Strong Foundations,
Steady Growth
2021 ANNUAL REPORT
Farmer Mac Financial Ecosystem
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Loans
Debt & Equity
Financing
Debt Service &
Dividends
FINANCIAL
INSTITUTIONS
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CAPITAL
MARKETS
RURAL
INFRASTRUCTURE
AGRIBUSINESS
FARMERS &
RANCHERS
Who We Are
Farmer Mac is the secondary market for U.S. agricultural and rural
infrastructure credit and has been a champion for and an integral
part of this nation’s rural economy for over 30 years. Guided by
our mission—to help build a strong and vital rural America by
increasing the availability and affordability of credit for the
benefit of American agriculture and rural communities—we
provide lenders access to flexible, competitive financing and
effective risk management tools to help their farm, ranch, and
rural utilities customers.
LETTER FROM OUR CEO AND CHAIR
OUR COMMITMENT TO THE
BETTERMENT OF RURAL AMERICA
In the last several annual reports, we’ve discussed how Farmer
Mac’s Board of Directors, management team, and employees
have been united in our work of building strong foundations to
better facilitate future growth: growth for our organization, for the
reach and value of our mission, and for the durability and vibrancy
of America’s agricultural economy and rural communities. In 2021,
we continued to build on and expand those foundations and
achieved financial success that we will reinvest into further
mission-focused growth.
Our efforts have been centered around three key areas of focus
that are imperative to our strength as a company. We are focused
on our vitally important mission: to help build a strong and vital
rural America by increasing the availability and affordability of
credit for the benefit of American agriculture and rural communities.
We are focused on our people, the passionate and talented team
that brings our strategic vision to life. And we are focused on our
financial performance because financial strength and responsible
capital management are vital to our continued success in fulfilling
our mission and delivering long-term value to our stockholders.
As a company, we are united in and powered by our mission.
Farmer Mac’s mission is our competitive advantage that helps
cultivate a passionate and focused workforce that is committed
to delivering the access to affordable credit that rural America
deserves. We are driven by the tangible benefits we see our work
bring to our rural economies and the food, fiber, and agribusiness
sectors; to farmers and ranchers; and to America’s rural
communities and the businesses, utilities, and rural infrastructure
that supports them. Most of all, we see the value that our
mission-focused work brings to our customers—America’s lending
institutions—to whom we are deeply committed.
BRADFORD T. NORDHOLM
President and
Chief Executive Officer
LOWELL L. JUNKINS
Board Chair
1
2021 ANNUAL REPORT Our mission
is our guiding
star, and we
are constantly
working to find
ways to deepen
its value and
expand its
reach to more
corners of rural
America than
ever before.
Our mission is our guiding star, and we are constantly
working to find ways to deepen its value and
expand its reach to more corners of rural America
than ever before. We are guided in this pursuit
by our strategic vision, which calls us to broaden
our reach—finding new customers by offering
new products while exploring new sectors—while
deepening the value we offer to everyone who
transacts with us by improving the customer
experience through enhanced products,
platforms, and processes.
Through 2021, we continued to build strong
foundations and we achieved strong results for
our organization. We did so while continuing to
operate with full efficiency in a hybrid environment,
underscoring the importance of our investments in
technology that connect our systems and our people.
Though the pandemic has continued to be a
disruptive and unpredictable force, planning for
uncertainty is a fact of life in agriculture, and we
have seen the continued strength and resiliency
of rural America. However, we are seeing ongoing
issues and disruptions with America’s supply
chains that highlight an important area of focus
for our company: broadening the reach of how our
mission can provide support along the farm-to-fork
value chain.
In this letter, we will reflect on our financial results
for 2021; we will share how we’ve achieved these
results and continued to build the foundations for
safe and sound growth; and we will explain how
we will follow our strategic vision to build on those
foundations, broaden and deepen the reach of
our mission, and deliver even more exciting
developments in the future.
2
FARMER MACLETTER FROM OUR CEO AND CHAIR 3
2021 ANNUAL REPORT FINANCIAL RESULTS
Our focus on our strategic vision and continued
investment in people and technology resulted in a
record 2021. We provided a gross $8.6 billion in
liquidity and lending capacity to lenders serving
rural America last year, which resulted in
outstanding business volume of $23.6 billion at
year-end. We generated double-digit year-over-year
growth in both total revenues and non-GAAP core
earnings, which ended the year at $246.4 million
and $113.6 million, respectively. Most importantly
and fundamentally, our portfolio remains strong
and credit performance continues to be stable.
Net effective spread (a non-GAAP measure)
was $220.7 million in 2021, a 12% improvement
from the prior year, primarily due to the shift to
higher-earning assets and continued competitive
execution on debt funding with disciplined asset-
liability management. As we prepare for a
steepening yield curve, we are carefully analyzing
our duration and convexity to minimize our interest
rate risk as rates rise. Our inaugural FARM
securitization transaction, which closed in October
2021, has provided us with an opportunity to
diversify long-term funding sources, reduce credit
exposures, and optimize capital usage. The
successful execution of this transaction expands
our investor base, allowing us to optimize our
funding strategy when faced with widening
issuances for longer-term assets. This disciplined
approach of managing our portfolio duration and
convexity should allow us to achieve consistent
performance in our net effective spread in both
rising and falling rate environments.
We remain well-capitalized with capital ratios in
excess of regulatory minimums. We opportunistically
issued $125 million of Series G preferred stock in
CORE EARNINGS*
NET EFFECTIVE SPREAD*
ENHANCED CAPITAL POSITION**
$250.0
$1200
$113.6
$100.6
$200.0
$93.7
$197.0
$900
$220.7
$1,200
30%
$487
$1,006
$326
$815
$197
s
n
o
i
l
l
i
M
n
i
$
$600
$619
$681
$714
14.7%
12.9%
14.1%
$300
$0
25%
20%
15%
10%
5%
0%
s
n
o
i
l
l
i
M
n
i
$
$168.6
$150.0
$100.0
$50.0
$0.0
2019
2020
2021
2019
2020
2021
2019
2020
2021
* Core earnings and net effective spread are non-GAAP measures. For a
reconciliation of core earnings to GAAP net income and net effective spread
to GAAP net interest income, please refer to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Total Capital
Tier 1 Capital Ratio
Minimum
Statutory
Core Capital
Core Capital
Amount Above
Statutory Minimum
$120.0
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
s
n
o
i
l
l
i
M
n
i
$
4
FARMER MACLETTER FROM OUR CEO AND CHAIR
the second quarter of 2021, further enhancing our
capital position and positioning us well for an
inflationary environment. The capital efficiency of
our securitization transaction improved our Tier 1
capital position, reducing the need in the immediate
future for preferred stock issuances.
Our continued strong financial performance, well-
capitalized position, and positive outlook on the
long-term growth of our business allowed us to
increase our quarterly dividend once again. We
raised our quarterly dividend to $0.95 per share of
common stock in 2022, which reflects the eleventh
consecutive year with consistent dividend growth.
As we expand and scale our company, the
transparency and utility of our disclosures must
align. This year, we introduced a realignment of our
lines of business and operating segments, which we
believe will make it easier for all of our stakeholders
to digest and evaluate our results across these
segments. We have consolidated our reporting
from four lines of business to two—Agricultural
Finance and Rural Infrastructure Finance—with
seven operating sub-segments. These lines of
business reflect how we are managing, evaluating,
and serving our business based on type of
customer and market rather than according to the
type of product offerings. We believe the simplified
reporting format will more clearly present the
distinct contributions of our operating segments
and how they drive value for the overall company.
We are very proud of our 2021 results and encouraged
by the successes of our recent initiatives. Even during
times of uncertainty, we believe that Farmer Mac can
provide more liquidity and capital, produce consistent
earnings results, and deliver long-term value for all
of our stakeholders, including farmers, ranchers,
rural communities, employees, and shareholders.
OUTSTANDING BUSINESS VOLUME**
QUARTERLY DIVIDENDS
$0.95
$0.88
$0.80
$0.70
$0.58
$21.9
$5.4
$23.6
$6.0
$21.1
$5.2
$15.9
$16.5
$17.6
$25.0
$20.0
s
n
o
i
l
l
i
B
n
i
$
$15.0
$10.0
$5.0
$0.0
r
e
t
r
a
u
Q
r
e
p
e
r
a
h
S
r
e
p
$
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
2019
2020
2021
2018
2019
2020
2021
2022
Agricultural Finance
Rural Infrastructure Finance
** Charts may not sum to total due to rounding
5
2021 ANNUAL REPORT
BUILDING FOUNDATIONS FOR GROWTH
Our strategic vision calls for consistent and accretive growth for our company,
so we are not only focused on delivering strong year-over-year performance
but also investing in initiatives that will serve as strong foundations for future
growth. We worked on building and expanding several of these initiatives
throughout 2021 and will continue to do so in the years to come.
These initiatives are focused on three main areas: (1) continuing to implement
and strengthen a powerful suite of process, product, and platform improvements;
(2) continuing to focus on our people, attracting and developing talent while
ensuring our departments are appropriately aligned to carry out our strategic
vision; and (3) engaging in other innovative investments, including expanding
our offerings and entering into a strategic alliance.
PROCESS, PRODUCT, AND PLATFORM IMPROVEMENTS
One way that we are focused on deepening our business is through a series of
process, product, and platform improvements, which we refer to collectively as
our “Great Reimagined” journey. This enterprise-wide initiative is aimed at both
internal improvements—connecting and streamlining our platforms and processes
—and external improvements, with the goal of significantly elevating the customer
experience and making it faster, easier, and cheaper to transact with us.
A major component of Great Reimagined is our digital transformation journey,
which includes activities devoted to digitization (e.g., moving data from physical to
digital storage) and digitalization (e.g., leveraging digital information to improve
processes). True digital transformation takes this even further, using analytics
and technology to drive internal and external improvements in business
processes and products that would be impossible to replicate manually. Digital
transformation does not describe a fixed destination; it is an ongoing journey,
which requires continuous investment to keep pace not only with technological
progress, but with our customers’ expectations to be able to transact quickly,
easily, on their own time, and with the resources they need at their fingertips.
Farmer Mac has already created a robust base of digitization, and we are making
measured progress towards true digital transformation. In 2021, that included
launching an intuitive online application for our popular Farm & Ranch
scorecard product, AgXpress. Our digital transformation journey isn’t just
about strengthening our operational efficiencies to better serve our
customers; it’s also about continuing to be an efficient and interconnected
organization. We’re therefore continuing to bolster our enterprise efficiency,
connecting our systems and building pathways enterprise-wide to make our
procedures more effective and efficient. We are committed to continuing to
build a strong foundation and making steady progress on our digital
transformation journey in the years to come.
Our digital
transformation
journey isn’t just
about strengthening
our operational
efficiencies to
better serve our
customers; it’s also
about continuing
to be an efficient
and interconnected
organization.
