Stock TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 17 Battery Place Eighth Floor New York, NY 10004 Phone: 212.509.4000 800.509.5586 Website: www.continentalstock.com CERTIFICATION Farmer Mac has included as Exhibit 31 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC the certifications of the Chief Executive Officer and Chief Financial Officer certifying the quality of Farmer Mac’s financial disclosures. FORM 10-K Stockholders may obtain, without charge, a copy of Farmer Mac’s 2016 Annual Report on Form 10-K, as filed with the SEC on March 9, 2017, from Farmer Mac’s website or by contacting Farmer Mac’s Secretary at Farmer Mac’s Corporate Headquarters. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDED DECEMBER 31, 2016 PricewaterhouseCoopers LLP 1800 Tysons Boulevard McLean, VA 22102 NON-GAAP PERFORMANCE MEASURES RECONCILIATION OF NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS TO CORE EARNINGS ($ in thousands) 2016 2015 2014 2013 Net income attributable to common stockholders $64,152 $47,371 $38,251 $71,833 Less reconciling items: Unrealized gains/(losses) on financial derivatives and hedging activities 13,628 10,924 (9,968) 45,181 Unrealized gains/(losses) on trading securities Amortization of premiums/discounts and deferred gains on assets consolidated at fair value Net effects of settlements on agency forward contracts Loss on retirement of Farmer Mac II LLC Preferred Stock Income tax effect related to reconciling items Core Earnings 1,460 (849) 1,699 - (5,577) $53,791 1,220 1,596 (820) (1,319) (14,549) (19,180) (607) (8,147) (1,675) 159 - 882 - 7,966 (9,122) $46,975 $53,047 $54,892 RECONCILIATION OF NET INTEREST INCOME AND NET YIELD TO NET EFFECTIVE SPREAD ($ in thousands) 2016 2015 2014 2013 Net interest income/yield 140,274 0.90% 125,807 0.88% 70,347 0.51% 109,453 0.89% Net effects of consolidated trusts (4,302) 0.03% (3,078) 0.01% (2,086) - (964) - Dollars Yield Dollars Yield Dollars Yield Dollars Yield Expense related to undesignated financial derivatives Amortization of premiums/discounts on assets consolidated at fair value Interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased (11,480) -0.08% (5,649) -0.04% (9,425) -0.07% (12,325) -0.10% 610 0.01% 2,300 0.02% 15,482 0.12% 20,418 0.17% - - - - 39,375 0.35% - - Net Effective Spread 125,102 0.86% 119,380 0.87% 113,693 0.91% 116,582 0.96% inside back cover Farmer Mac reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP). In addition to GAAP measures, Farmer Mac uses the following non-GAAP financial 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. These 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 financial 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. 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; and (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.” 1999 K Street, N.W. Fourth Floor Washington, DC 20006 Phone: 202.872.7700 or 800.879.3276 www.farmermac.com Financing Rural America ® 

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