6
FARMER MACLETTER FROM OUR CEO AND CHAIR Our Great Reimagined Journey
Our ongoing Great Reimagined journey
represents all of the process and system
improvements we’re implementing to
strengthen our organizational connectivity
and to significantly elevate our customers’
experience when they transact with us. The
initiative is a major driver of our “deepen”
strategy, which guides us to continuously
make our financial solutions more accessible
to our customers while leveraging the power
of analytics and implementing helpful tools
that are only possible by having our
origination and servicing platforms online.
We have also continued to progress in our
Great Reimagined journey, helping to make
Farmer Mac more effective, efficient, and
easier to work with. One major step forward
was launching a new online pathway for
AgXpress, our premier loan scorecard
product, which includes innovative new
features including an automated rate lock
feature that allows AgXpress customers to
lock in a rate with the simple click of a
button. We are continuing to devote time and
resources towards all our Great Reimagined
initiatives to develop more system and product
improvements that will further elevate our
customers’ experience, our efficiency, and the
strength of the valuable products we offer.
7
2021 ANNUAL REPORT Farmer Mac’s
efforts to fulfill
our important
mission would be
impossible without
our skilled and
passionate people
in place to get
the job done.
GROWING OUR TALENTED TEAM
Ensuring the strength of our talented team
is fundamental to our efforts to broaden and
deepen the business. Farmer Mac’s efforts
to fulfill our important mission would be
impossible without our skilled and passionate
people in place to get the job done.
We’ve been growing our team with individuals
with new ideas and strong backgrounds in
areas we’re targeting for growth. We grew by
approximately 26%, to 153 employees, in
2021, with a notable portion of that growth
coming in the form of acquiring a talented
team of servicers, enabling us to quickly
implement our expanded servicing function
with no interruption of service to our customers.
Our focus on our people doesn’t end at
having a talented team in place and guiding
their work towards our strategic vision—it’s
also vital that we support and incentivize our
workforce. In addition to initiatives related to
talent development, a major way that we
nurture our employees and create a
productive workplace comes in the form of
our continued commitment to diversity,
equity, and inclusion (“DEI”) to maintain and
enhance a corporate culture where all
employees belong and can bring their best
selves to work. This initiative saw a
meaningful step forward in 2021 with the
first regular meetings of our inaugural DEI
Council, which is currently focused on building
out a strategic DEI plan for our company.
8
FARMER MACLETTER FROM OUR CEO AND CHAIR Our Commitment to
Diversity, Equity, and Inclusion
Our successes wouldn’t be possible without a
knowledgeable, well-equipped, and passionate team
of people who make up our Board, management,
and employees. To that extent, it is vital that we
invest in our team, nourishing and supporting
them. A huge part of that is fostering and
maintaining a culture of inclusion where a diversity
of ideas and a diversity of people can all flourish.
Celebrating our diversity and ensuring a
comfortable work environment helps our talented
team to flourish and innovate. And strengthening
our talent acquisition, selection, and retention
processes and ensuring transparent tracking,
monitoring, and communication of our processes
is integral to the council’s goals. Externally, it is
important that we ensure there is equitable access
to Farmer Mac’s products and solutions, including
for small farms and family farmers. These goals
are closely tied to our mission, as shown in our
DEI vision statement:
“At Farmer Mac, we each share a passion for our
mission, connecting rural Americans with the
affordable financing they deserve. It is that shared
commitment to our mission and rural America
that drives us to innovate, collaborate, and bring
our whole selves to work. Cultivating a diverse,
inclusive, and equitable workplace ensures that
every employee feels valued, supported, and
empowered to give it their all. It’s the best way
we can support America’s agriculture and rural
communities—and it’s the right thing to do.”
9
2021 ANNUAL REPORT We expanded our
internal servicing
function and now
service a sizeable
portion of our Farm
& Ranch portfolio
internally. This
move gives us
better oversight of
and insight into
our network of
servicers and will
ultimately help us to
standardize the loan
servicing process.
OTHER WAYS WE’RE BUILDING FOR THE FUTURE
As we’ve discussed, 2021 was a year of building
foundations for growth. Our Great Reimagined and digital
transformation journey will continue to help us make it
faster, easier, and more affordable to transact with
Farmer Mac. And we will continue to work to cultivate a
skilled and driven employee base to bring our plans to
fruition. But these initiatives are far from the only
foundational steps we’re taking for our future and for the
future of rural America. We’ve also made significant and
exciting progress in other projects that we expect to build
on and continue to grow in the years to come.
We expanded our internal servicing function and now
service a sizeable portion of our Farm & Ranch portfolio
internally. This move gives us better oversight of and
insight into our network of servicers and will ultimately
help us to standardize the loan servicing process.
We were able to quickly implement this function with
no interruption in service by forming a new operations
department and through a strategic acquisition that put
in place a knowledgeable servicing staff whom our
customers already know and trust.
We entered into a strategic alliance with Ag-Analytics
and helped support Ag-Analytics’ acquisition of the
industry’s premier farmland information and evaluation
platform, AcreValue. We expect this alliance to help
harness farm data and analytics in more active and
innovative ways in the years to come.
As discussed in the Financial Results section, we also
completed a newly-designed structured agricultural
mortgage-backed securitization transaction, which you
can read more about on page 13. Securitizations offer
an opportunity to help diversify our funding sources and
can provide increased capital efficiencies. In the future,
we expect that issuing more multi-tranche, credit-released
securities backed by agricultural mortgages will lead to a
more effective and lower cost of capital for Farmer Mac.
The securitization effort also increases investor knowledge
and familiarity with a very strong asset class, helping to
more closely connect American farmers and ranchers
with investors around the globe.
10
FARMER MACLETTER FROM OUR CEO AND CHAIR A New Alliance with Ag-Analytics
In 2021, we embarked on a new strategic alliance with Ag-Analytics, a
leading farmland data technology software provider, and assisted in
their acquisition of AcreValue, a premier farmland information and
evaluation platform. This acquisition will help connect farmers and
landowners with powerful analytics, and we expect to see it drive
considerable positive changes in rural America.
As part of this alliance, Farmer Mac now has the opportunity to
integrate the powerful analytics of AcreValue/Ag-Analytics to combine
collateral mapping tools with advanced automated valuation modeling
to better understand, predict, and value collateral from the dirt up.
We are excited to use this foundation to work towards a future where
we can use remote data to analyze and predict environmentally
sustainable practices on-farm, something that ultimately benefits
everyone in America by protecting the health and vitality of our arable
land. We believe that the tremendous power of analytics will continue
to drive new benefits for Farmer Mac, for our customers, and for their
borrowers in the years to come.
Investing in Servicing
One of our major initiatives in 2021 was the expansion of our internal
loan servicing function through a strategic acquisition of servicing
rights for a portion of our Farm & Ranch and USDA Guaranteed loans
from one of the third-party “Central Servicers” that has traditionally
serviced Farmer Mac loans.
We determined that taking this step forward now and becoming a Central
Servicer gives us the unique opportunity for enhanced oversight of
our Central Servicer network, provides more insight into how we can
provide an elevated experience to our customers, and better supports
our growth as we broaden into new markets and lines of business.
We were able to quickly implement this function with no disruption
to our customers, largely due to the acquisition of a talented team
of servicers that are familiar with our loans and our customers. This
initiative is therefore emblematic of most of our core areas of focus
in 2021, and also represents a big step forward in how Farmer Mac
will continue to innovate and drive even more value to our customers
and to rural America as we carry out our mission.
11
2021 ANNUAL REPORT OUR VISION
FOR THE FUTURE
We’ve explained how the foundations we’re
building are helping position us to grow safely
and soundly. We’re guided on this path by our
strategic vision, which we dynamically refine each
year with the guidance and full endorsement of
our Board, always keeping our vitally important
mission as our guiding star. Our strategic vision
drives us to continuously improve on how we
deliver on our mission and provide effective and
efficient capital to the sectors we serve.
Building strong foundations, continuing to grow,
and maintaining a base of strong financial
performance are all required components of how
we deliver on that vitally important mission. But
that’s not the end of the story—our vision is not
merely to fulfill our mission, but also to deepen
the value it brings to the lenders, farmers and
ranchers, and communities of rural America while
we simultaneously expand its reach to serve
rural America in new ways.
DEEPENING THE VALUE OF OUR MISSION
What does it mean to deepen the positive impact
of our mission? It means providing new value to
our customers, to whom we will always remain
deeply committed. More than 85% of our
customers are local community banks, many
of which are not merely serving rural agriculture,
but which are integral parts of the communities
they serve. We plan to continually build upon our
process, product, and platform improvements to
give them the best possible experience while
transacting with us. And through our expanded
servicing function, we plan to help standardize
our servicing process and drive new efficiencies
across our network of servicers to bring even
more value to the lenders that rely on Farmer
Mac’s innovative solutions to attract and retain
their borrowers.
Our strategic
vision drives us
to continuously
improve on how
we deliver on
our mission and
provide effective
and efficient
capital to the
sectors we serve.
12
FARMER MACLETTER FROM OUR CEO AND CHAIR Securitizations:
An Important Step
for Farmer Mac
Farmer Mac’s charter gives us the ability to
issue securities in the capital markets,
which broadens the field of potential
investors into rural lending and helps us
diversify our funding sources. Historically,
nearly all of Farmer Mac’s structured
securities have been issued as pass-
through securities. But as the market for
structured securities has evolved, we saw
the opportunity to expand our activities.
Last year, we issued a unique multi-tranche,
credit-released security backed by
agricultural mortgages, which was received
with considerable interest from investors.
Securities like these increase asset
liquidity, diversify investment opportunities,
and help illuminate the excellent quality of
their underlying assets. All of these benefits
accrue to the security issuer, the security
investor, and the underlying borrowers
through greater market efficiency and
transparency. We plan to build upon this
momentum and create a more robust
market for these innovative securities to
increase capital efficiency in the months
and years to come.
13
2021 ANNUAL REPORT We also know that these activities, along with maintaining
competitive interest rates in our lines of business, serve
not only our customers but also their borrowers, who are
increasingly seeking access to affordable, long-term
financing. Connecting America’s farmers and ranchers with
the affordable financing they deserve can help drive big,
positive impacts in rural America. In fact, we estimate
that for every $1 saved by a farmer or rancher, roughly
$2 are invested into local businesses, communities, and
governments. We continue to take pride in how our mission
drives value to small and family farms, which represent
nearly 97% of our Farm & Ranch portfolio.
BROADENING THE REACH OF OUR MISSION
We always strive for our mission-focused activities to have
the greatest possible positive impact in rural communities.
But we also want to bring the value of our mission and the
secondary market to more markets and sectors in support
of American agriculture and rural communities than ever
before, and in new and innovative ways.
We’re concentrating on expanding our support further along
the agricultural value chain. We’ve increased our focus on
providing credit to larger, more complex farming operations
and agribusinesses as consolidation and growth in the
agriculture sectors continue. 2021 demonstrated the
urgent importance of a robust supply chain, and we aim
to help enhance the ag value chain from the dirt to the
doorstep to ensure farmers, ranchers, and agribusinesses
stay connected to affordable financing—and to each other.
One of the newest ways we’re focused on serving rural
communities is by helping to connect and power them—an
activity more important than ever in a world where remote
communication and collaboration is increasingly prevalent
and expected. We’re helping to bridge the digital divide
through our rural broadband and telecommunications activities.
We also recognize that investing in renewable energy, a
rapidly-evolving sector of the rural economy, is not only a
strong step we can take as stewards of our environment,
but which can also help ensure access to affordable and
reliable electricity for millions of Americans.
2021
demonstrated the
urgent importance
of a robust supply
chain, and we aim
to help enhance
the ag value chain
from the dirt to the
doorstep to ensure
farmers, ranchers,
and agribusinesses
stay connected
to affordable
financing—and to
each other.
14
FARMER MACLETTER FROM OUR CEO AND CHAIR 15
2021 ANNUAL REPORT Together, we will
continue working
to drive tangible
benefits to rural
communities
and extend the
reach and value
of our mission.
CONCLUSION
Our successes in 2021 are an important indication that our strategic
vision is well-founded and that we are making significant progress
towards our goals. Financial success is also important in that it serves
as the basis upon which we can drive future growth and, ultimately,
strengthen the impact of our mission. All things considered, we know
that a successful year for Farmer Mac is measured in the benefits we
deliver to our customers—the lending institutions of rural America—and
in the positive change we bring to America’s farmers, ranchers, and
rural communities.
On behalf of our Board and our management team, we want to express
our profound gratitude to everyone at Farmer Mac who made such a
strong year possible. Together, we will continue working to drive
tangible benefits to rural communities and extend the reach and value
of our mission. As always, we are deeply committed to serving as a
faithful and consistent partner to rural America. We remain steadfast
in our efforts to expand on the strong foundations we’re building, and
we look forward to delivering even more value and continuing to provide
the capital and commitment that these lenders, borrowers, and
communities deserve for many years to come.
BRADFORD T. NORDHOLM
President and
Chief Executive Officer
LOWELL L. JUNKINS
Board Chair
16
FARMER MACLETTER FROM OUR CEO AND CHAIR EXECUTIVE ROUNDTABLE
BOARD OF DIRECTORS
As of March 31, 2022
BRADFORD T. NORDHOLM
President and Chief Executive Officer
ZACHARY N. CARPENTER
Executive Vice President –
Chief Business Officer
STEPHEN P. MULLERY
Executive Vice President –
General Counsel and Secretary
APARNA RAMESH
Executive Vice President –
Chief Financial Officer
LOWELL L. JUNKINS, CHAIR1
Political Affairs Consultant
Lowell Junkins & Associates
Montrose, Iowa
LAJUANA S. WILCHER, VICE CHAIR1
Owner – Scuffle Hill Farm
Partner – English, Lucas, Priest & Owsley, LLP
Bowling Green, Kentucky
DENNIS L. BRACK2
Director
Bath State Bank and Bath State Bancorp
Bath, Indiana
BRIAN M. BRINCH
Senior Vice President –
Enterprise Risk Officer
MARC J. CRADY
Senior Vice President –
Chief Credit Officer
ROBERT J. MAINES
Senior Vice President –
Operations
KERRY T. WILLIE
Senior Vice President –
Chief Human Resources Officer
TODD A. BATTA
Vice President –
Government Affairs
CATHERINE D. BIRR
Chief of Staff
MÁRIO S. MORAIS
Vice President –
Information Technology
RICHARD H. DAVIDSON3
Former Director
AgriBank, FCB
St. Paul, Minnesota
EVERETT M. DOBRINSKI3
Former Director
CoBank, ACB
Greenwood Village, Colorado
JAMES R. ENGEBRETSEN2
Retired Professor, Finance
Marriott School of Management
Brigham Young University
Provo, Utah
SARA L. FAIVRE1
Co-Owner and Advisory Partner
Wild Type Ranch
Cameron, Texas
AMY H. GALES3
Former Executive Vice President
CoBank, ACB
Greenwood Village, Colorado
MITCHELL A. JOHNSON2
Financial Consultant
Washington, District of Columbia
ERIC T. MCKISSACK2
Former CEO
Channing Capital Management, LLC
Chicago, Illinois
ROBERT G. SEXTON3
President
Oslo Citrus Growers Association
Vero Beach, Florida
CHARLES A. STONES1
Former President
Kansas Bankers Association
Topeka, Kansas
ROY H. TIARKS3
Owner
Tiarks Family Farm
Council Bluffs, Iowa
TODD P. WARE2
President and Chief Executive Officer
Licking Rural Electrification –
The Energy Cooperative
Newark, Ohio
MYLES J. WATTS1
Professor Emeritus, Agricultural Economics
Montana State University
Bozeman, Montana
1 Presidential Appointee
2 Director elected by holders of Class A Common Stock
3 Director elected by holders of Class B Common Stock
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
1999 K Street, N.W.
Fourth Floor
Washington, DC 20006
Phone: 202.872.7700
800.879.3276
Website: www.farmermac.com
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.
ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 19, 2022, 8:00 a.m. EDT
Dial-In: 888.346.2616
Webcast: https://www.farmermac.com/
investors/events-presentations/
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.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company
1 State Street
30th 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, 2021 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 2021 Annual Report on
Form 10-K, as filed with the SEC on February 28,
2022, 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, 2021
PricewaterhouseCoopers LLP
655 New York Avenue, N.W.
Washington, DC 20001
As filed with the Securities and Exchange Commission on February 28, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
For the transition period from _____ to _____.
Commission File Number 001-14951
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality
of the United States
(State or other jurisdiction of
incorporation or organization)
1999 K Street, N.W., 4th Floor,
Washington, DC
(Address of principal executive offices)
52-1578738
(I.R.S. employer identification number)
20006
(Zip code)
(Registrant's telephone number, including area code)
(202) 872-7700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A voting common stock
Class C non-voting common stock
6.000% Fixed-to-Floating Rate Non-Cumulative
Preferred Stock, Series C
5.700% Non-Cumulative Preferred Stock, Series D
5.750% Non-Cumulative Preferred Stock, Series E
5.250% Non-Cumulative Preferred Stock, Series F
4.875% Non-Cumulative Preferred Stock, Series G
Trading symbol
AGM.A
AGM
AGM.PRC
Exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
AGM.PRD
AGM.PRE
AGM.PRF
AGM.PRG
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Class B voting common stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
1
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of the Class A voting common stock and Class C non-voting common stock held by
non-affiliates of the registrant was $966,366,719 as of June 30, 2021, the last business day of the registrant's most
recently completed second fiscal quarter, based upon the closing prices for the respective classes on June 30, 2021
reported by the New York Stock Exchange. For purposes of this information, the outstanding shares of Class A
voting common stock and Class C non-voting common stock held by directors, executive officers, and significant
stockholders of the registrant, as applicable, as of June 30, 2021 were deemed to be held by affiliates. The
aggregate market value of the Class B voting common stock is not ascertainable due to the absence of publicly
available quotations or prices for the Class B voting common stock as a result of the limited market for, and
infrequency of trades in, Class B voting common stock and the fact that any such trades are privately negotiated
transactions.
As of February 7, 2022, the registrant had outstanding 1,030,780 shares of Class A voting common stock,
500,301 shares of Class B voting common stock, and 9,235,578 shares of Class C non-voting common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders is
incorporated herein by reference in Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year to which
this report relates.
Auditor Firm ID: 238 Auditor Name: PricewaterhouseCoopers LLP
Auditor Location: Washington DC, DC, USA
2
Table of Contents
Forward-Looking Statements
Summary of Risk Factors
PART I
Item 1.
Business
General
Farmer Mac's Lines of Business
Competition
Capital and Corporate Governance
Human Capital
Available Information
Funding of Guarantee and LTSPC Obligations
Financing
Debt Issuance
Equity Issuance
Farmer Mac's Authority to Borrow from the U.S. Treasury
Government Regulation of Farmer Mac
General
Office of Secondary Market Oversight
Capital Standards
Liquidity Requirements
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases for
Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Critical Accounting Estimates
Use of Non-GAAP Measures
Results of Operations
Outlook
Balance Sheet Review
Risk Management
Liquidity and Capital Resources
Other Matters
Supplemental Information
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements
Management's Report on Internal Controls Over Financial Reporting
3
4
5
8
8
8
10
19
20
22
24
24
25
25
26
29
30
30
30
31
33
35
50
50
50
50
51
51
53
54
54
58
59
61
80
87
87
105
108
109
113
114
114
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers, and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Item 13.
PART IV
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
115
118
119
120
121
122
124
189
189
190
190
190
191
191
191
191
191
191
191
194
195
FORWARD-LOOKING STATEMENTS
In this report, the words "Farmer Mac," "we," "our," and "us" refer to the Federal Agricultural Mortgage
Corporation unless otherwise stated or unless the context otherwise requires.
Some statements made in this report, such as in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section, are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995 about management's current expectations for Farmer Mac's
future financial results, business prospects, and business developments. Forward-looking statements
include, without limitation, any statement, including statements about the COVID-19 pandemic and its
impact on Farmer Mac, that may predict, forecast, indicate, or imply future results, performance, or
achievements. These statements typically include terms such as "anticipates," "believes," "continues,"
"estimates," "expects," "forecasts," "intends," "outlook," "plans," "potential," "project," "target" and
similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will," and
"would." This report includes forward-looking statements addressing Farmer Mac's:
•
•
•
•
•
prospects for earnings;
prospects for growth in business volume;
assessment of the effect of the COVID-19 pandemic on our business, financial results,
financial condition, and business plans and strategies;
trends in net interest income and net effective spread;
trends in portfolio credit quality, delinquencies, substandard assets, credit losses, and
provisions for losses;
4
•
•
•
•
•
•
•
assessment of economic and market trends;
trends in expenses;
trends in investment securities;
prospects for asset impairments and allowance for losses;
changes in capital position;
future dividend payments; and
other business and financial matters.
Management's expectations for Farmer Mac's future necessarily involve assumptions, 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, including the factors discussed under "Risk Factors" in Part I, Item 1A of this
report, as well as uncertainties about:
•
•
•
•
•
•
•
•
•
•
•
•
the duration, spread, and severity of the COVID-19 pandemic and its effects on the business
operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business
operations;
the public response to the ongoing COVID-19 pandemic, including the possibility of
government actions to mitigate the pandemic and its effects, and any social or economic
disruption that may be caused by any new COVID-19 variants or any further outbreaks;
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
agricultural or rural infrastructure 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, supply chain disruptions, increases in input costs, labor availability, 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 hinder agricultural mortgage lending or borrower repayment capacity,
including the effects of severe weather, climate change, or fluctuations in agricultural real
estate values.
Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-
looking statements expressed in this report. Farmer Mac undertakes no obligation to release publicly the
results of revisions to any forward-looking statements to reflect new information or any future events or
circumstances, except as otherwise required by applicable law. The information in this report is not
necessarily indicative of future results.
5
SUMMARY OF RISK FACTORS
The following summarizes some of the key risks and uncertainties that could materially adversely affect
our business, operating results, financial condition, operations, liquidity and capital levels. The following
summary does not contain all of the information that may be important to you, and you should review and
consider carefully the risks and uncertainties listed in this summary together with the more complete
discussion of each risk factor set forth under the heading "Risk Factors" in Item 1A of this report, along
with other information in this report and our other filings with the Securities and Exchange Commission.
The forward-looking statements discussed above are qualified by these risk factors.
• The continuing effects of the COVID-19 pandemic are uncertain and may heighten the risk factors
•
described in this report.
Factors outside of Farmer Mac's or borrowers' control may impair borrowers' profitability and
ability to repay their loans in Farmer Mac's portfolio.
• Climate change and the occurrence of weather-related events or other natural or environmental
disasters could have a material adverse effect on Farmer Mac’s business, operating results, or
financial condition.
• Concentrations in Farmer Mac’s loan or investments portfolios, or to one or more borrowers or
•
counterparties, may increase Farmer Mac’s exposure to credit risk.
Farmer Mac guaranteed securities and purchase commitments expose Farmer Mac to significant
contingent liabilities, and Farmer Mac's ability to fulfill its obligations under its guarantees and
purchase commitments may be limited.
Farmer Mac is exposed to counterparty risk on both its cleared and non-cleared swaps transactions.
•
• External factors may affect the demand for Farmer Mac's secondary market, the price or
marketability of Farmer Mac's products, or Farmer Mac's ability to offer its products and services.
• An inability to access the equity and debt capital markets could have a material adverse effect on
Farmer Mac's business, operating results, financial condition, liquidity, and capital levels.
• The loss of business from key business counterparties or customers, including AgVantage
•
counterparties, could weaken Farmer Mac’s business and decrease its revenues and profits.
Farmer Mac's efforts to balance fulfilling its mission with providing a return to its stockholders
may result in business transactions that involve lower returns or higher risk.
• A few stockholders who own large amounts of Farmer Mac voting common stock may seek to
influence Farmer Mac's business, strategy, or board composition, and the interests of these
stockholders may differ from the interests of Farmer Mac or other holders of Farmer Mac's
common stock.
• The inadequacy or failure of Farmer Mac's operational systems, cybersecurity program, internal
controls or processes, or infrastructure, or those of third parties, could have a material adverse
effect on Farmer Mac's business, operating results, or financial condition.
Farmer Mac’s business depends, in part, on effective and reliable loan servicing, and Farmer
Mac’s internal loan servicing function and reliance on third-party servicers could expose Farmer
Mac to operational risks.
•
• Any significant deficiency, failure, interruption, or breach in Farmer Mac's or our service
providers’ technology and information systems, infrastructure, or cybersecurity program, including
the occurrence of successful cyber-attacks, could result in a loss of business, damage to Farmer
Mac's reputation, the disclosure or misuse of confidential or proprietary information, or increased
costs or liability to Farmer Mac.
6
•
•
•
Failure by Farmer Mac's third-party loan servicers, information systems providers, and other
service providers to protect confidential information from unauthorized access and dissemination
could result in liability for Farmer Mac or damage Farmer Mac's reputation.
If Farmer Mac's management of risk associated with its loan assets and investment securities based
on model assumptions and output is not effective, its business, operating results, financial
condition, or capital levels could be materially adversely affected.
Farmer Mac's efforts to expand product offerings and services to its customers exposes Farmer
Mac to operational risk.
Farmer Mac is exposed to interest rate risk.
•
• Changes in interest rates relative to Farmer Mac's management of interest rate risk through
derivatives may cause volatility in financial results and capital levels.
• The reform, replacement, or discontinuation of the LIBOR benchmark interest rate could adversely
•
affect Farmer Mac's business, operating results, or financial condition.
Incorrect estimates and assumptions by management in preparing financial statements, and
changes in accounting standards or in applying accounting policies or in the value or composition
of Farmer Mac’s investment securities could adversely affect Farmer Mac's business, operating
results, reported assets and liabilities, financial condition, reputation, or capital levels.
•
• The trading price for Farmer Mac's Class C non-voting common stock may be volatile due to
market influences, trading volume, the effects of equity awards for Farmer Mac's officers,
directors, and employees, or sales of significant amounts of the stock by large holders.
Farmer Mac and many of its business partners are subject to comprehensive government
regulation, and changes to the laws and regulations to which Farmer Mac or its business partners
are subject could adversely affect Farmer Mac's business, operating results, reputation, or financial
condition.
Farmer Mac’s capital requirements may change, and failure to meet those requirements could
result in supervisory measures or the inability of Farmer Mac to declare dividends.
Farmer Mac is a government-sponsored enterprise (GSE) that may be materially and adversely
affected by legislative or political developments.
Farmer Mac's ability to attract and retain motivated and qualified employees is critical to the
success of its business.
•
•
•
7
Item 1.
Business
PART I
GENERAL
Farmer Mac is a stockholder-owned, federally chartered corporation that combines private capital and
public sponsorship to serve a public purpose. Congress has charged Farmer Mac with the mission of
providing a secondary market for a variety of loans made to borrowers in rural America. A secondary
market is an economic arrangement in which the owners of financial assets, such as the originators of
loans, may sell all or part of those assets or pay a fee to offset some or all of the inherent risks of holding
the assets. Farmer Mac's secondary market activities include:
•
•
•
•
•
purchasing eligible loans directly from lenders (including participation interests, syndicated notes,
revolving and non-revolving credit facilities, and unfunded commitments to make advances on
loans);
purchasing securities that are issued by lenders and guaranteed by Farmer Mac and that are secured
by eligible loans (Farmer Mac refers to these securities as "AgVantage," a registered trademark of
Farmer Mac);
issuing and guaranteeing securities that represent interests in, or obligations secured by, pools of
eligible loans (together with AgVantage, Farmer Mac refers to these securities as "Farmer Mac
Guaranteed Securities");
servicing (including as master servicer) eligible loans purchased or securitized by Farmer Mac; and
providing long-term standby purchase commitments ("LTSPCs") for eligible loans.
Farmer Mac Guaranteed Securities may be retained by the seller of the underlying loans, retained by
Farmer Mac, or sold to third-party investors.
Farmer Mac was established under federal legislation first enacted in 1988 and amended most recently in
2018 – Title VIII of the Farm Credit Act of 1971 (12 U.S.C. §§ 2279aa et seq.), which is referred to as
Farmer Mac's charter. Farmer Mac is a government-sponsored enterprise ("GSE") by virtue of the status
conferred by its charter. The charter provides that Farmer Mac has the power to establish, acquire, and
maintain affiliates under applicable state law to carry out any activities that Farmer Mac otherwise would
perform directly. Farmer Mac established its two existing subsidiaries – Farmer Mac II LLC and Farmer
Mac Mortgage Securities Corporation – under that power.
Farmer Mac is an institution of the Farm Credit System ("FCS"), which is composed of the banks,
associations, and related entities, including Farmer Mac and its subsidiaries, regulated by the Farm Credit
Administration ("FCA"), an independent agency in the executive branch of the United States
government. Although Farmer Mac is an institution of the FCS, it is not liable for any debt or obligation of
any other institution of the FCS. None of FCA, the FCS, or any other individual institution of the FCS is
liable for any debt or obligation of Farmer Mac or its subsidiaries. The debts and obligations of Farmer
Mac and its subsidiaries are not guaranteed by the full faith and credit of the United States of America.
Farmer Mac's two primary sources of revenue are:
•
•
interest income earned on assets held on balance sheet, net of related funding costs and interest
payments and receipts on financial derivatives; and
guarantee and commitment fees received for outstanding guaranteed securities and LTSPCs.
8
Farmer Mac funds its purchases of eligible loans and securities primarily by issuing debt obligations of
various maturities in the public capital markets. Farmer Mac also uses the proceeds of debt issuance to
fund liquidity investments that must comply with policies adopted by Farmer Mac's board of directors and
with FCA regulations, which establish limitations on asset class, dollar amount, issuer concentration, and
credit quality. Those regulations can be found at 12 C.F.R. §§ 652.1-652.45 ("Liquidity and Investment
Regulations"). Farmer Mac's regular debt issuance supports its access to the capital markets, and Farmer
Mac's liquidity investments provide an alternative source of funds should market conditions become
unfavorable. As of December 31, 2021, Farmer Mac had $2.2 billion of discount notes and $20.6 billion
of medium-term notes outstanding. For more information about Farmer Mac's eligible loans, securities,
and liquidity investments, as well as its financial performance and sources of capital and liquidity, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations." For more
information about Farmer Mac's debt issuance, see "Business—Financing—Debt Issuance."
Secondary Market
Farmer Mac's activities are intended to provide lenders with an efficient and competitive secondary market
that enhances these lenders' ability to offer competitively-priced financing solutions to borrowers. This
secondary market is designed to increase the availability of credit at competitive interest rates to America's
rural communities and agricultural sectors, as well as to provide borrowers with the benefits of capital
markets pricing and product innovation. The secondary market provided by Farmer Mac functions as a
bridge between the public capital markets and the U.S. agricultural and rural credit markets by attracting
additional capital sources for financing rural America and agricultural borrowers.
Farmer Mac's purchases of loans and securities and its sale of guaranteed securities to investors increase
lenders' liquidity and lending capacity and provide a stable source of funding for lenders that extend credit
to the agricultural and rural credit markets. Farmer Mac's issuance of LTSPCs for loans held by lenders
and its issuance of guaranteed securities to lenders in exchange for the related securitized loans could
result in lower regulatory capital requirements and reduced borrower or commodity concentration
exposure for many lenders, thereby expanding their lending capacity. Through providing efficient and
competitive financing solutions, Farmer Mac has the potential to increase lending flexibility for rural
credit markets, which may result in lower interest rates paid on loans made by lenders to rural and
agricultural borrowers.
Farmer Mac markets a mix of products to lenders who may be in need of capital, liquidity, portfolio
diversification, and/or access to a wide variety of loan products, including those with long-term fixed
rates. As part of its outreach strategy, Farmer Mac engages with current and prospective lenders to identify
how their use of Farmer Mac's secondary market could further support their origination efforts and drive
efficient capital deployment to agriculture communities and rural America. Farmer Mac also provides
wholesale funding for institutional investors in agricultural assets that qualify as eligible collateral under
Farmer Mac's charter. For these potential issuers, Farmer Mac directs its outreach efforts through its
business relationships within the agricultural community and through outreach to institutions whose
profile may benefit from wholesale funding. Farmer Mac seeks to maximize the use of technology to
support these business development efforts.
9
FARMER MAC'S LINES OF BUSINESS
Farmer Mac engages in a variety of secondary market activities across its two lines of business,
Agricultural Finance and Rural Infrastructure Finance. Within those two lines of business are four
segments: Corporate AgFinance, Farm & Ranch, Rural Utilities, and Renewable Energy, as shown in the
table below:
Interest-earning assets
Loans
Loans held in trusts
AgVantage Securities
Farmer Mac Guaranteed Securities
USDA Securities
Products and services that earn fee income
LTSPCs
Farmer Mac Guaranteed Securities
Unfunded Commitments
Farmer Mac Guaranteed Securities1
Securitized loan servicing
1 Structured securitization transactions
Agricultural Finance
Rural Infrastructure
Finance
Farm &
Ranch
Corporate
AgFinance
Rural
Utilities
Renewable
Energy
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The loans (and interests in those loans) eligible for Farmer Mac's secondary market activities in each of
Farmer Mac's lines of business include:
•
•
For Farmer Mac's Agricultural Finance line of business, mortgage loans secured by first liens on
agricultural real estate, including part-time farms and rural housing loans, as well as agricultural
and rural development loans guaranteed by the United States Department of Agriculture
("USDA"); and
For Farmer Mac's Rural Infrastructure Finance line of business, loans by lenders organized as
cooperatives to finance electrification and telecommunications systems and renewable energy
providers or projects in rural areas.
As of December 31, 2021, the total outstanding business volume in Farmer Mac's two lines of business
(Agricultural Finance and Rural Infrastructure Finance) was $23.6 billion. The following table presents
the outstanding balances under Farmer Mac's two lines of business as of December 31, 2021 and
December 31, 2020:
10
Lines of Business - Outstanding Business Volume
On or Off
Balance Sheet
As of December 31, 2021
As of December 31, 2020
(in thousands)
On-balance sheet
$
4,775,070 $
3,979,854
Agricultural Finance:
Farm & Ranch:
Loans
Loans held in consolidated trusts:
Beneficial interests owned by third-party
investors
IO-FMGS
USDA Securities
AgVantage Securities
LTSPCs and unfunded commitments
Farmer Mac Guaranteed Securities
Loans serviced for others
Total Farm & Ranch
Corporate AgFinance:
Loans
AgVantage Securities
Unfunded Loan Commitments
Total Corporate AgFinance
Total Agricultural Finance
Rural Infrastructure Finance:
Rural Utilities:
Loans
AgVantage Securities
On-balance sheet
On-balance sheet
On-balance sheet
On-balance sheet
Off-balance sheet
Off-balance sheet
Off-balance sheet
On-balance sheet
On-balance sheet
Off-balance sheet
On-balance sheet
On-balance sheet
LTSPCs and Unfunded Loan Commitments
Off-balance sheet
Farmer Mac Guaranteed Securities
Off-balance sheet
Total Rural Utilities
Renewable Energy:
Loans
Unfunded Loan Commitments
Total Renewable Energy
Total Rural Infrastructure Finance
Total
Agricultural Finance
On-balance sheet
Off-balance sheet
948,623
12,297
2,445,806
4,725,000
2,587,154
578,358
22,331
1,287,045
—
2,487,420
4,425,000
2,314,965
378,610
—
16,094,639 $
14,872,894
1,123,300 $
367,464
47,070
1,537,834 $
17,632,473 $
2,302,373 $
3,033,262
556,837
2,755
5,895,227 $
86,763 $
—
86,763 $
5,981,990 $
23,614,463 $
909,539
744,110
10,466
1,664,115
16,537,009
2,187,377
2,565,837
556,425
4,412
5,314,051
73,035
—
73,035
5,387,086
21,924,095
$
$
$
$
$
$
$
$
$
$
Farmer Mac provides a secondary market for eligible loans in Farmer Mac's Agricultural Finance line of
business by (1) purchasing and retaining eligible loans and securities, (2) guaranteeing the payment of
principal and interest on securities that represent interests in, or obligations secured by, pools of eligible
loans, (3) servicing (including as master servicer) eligible loans purchased or securitized by Farmer Mac,
and (4) issuing LTSPCs for designated eligible loans. Farmer Mac is compensated for these activities
through net interest income on loans and securities held on balance sheet, guarantee fees earned on
securities issued to third parties, servicing fees on securitized loans, and commitment fees earned on loans
in LTSPCs and on unfunded loan commitments.
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Loan Eligibility
To be eligible for the Agricultural Finance line of business, a loan must either:
•
◦
be an agricultural mortgage loan (referred to as "Agricultural Finance mortgage loans") that is
secured by a fee simple mortgage or a leasehold mortgage with status as a first lien on
agricultural real estate (including part-time farms and rural housing) located within the
United States; and
an obligation of a citizen or national of the United States, an alien lawfully admitted for
permanent residence in the United States, or a private corporation or partnership that is
majority-owned by U.S. citizens, nationals, or legal resident aliens that, in each case, has
training or farming experience that is sufficient to ensure a reasonable likelihood that the
loan will be repaid according to its terms; or
◦
•
be the guaranteed portion of a loan guaranteed by the USDA under the Consolidated Farm and
Rural Development Act (7 U.S.C. § 1921 et seq.) (referred to as "USDA Securities").
Farmer Mac's charter authorizes a maximum loan size (adjusted annually for inflation) for an eligible
Agricultural Finance mortgage loan secured by more than 2,000 acres of agricultural real estate. That
maximum loan size was $14.1 million as of December 31, 2021. The charter does not prescribe a
maximum loan size or a total borrower exposure for an eligible Agricultural Finance mortgage loan
secured by 2,000 acres or less of agricultural real estate. However, an internal policy approved by Farmer
Mac's board of directors limits the cumulative direct credit exposure to any one borrower or group of
related borrowers on loans secured by 2,000 acres or less of agricultural real estate to 10% of Farmer
Mac's Tier 1 capital ($120.1 million as of December 31, 2021). For Agricultural Finance mortgage loans,
eligible agricultural real estate consists of one or more parcels of land, which may be improved by
permanently affixed buildings or other structures, that (i) is used for the production of one or more
agricultural commodities or products and (ii) either consists of a minimum of five acres or generates
minimum annual receipts of $5,000.
As required by Farmer Mac's charter, Farmer Mac has established underwriting, security appraisal, and
repayment standards for eligible loans that consider the nature, risk profile, and other differences between
different categories of eligible loans. The charter prescribes that the following minimum standards must be
applied to all Agricultural Finance mortgage loans:
•
•
•
•
•
provide that no loan with a loan-to-value ratio ("LTV") more than 80% may be eligible;
require each borrower to demonstrate sufficient cash flow to adequately service the loan;
require sufficient documentation standards;
protect the integrity of the appraisal process for any loan; and
confirm that the borrower is or will be actively engaged in agricultural production.
Underwriting and Collateral Standards - Farm & Ranch
Farmer Mac experiences direct credit exposure to borrowers on Agricultural Finance mortgage loans in its
Farm & Ranch reportable operating segment (referred to as "Farm & Ranch loans") through its loan
purchases, unfunded commitments, LTSPCs, and Farmer Mac Guaranteed Securities that represent
interests in, or obligations secured by, pools of eligible Farm & Ranch loans but that are not AgVantage
securities ("Farm & Ranch Guaranteed Securities"). Farmer Mac applies credit underwriting standards and
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methodologies to help assess exposures to Farm & Ranch loans, which may include collateral valuation,
financial metrics, and other appropriate borrower financial and credit information.
Farm & Ranch loans typically are required to meet specific underwriting criteria established by Farmer
Mac or demonstrate compensating strengths in one or more other underwriting criteria. Farmer Mac relies
on the combined expertise of experienced internal agricultural credit underwriters and loan servicers,
along with external agricultural loan servicing and collateral valuation contractors, to perform the
necessary underwriting, servicing, and collateral valuation functions on Farm & Ranch loans.
USDA Securities are exempted from the credit underwriting, collateral valuation, documentation, and
other standards that other loans must meet to be eligible for the secondary market provided by Farmer
Mac and are exempted from any diversification and internal credit enhancement that may be required of
pools of other eligible loans. Farmer Mac purchases nearly all of its USDA Securities through Farmer
Mac II LLC, a subsidiary of Farmer Mac that operates substantially all of the business related to Farmer
Mac's USDA Securities.
Underwriting and Collateral Standards - Corporate AgFinance
Farmer Mac experiences direct credit exposure to borrowers on Agricultural Finance mortgage loans in
Farmer Mac’s Corporate AgFinance reportable operating segment (referred to as “Corporate AgFinance
loans”) through its loan purchases and unfunded commitments. Farmer Mac applies credit underwriting
standards and methodologies to help assess exposures to Corporate AgFinance loans, which may include
cash flow, leverage, and liquidity assessment, financial metrics analysis, collateral valuation, and other
appropriate borrower financial and credit information.
Corporate AgFinance loans tend to be larger and more complex farming operations than Farm & Ranch
loans (generally more than $10 million) and typically are loans made to agribusinesses focused on
agriculture production, food and fiber processing, and other supply chain production. Thus, Corporate
AgFinance loans often have a different credit risk profile than Farm & Ranch loans. Farmer Mac has
implemented methodologies and parameters to help assess credit risk and has established specific
underwriting criteria for Corporate AgFinance loans based on the sector, borrower construct, and
transaction complexity. Due to the larger loan sizes and different credit risk profiles, Farmer Mac
thoroughly analyzes each prospective Corporate AgFinance loan, including assessing the borrower's
leverage, cash flows, liquidity, and revenue and margin trends, as well as evaluating the borrower's
suppliers, customers, market share, and competition. Any underlying weaknesses are assessed and
analyzed in conjunction with any compensating strengths. Corporate AgFinance loans also typically
require ongoing monitoring of reporting requirements and financial and non-financial covenants. Farmer
Mac relies on the experience of internal underwriters with the expertise to analyze large, complex farming
operations and agribusiness loans, along with collateral valuation contractors, and legal counsel to perform
the necessary diligence to assess the overall credit risk and loan structures of these transactions.
Lenders
Farmer Mac approves lenders into its network of Farm & Ranch loan sellers based on an assessment of the
lender's credit profile, which may include factors such as the institution's credit rating, origination history,
or financial profile. Most lenders that participate in Farmer Mac's secondary market for Farm & Ranch
loans meet prescribed criteria that Farmer Mac establishes for loan-selling counterparties, which typically
include the requirement to:
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•
•
own a requisite amount of Farmer Mac common stock according to a schedule prescribed for the
size and type of institution;
have, in the judgment of Farmer Mac, the ability and experience to make or purchase and sell
Farm & Ranch loans and service those loans in accordance with Farmer Mac's requirements either
through the lender's own staff or through contractors and originators, as well as have appropriate
internal controls, policies, and procedures;
• maintain a minimum amount of net liquidity or appropriate credit enhancements; and
•
enter into a Seller/Servicer Agreement, which requires compliance with the terms of Farmer
Mac's Seller/Servicer Guide, including providing representations and warranties about the
eligibility of the loans and accuracy of loan data provided to Farmer Mac.
Any lender authorized by the USDA to obtain a USDA guarantee on a loan may participate in Farmer
Mac's secondary market for USDA Securities.
Farmer Mac purchases Corporate AgFinance loans and unfunded commitments from a diverse set of
lenders that support financing of the agriculture sector. Lenders may be existing Farm & Ranch lenders
that have larger, more complex borrowers in their territories, as well as larger financial and non-bank
institutions, such as national and regional banks, insurance companies, Farm Credit System institutions,
and other non-traditional lending organizations, that structure and originate transactions for larger, more
complex farming operations and agribusinesses.
Farmer Mac evaluates each lender who originates Corporate AgFinance loans to assess the experience and
capabilities of the lender’s ability to originate, structure, distribute, and monitor Corporate AgFinance
transactions. In many instances, Farmer Mac will purchase loans and unfunded commitments from
lenders that structure and arrange large, syndicated transactions involving numerous lenders that are
necessary to support the larger transaction loan size. In these cases, Farmer Mac typically assesses each
arranger’s capabilities and experience in arranging syndicated loans. Because Corporate AgFinance loans
are typically offered to Farmer Mac without or with few representations and warranties, Farmer Mac
places a greater emphasis on underwriting and legal documentation due diligence in connection with its
purchase of these loans to mitigate risks associated with the transaction, including loan documentation,
borrower eligibility, and loan data.
Loan Servicing
During 2021, Farmer Mac began servicing a sizeable portion of the Agricultural Finance mortgage loan
and USDA Securities portfolios through a strategic acquisition of loan servicing rights along with
experienced servicing personnel and an operational servicing platform. Farmer Mac also continues to
contract with other institutions to undertake most of the servicing responsibilities for the remaining portion
of its Agricultural Finance mortgage loans in accordance with Farmer Mac's specified servicing
requirements or in accordance with the servicing standards established by the servicing institution if the
institution's standards are acceptable to Farmer Mac. For these loans, the servicer may or may not be the
same entity as the lender that sold the loans to Farmer Mac. For Farm & Ranch loans for which the
servicer is not the originating lender, the originating lender often retains some servicing responsibility,
particularly with direct borrower contact, which is referred to as "field servicing." Field servicers may
enter into contracts with Farmer Mac's servicers that specify their field servicing responsibilities.
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For Farmer Mac's USDA Securities, the lender on each USDA-guaranteed loan is required by regulation
to retain the unguaranteed portion of the guaranteed loan, to service the entire underlying guaranteed loan
(including the USDA-guaranteed portion of that loan), and to remain mortgagee and/or secured party of
record, if applicable. The USDA-guaranteed portion and the unguaranteed portion of the loan are to be
secured by the same collateral with equal lien priority. The USDA-guaranteed portion of a loan cannot be
paid later than, or in any way be subordinated to, the related unguaranteed portion.
Other Products - Agricultural Finance
AgVantage Securities
Under the AgVantage securities product line, Farmer Mac guarantees and purchases securities issued by
lenders and other financial institutions (including financial funds and real estate investment funds) that are
secured by pools of eligible loans. Typically, Farmer Mac retains AgVantage securities in its portfolio.
Most of the AgVantage securities in Farmer Mac's Agricultural Finance line of business are securities
issued by agricultural lenders that are secured by pools of Farm & Ranch loans. The AgVantage securities
in the Agricultural Finance line of business also include securities issued by other financial institutions
(including financial funds and institutional real estate investors) secured by mortgage loans that generally
have different credit profiles, structural characteristics, and loan terms than typical Farm & Ranch loans.
The loans serving as collateral for these AgVantage securities require a more comprehensive underwriting
that more closely approximates Farmer Mac's underwriting for Corporate AgFinance loans.
Farmer Mac has direct credit exposure to the general credit of the issuers of AgVantage securities and
assumes the ultimate credit risk of an issuer default on the AgVantage securities. Before approving an
institution as an issuer in an AgVantage transaction, Farmer Mac assesses the issuer's creditworthiness as
well as the credit quality and performance of the issuer's loan portfolio and loan underwriting
standards. Farmer Mac continues to monitor the counterparty risk assessment on an ongoing basis after the
AgVantage security is issued. In addition to being a general obligation of the issuer, all AgVantage
securities must be secured by eligible loans or eligible securities guaranteed by Farmer Mac in an amount
at least equal to the outstanding principal amount of the issuer's AgVantage securities. As a result, Farmer
Mac has indirect credit exposure to the loans or guaranteed securities that are pledged to secure the
AgVantage securities, which comprise collateral for Farmer Mac in the event of a default by the issuer.
Loans pledged under AgVantage securities are serviced by the issuers of the securities (or their affiliated
servicing institutions) in accordance with these institutions' servicing procedures. Farmer Mac reviews
these servicing procedures before purchasing AgVantage securities from the issuer. In AgVantage
transactions, the issuer is generally required to remove from the pool of pledged collateral any loan that
becomes and remains delinquent in the payment of principal or interest and to replace the delinquent loan
with another eligible loan that is current in payment or to pay down the AgVantage securities to maintain
the minimum required collateralization level.
For AgVantage securities secured by loans eligible for Farmer Mac's Agricultural Finance line of
business, Farmer Mac currently requires the general obligation to be over-collateralized, either by more
eligible loans or any of the following types of assets:
•
•
cash;
securities issued by the U.S. Treasury or guaranteed by an agency or instrumentality
of the United States;
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•
•
other highly-rated securities; or
other instruments approved by Farmer Mac.
The required collateralization level for the AgVantage securities secured by Agricultural Finance
mortgage loans currently ranges from 103% to 125%. The required collateralization level is determined
based on credit factors related to the issuer and the credit profile of the loans serving as collateral, is
established when the AgVantage facility is entered into with the counterparty, and does not change during
the life of the AgVantage securities issued under the facility unless mutually agreed by Farmer Mac and
the counterparty.
For AgVantage securities that are secured by eligible Agricultural Finance mortgage loans, Farmer Mac
requires that the loans meet the minimum standards set forth in the charter for those types of loans with a
maximum limit of $75.0 million in cumulative exposure to any one borrower or related borrowers from a
single AgVantage issuer.
Guarantees and LTSPCs
Farmer Mac offers two credit enhancement alternatives to direct loan purchases for Farm & Ranch loans
that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their
liquidity and lending capacity: (1) LTSPCs and (2) Farm & Ranch Guaranteed Securities. In LTSPCs and
Farm & Ranch Guaranteed Securities, the lender effectively transfers the credit risk on their eligible loans
because, through Farmer Mac's commitment to purchase the loan (in the case of LTSPCs) or Farmer Mac's
guarantee (in the case of Farm & Ranch Guaranteed Securities), Farmer Mac assumes the ultimate credit
risk of borrower defaults on the related loans.
An LTSPC permits the lender to retain loans in its portfolio until such time, if ever, as the lender elects to
deliver some or all of the loans covered by the LTSPC to Farmer Mac for purchase. Loans subject to an
LTSPC must meet Farmer Mac's standards for eligible loans at the commencement of the LTSPC when
Farmer Mac assumes the credit risk on the loans and are serviced by the holders of those loans in
accordance with those lenders' servicing procedures, which Farmer Mac reviews before entering into those
transactions. As consideration for its assumption of the credit risk on loans covered by an LTSPC, Farmer
Mac receives commitment fees payable monthly in arrears. Some LTSPCs contain risk sharing
arrangements for pools of loans that provide for the counterparty to absorb up to a specified amount
(typically between one and five percent of the original principal balance of the loan pool) of any losses
incurred on the loans in the pool. At a lender's request, Farmer Mac purchases loans subject to an LTSPC
at:
•
•
par if the loans become delinquent for either 90 days or 120 days (depending on the agreement) or
are in material non-monetary default, with accrued and unpaid interest on the defaulted loans
payable out of any future loan payments or liquidation proceeds; or
fair value or in exchange for cash or Farm & Ranch Guaranteed Securities (if the loans are not
delinquent), in accordance with the applicable agreement.
In Farm & Ranch Guaranteed Securities transactions, Farmer Mac guarantees securities representing
interests in eligible Farm & Ranch loans held by a trust or other entity. Farmer Mac guarantees the timely
payment of principal and interest on the securities in the event of a payment shortfall due to default and
either retains these securities or arranges for their sale to third parties. As consideration for its assumption
of credit risk on the assets underlying the Farm & Ranch Guaranteed Securities, Farmer Mac receives
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guarantee fees based on the outstanding principal balance of the securities it guarantees. Some Farm &
Ranch Guaranteed Securities transactions include a smaller, subordinate tranche of securities issued to
third parties that are not guaranteed by Farmer Mac, which helps to offset Farmer Mac's credit risk on
these transactions.
Farmer Mac is obligated under its guarantee on the securities to make timely payments to investors of
interest and principal (including balloon payments), regardless of whether Farmer Mac or the related trust
has actually received those scheduled payments. Farmer Mac's guarantee fees typically are collected out of
installment payments made on the underlying loans until those loans have been repaid, purchased out of
the trust, or otherwise liquidated (generally as a result of default). The aggregate amount of guarantee fees
received on Farm & Ranch Guaranteed Securities depends on the amount of those securities outstanding
and on the applicable guarantee fee rate, which Farmer Mac's charter caps at 50 basis points (0.50%) per
year.
From time to time, Farmer Mac issues and guarantees securities backed by USDA Securities that it has
purchased and also guarantees securities issued by Farmer Mac II LLC backed by USDA Securities that it
has purchased. Farmer Mac II LLC does not guarantee any USDA Securities it holds or any Farmer Mac
Guaranteed USDA Securities issued by Farmer Mac or Farmer Mac II LLC.
Rural Infrastructure Finance
Farmer Mac's charter authorizes the purchase of, and guarantee of securities backed by, loans for electric
(including renewable electric energy) or telecommunications facilities by lenders organized as
cooperatives to borrowers that have received or are eligible to receive loans under the Rural Electrification
Act of 1936 ("REA"). The REA is administered by the Rural Utilities Service ("RUS"), an agency of the
USDA. Farmer Mac refers to eligible loans made to an electric distribution facility, an electric generation
and transmission facility, or a telecommunications facility as "Rural Utilities loans" and refers to eligible
loans made to renewable electric energy facilities as "Renewable Energy loans."
Farmer Mac's Rural Infrastructure Finance line of business encompasses purchases of Rural Utilities loans
and Renewable Energy loans and guarantees of securities backed by those loans, as well as LTSPCs for
pools of eligible Rural Utilities loans. The vast majority of Farmer Mac's business to date under the Rural
Infrastructure Finance line of business has involved Rural Utilities loans made to electric facilities
(primarily electric distribution cooperatives and electric generation and transmission cooperatives).
During 2021, Farmer Mac purchased $132.2 million of loans and loan commitments to
telecommunications companies that provide wireless, cable, fiber transport, and broadband services to
rural America as part of its strategic initiative to provide further support for the telecommunications
industry. Also during 2021, Farmer Mac purchased $31.2 million of Renewable Energy loans as part of
its strategic initiative to support rural renewable energy projects.
Underwriting and Collateral Standards
Farmer Mac's charter does not specify minimum underwriting criteria for eligible Rural Utilities or
Renewable Energy loans. To manage Farmer Mac's credit risk, to mitigate the risk of loss from borrower
defaults, and to provide guidance for the management, administration, and conduct of underwriting to
participants in the Rural Infrastructure Finance line of business, Farmer Mac has adopted credit
underwriting standards that vary by loan product and by loan type. These standards are based on industry
17
practices for similar Rural Utilities and Renewable Energy loans and are designed to assess the
creditworthiness of the borrower, as well as the risk to Farmer Mac.
For Rural Utilities loans, Farmer Mac reviews lenders' credit submissions and analyzes borrowers' audited
financial statements and financial and operating reports to confirm that loans meet Farmer Mac's
underwriting standards for Rural Utilities loans. It is customary in loans to electric distribution
cooperatives and electric generation and transmission cooperatives for the lender or lender group to take a
security interest in substantially all of the borrower's assets. When Farmer Mac purchases a Rural Utilities
loan with a pledge of all assets and a lender also has a lien on all assets, Farmer Mac verifies that a lien
accommodation will result in either a shared first lien or a first lien in favor of Farmer Mac. When debt
indentures are used, Farmer Mac determines if available collateral is adequate to support the loan program
and Farmer Mac's investment. Farmer Mac also purchases unsecured Rural Utilities loans (primarily
electric generation and transmission loans) that meet Farmer Mac's underwriting standards for unsecured
Rural Utilities loans.
For a Renewable Energy loan, Farmer Mac has direct credit exposure to the related standalone renewable
energy project. These projects are typically financed on a non-recourse or limited recourse basis and
underwritten on a projection basis with significant reliance placed on assumptions used in each project’s
analysis. Farmer Mac has implemented methodologies and parameters to assess credit risk and has
established specific underwriting criteria based on the project and transaction construct and complexity.
Farmer Mac thoroughly analyzes each prospective Renewable Energy loan. Farmer Mac performs
quantitative assessments typically focused on projected debt service requirements, term and amortization
review, interest rate sensitivity, and collateral analysis. Farmer Mac also performs qualitative assessments
typically focused on the project sponsor's credentials and experience, off-take (cash flow) considerations,
and concentration and other market considerations. Farmer Mac also typically undertakes a review of the
project contracts and agreements for each Renewable Energy loan. Renewable Energy loans are typically
secured by a first lien on the borrower's project assets, an assignment of the project contracts and
agreements, a land or leasehold interest, and in certain cases, a pledge of the equity interests in the
borrower entity. Farmer Mac's enforcement rights in any collateral securing a Renewable Energy loan may
be subject to tax equity interests in the borrower's renewable energy project.
Lenders and Loan Servicing
Farmer Mac's charter requires loans in Farmer Mac's Rural Infrastructure Finance line of business to have
been originated by a lender organized as a cooperative. Farmer Mac does not directly service the Rural
Utilities or Renewable Energy loans held in its portfolio. Typically, these loans are serviced by the lender
or other organization designated by Farmer Mac that has experience in servicing loans to utilities and
renewable energy providers and in the context of project finance, as applicable.
Other Products - Rural Infrastructure Finance
AgVantage Securities
Farmer Mac's portfolio of AgVantage securities in its Rural Infrastructure Finance line of business
includes securities issued by cooperative lenders that are secured by pools of Rural Utilities loans. For
these AgVantage securities, Farmer Mac requires:
18
•
•
the counterparty issuing the general obligation to have a credit rating from a nationally-recognized
statistical rating organization ("NRSRO") that is at least investment grade, or be of comparable
creditworthiness as determined through Farmer Mac's analysis; and
the collateralization (consisting of current, performing loans) to be maintained at the contractually
prescribed level, in an amount at least equal to the outstanding principal amount of the security.
Although Farmer Mac has only indirect credit exposure on the Rural Utilities loans pledged to secure
AgVantage securities, the same underwriting standards that apply to loans made to Rural Utilities
borrowers on which Farmer Mac assumes direct credit exposure also apply to loans made to Rural Utilities
borrowers that secure the AgVantage securities. Farmer Mac's charter does not prescribe a maximum loan
size or a total borrower exposure for an eligible Rural Utilities loan, but Farmer Mac's current limit for
AgVantage transactions is $75.0 million for cumulative loan exposure to any one borrower or related
borrowers (with the amount of any direct exposure to a borrower not counting towards the $75.0 million
limit).
COMPETITION
Farmer Mac is the only federally-chartered corporation established to provide a secondary market for
agricultural mortgage loans, rural infrastructure loans, and USDA Securities, but faces competition from
other entities that purchase, retain, securitize, or provide financing for the types of assets eligible for
Farmer Mac's secondary market activities. These entities include commercial and investment banks,
insurance companies, other FCS institutions, financial funds, and certain government programs. Farmer
Mac also competes indirectly with originators of eligible loans that would prefer to retain the loans they
originate rather than sell them into the secondary market. Farmer Mac is able to compete to acquire
eligible loans due to the variety of products it offers and its ability to offer competitive funding structures
and pricing to its customers. This enables Farmer Mac to provide flexible financing options and products
designed to meet the varied needs of lending institutions related to capital requirements, liquidity, credit
risk, and management of sector and geographic concentrations and borrower exposure limits. The relative
competitiveness of Farmer Mac's loan rates and Farmer Mac's ability to develop business with lending
institutions are affected by many factors, including:
•
•
•
•
•
•
the overall supply of capital available to agricultural and rural infrastructure borrowers;
the types and variety of products offered by Farmer Mac's competitors to meet the needs of Farmer
Mac's customer base;
changes in the levels of available capital and liquidity of lending institutions;
the existence of alternative sources of funding and credit enhancement for lending institutions;
the rate of growth in the market for eligible loans; and
demand for Farmer Mac's products.
Because Farmer Mac's charter limits Farmer Mac's business to secondary-market activities, Farmer Mac's
competitive position is affected by the willingness of originators to offer eligible loans for sale in the
secondary market or to utilize Farmer Mac for funding syndicated or participated loans. The charter's
limits on loan size for some Agricultural Finance mortgage loans, as well as the types of loans that are
eligible for Farmer Mac's lines of business, also affect Farmer Mac's competitive position. For more
information on government regulation of Farmer Mac, see "Business—Government Regulation of Farmer
Mac."
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Farmer Mac's ability to obtain competitive funding in the debt markets is essential to its ability to maintain
its relative position with its customers. As a result, competition for debt investors with other debt-issuing
institutions, such as the FCS, Federal Home Loan Banks, Fannie Mae, Freddie Mac, and highly-rated
financial institutions, can affect the price and volume at which Farmer Mac issues debt and therefore its
ability to offer savings to customers in the form of competitive products.
CAPITAL AND CORPORATE GOVERNANCE
Farmer Mac's charter prescribes the company's basic capital and corporate governance structure, as
described below. The charter authorizes Farmer Mac to issue two classes of voting common stock, each of
which elects one-third of Farmer Mac's 15-person board of directors. The charter also authorizes Farmer
Mac to issue non-voting common stock.
•
Presidential appointments. Five members of Farmer Mac's 15-member board of directors are
individuals who meet the qualifications specified in the charter and are appointed by the President
of the United States with the advice and consent of the United States Senate (one of whom is
designated as the chair of the board of directors). These appointed directors serve at the pleasure of
the President of the United States with no set term.
• Class A voting common stock. The charter restricts ownership of Farmer Mac's Class A voting
common stock to banks, insurance companies, and other financial institutions or similar entities
that are not institutions of the FCS. The charter also provides that five members of Farmer Mac's
15-member board of directors are elected by a plurality of the votes of the Class A stockholders
each year. The charter limits the amount of Class A voting common stock that any one holder may
own to no more than 33% of the outstanding shares of Class A voting common stock. Farmer Mac
is not aware of any regulation applicable to non-FCS financial institutions that requires a minimum
investment in Farmer Mac's Class A voting common stock or that prescribes a maximum
investment amount lower than the 33% limit set forth in the charter. Farmer Mac's Class A voting
common stock is listed on the New York Stock Exchange under the symbol AGM.A.
• Class B voting common stock. The charter restricts ownership of Farmer Mac's Class B voting
common stock to FCS institutions and also provides that five members of Farmer Mac's 15-
member board of directors are elected by a plurality of the votes of the Class B stockholders each
year. The charter contains no restrictions on the maximum number or percentage of outstanding
shares of Class B voting common stock that any one holder may own, and Farmer Mac is not
aware of any regulation applicable to FCS institutions that requires a minimum investment in its
Class B voting common stock or that prescribes a maximum amount. Farmer Mac's Class B voting
common stock, which has a limited market and trades infrequently, is not listed or quoted on any
exchange or other quotation system, and Farmer Mac is not aware of any publicly available
quotations or prices for this class of common stock.
• Class C non-voting common stock. The charter does not impose any ownership restrictions on
Farmer Mac's Class C non-voting common stock, and shares of this class are freely
transferable. Farmer Mac uses Class C non-voting common stock for awards of equity-based
compensation to officers, directors, and selected employees as part of the company's compensation
programs. Holders of the Class C non-voting common stock do not vote on the election of
directors or any other matter. Farmer Mac's Class C non-voting common stock is listed on the New
York Stock Exchange under the symbol AGM.
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The dividend and liquidation rights of all three classes of Farmer Mac's common stock are the same.
Dividends may be paid on Farmer Mac's common stock only when, as, and if declared by Farmer Mac's
board of directors in its sole discretion, subject to compliance with applicable capital requirements and the
payment of dividends on any outstanding preferred stock issued by Farmer Mac. Upon liquidation,
dissolution, or winding up of the business of Farmer Mac, after payment and provision for payment of
outstanding debt of Farmer Mac, the holders of shares of Farmer Mac's currently outstanding 6.000%
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C ("Series C Preferred Stock"), 5.700%
Non-Cumulative Preferred Stock, Series D ("Series D Preferred Stock"), 5.750% Non-Cumulative
Preferred Stock, Series E ("Series E Preferred Stock"), 5.250% Non-Cumulative Preferred Stock, Series F
("Series F Preferred Stock"), 4.875% Non-Cumulative Preferred Stock, Series G ("Series G Preferred
Stock"), and any other preferred stock then outstanding, would be paid at par value out of assets available
for distribution, plus all declared and unpaid dividends, before the holders of shares of common stock
received any payment. See also "Market for Registrant's Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities" for more information about Farmer Mac's common stock, and
"Business—Financing—Equity Issuance" for more information about Farmer Mac's common stock and
preferred stock.
Unlike some other GSEs such as other FCS institutions and the Federal Home Loan Banks, Farmer Mac is
not structured as a cooperative owned exclusively by member institutions and established to provide
services exclusively to its members. Rather, Farmer Mac, as a publicly-traded corporation, has a broader
base of stockholders, including those who do not directly participate in the secondary market provided by
Farmer Mac. Farmer Mac therefore seeks to fulfill its mission of serving the financing needs of rural
America in a way that is consistent with providing a return on the investment of its stockholders.
Farmer Mac generally requires financial institutions to own a requisite amount of Farmer Mac common
stock, based on the size and type of institution, to sell Agricultural Finance mortgage loans to Farmer
Mac. As a result of this requirement, coupled with the ability of holders of Class A and Class B voting
common stock to elect two-thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts
business with "related parties," including institutions affiliated with members of Farmer Mac's board of
directors and institutions that own large amounts of Farmer Mac's voting common stock. Farmer Mac has
adopted a Code of Business Conduct and Ethics and related corporate policies that govern any conflicts of
interest that may arise in these transactions. Farmer Mac also requires that any transactions with related
parties be conducted in the ordinary course of business, with terms and conditions comparable to those
available to any other counterparty not related to Farmer Mac. For more information about related party
transactions, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Results of Operations—Related Party Transactions" and Note 3 to the consolidated financial
statements.
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Capital
Farmer Mac's charter establishes three capital standards for Farmer Mac – minimum capital, critical
capital, and risk-based capital. Farmer Mac must comply with the higher of the minimum capital
requirement and the risk-based capital requirement. Also, in accordance with the applicable FCA
regulation on capital planning, Farmer Mac's board of directors oversees a policy that requires Farmer
Mac to maintain a sufficient level of Tier 1 capital and restricts dividends and bonus payments if Farmer
Mac's Tier 1 capital falls below specified thresholds. For a discussion of Farmer Mac's capital
requirements and its actual capital levels, as well as FCA's role in the establishment and monitoring of
those requirements and levels, see "Business—Government Regulation of Farmer Mac—Capital
Standards," "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Balance Sheet Review—Equity," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—Capital Requirements."
Regulatory Oversight
Farmer Mac's charter assigns to FCA, acting through the separate Office of Secondary Market Oversight
("OSMO") within FCA, the responsibility for the examination of Farmer Mac and the general supervision
of the safe and sound performance of the powers, functions, and duties vested in Farmer Mac by the
charter. The charter also authorizes FCA, acting through OSMO, to apply its general enforcement powers
to Farmer Mac. Farmer Mac's charter requires an annual examination of the financial transactions of
Farmer Mac and authorizes FCA to assess Farmer Mac for the cost of FCA's regulatory activities,
including the cost of any examination. Farmer Mac is also required to file quarterly reports of condition
with OSMO. As a publicly-traded corporation, Farmer Mac also must comply with the periodic reporting
requirements of the SEC. For a more detailed discussion of Farmer Mac's regulatory and governmental
relationships, see "Business—Government Regulation of Farmer Mac."
HUMAN CAPITAL
As of December 31, 2021, Farmer Mac employed 153 people, with 42 new employees hired during the
year resulting in a net increase of 32 employees (26%) compared to year-end 2020. Farmer Mac primarily
employs full-time employees to meet its business needs as it grows and evolves while supplementing
human capital needs with part-time employees (including interns) and independent contractors and
consultants as needed.
Farmer Mac's employees are located throughout the United States, often near many of its primary
customers. As of December 31, 2021, 94 full-time employees were located in the Washington, D.C. area,
27 full-time employees were located in the Johnston, Iowa area, and 32 full-time employees worked on a
fully remote basis (without regard to the COVID-19 pandemic) in other parts of the United States.
As a financial services organization, Farmer Mac must attract and retain a highly skilled workforce in an
often competitive employment environment. We use traditional methods to attract and retain talent, such
as competitive salaries and benefits, including: a generous group health plan with all premiums paid by
Farmer Mac; an employer-funded 401(k) plan; group term life insurance and long-term disability
insurance; and other voluntary benefits of interest to employees, such as pre-tax dependent care
reimbursement, partially-funded health savings accounts, and access to group rates for legal services
insurance, additional life insurance, and pet insurance. We also believe that our mission to serve
agricultural and rural communities, as well as philanthropic activities we undertake in support of our
mission, provide Farmer Mac an advantage in our efforts to attract and retain talent. During 2021, Farmer
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Mac contributed to Feeding America, Foodbank of Iowa, Common Good City Farm, DC and the Tribal
Agriculture Fellowship (TAF) established by the Native American Agriculture Fund’s (NAAF). We also
recognize that employee engagement is a key component in Farmer Mac's human capital retention
strategy. Therefore, we seek to create an inclusive work culture that is diverse and collaborative, with a
focus on long-term succession planning and professional development. Farmer Mac approaches learning
through three primary pillars: compliance, cybersecurity, and professional development. We have largely
relied on eLearning platforms, self-paced study, and some externally facilitated training to support all
three pillars. Farmer Mac also offers an education assistance plan for employees with at least one year of
full-time employment in an amount up to $50,000.00. We also use flexible work structures and technology
to create incentives to join and remain with Farmer Mac. Farmer Mac experienced a 7.3% turnover rate in
2021, which was down from 9.6% in 2020.
COVID-19 Pandemic
We continued to execute our business in a mostly remote capacity during 2021 as a result of the
COVID-19 pandemic. The pandemic has compelled many companies, including Farmer Mac, to focus on
how people work, as evidenced by our regular engagement with two “Future of Work” committees – one
targeted at the employee level and the second including executive leaders. The committees are grounded
in three fundamental principles: community, collaboration, and communication. In 2021, these
committees contemplated the company’s vaccine policy, phased approach to resuming in-person work
interactions, employee surveys, and general sentiments about the future of work. To ensure continuity in
regular communications, we have continued to reinforce our employees' access to secure digital meeting
platforms, and our senior executive team has continued to lead regular meetings of all employees to share
pertinent information on Farmer Mac's business and operations, and to provide a forum for discussing
current events. We also used this engagement opportunity to gauge the health and well-being of
employees and to solicit their feedback, to which we responded with initiatives to address work/life
balance, including added flexibility in working hours and paid time off.
We do not currently have an established timeline for a full-scale return of our employees to Farmer Mac's
offices. We have adopted a phased approach to resuming in-person work interactions, with the current
phase involving the ability for employees to work in one of Farmer Mac’s office locations on a voluntary
basis in accordance with published health safety protocols. In the meantime, we remain confident in our
employees' capacity to remain engaged and productive on a remote basis and are impressed with the
resilience of our teams as we enter the third year of the COVID-19 pandemic.
Code of Business Conduct and Ethics
Farmer Mac's onboarding program includes a mandatory compliance session for every new hire and
contract consultant within their first week. All employees also take annual training on and recertification
of our Code of Business Conduct and Ethics, which encompasses the following four core principles:
(1) promoting a safe workplace and a respectful and inclusive culture, (2) conducting business lawfully,
fairly, and objectively, (3) communicating responsibly and protecting information, and (4) conducting
business diligently and being a good corporate citizen. Farmer Mac's Code of Business Conduct and
Ethics was refreshed in May 2021 while maintaining this principles-based approach. Our Code of
Business Conduct and Ethics is available at www.farmermac.com and is not incorporated by reference
into this report.
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Diversity, Equity, and Inclusion
During 2021, we continued to strengthen our focus on diversity, equity, and inclusion ("DEI") efforts
within Farmer Mac's workforce. Farmer Mac's DEI council was formed in late 2020 at the direction of
Farmer Mac's board of directors and senior executives. The DEI council consists of 12 rotating Farmer
Mac employees with the assistance of outside DEI consultants. During 2021, the DEI council established a
three-year DEI strategic plan and identified five key strategic priorities for Farmer Mac during the plan
period: (1) establish a strong DEI foundation across the organization; (2) strengthen talent acquisition,
selection, and retention processes; (3) enhance a culture of inclusion; (4) provide services to Farmer Mac's
rural customers in a fair and equitable manner; and (5) ensure accountability by tracking, monitoring, and
communicating progress with transparency. The council also identified several specific action items for
execution under the strategic plan, including: development of a comprehensive DEI communication and
education program for employees; identification of data and development of metrics to enhance diverse
and inclusive hiring, retention, and promotion practices at Farmer Mac; analysis of diversity within
Farmer Mac's loan portfolio and vendors; and establishment of key performance indicators to align Farmer
Mac's DEI priorities with Farmer Mac's business plan objectives. The DEI council continues to work
closely with members of Farmer Mac’s senior management to execute the DEI strategic plan and reports
its progress regularly to Farmer Mac's board of directors.
AVAILABLE INFORMATION
Farmer Mac makes available free of charge, through the "Investors" section of its internet website at
www.farmermac.com, copies of materials it files with, or furnishes to, the SEC, including its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements,
and any amendments to those filings, as soon as reasonably practicable after electronically filing those
materials with, or furnishing those materials to, the SEC. All references to www.farmermac.com in this
report are inactive textual references only. The information contained on Farmer Mac's website is not
incorporated by reference into this report.
FUNDING OF GUARANTEE AND LTSPC OBLIGATIONS
The main sources of funding for the payment of Farmer Mac's obligations under its guarantees and
LTSPCs are the fees Farmer Mac receives for its guarantees and commitments, net effective spread,
proceeds of debt issuances, loan repayments, and maturities of AgVantage securities. Farmer Mac has
traditionally satisfied its obligations under LTSPCs and its guarantees by purchasing defaulted loans out of
the LTSPCs or from related securitization trusts under the terms of the respective agreements governing
the LTSPC or guaranteed securities. Farmer Mac typically recovers a significant portion of the value of
defaulted loans purchased either through borrower payments, loan payoffs, payments by third parties, or
foreclosure and sale of the property securing the loans. Net credit losses/(gains) arising from Farmer Mac's
guarantees and commitments include charge-offs/(recoveries) against its allowance for losses, gains and
losses on the sale of real estate acquired through foreclosure (known as "real estate owned" or "REO"),
and fair value adjustments of REOs held.
Farmer Mac's charter requires Farmer Mac to maintain in its accounts a portion of the guarantee fees it
receives from its guarantee activities as a reserve against losses. As of December 31, 2021, this reserve
against losses arising from Farmer Mac's guarantee activities was $110.5 million. Farmer Mac calculates
the amount of this statutorily required reserve against losses arising from its guarantee activities based on
the credit risk component of guarantee fees received on all securities it guarantees, including AgVantage
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securities. This amount does not represent expected credit losses and does not directly relate to either the
allowance for loan losses or the reserve for losses in Farmer Mac's consolidated balance sheets. Rather,
this is the amount of capital that must be exhausted before Farmer Mac may issue obligations to the
U.S. Treasury against the $1.5 billion that Farmer Mac is statutorily authorized to borrow from the U.S.
Treasury to fulfill its guarantee obligations. That borrowing authority is not intended to be a routine
funding source and has never been used. For a more detailed discussion of Farmer Mac's borrowing
authority from the U.S. Treasury, see "Business—Farmer Mac's Authority to Borrow from the U.S.
Treasury."
Farmer Mac's total outstanding guarantees and LTSPCs exceed the total of: (1) the amount held as an
allowance for losses, (2) the amount maintained as a reserve against losses arising from guarantee
activities, and (3) the amount Farmer Mac may borrow from the U.S. Treasury. However, Farmer Mac
does not expect its future payment obligations under its guarantees and LTSPCs to exceed amounts
available to satisfy those obligations, which includes access to the underlying collateral in the event of
default. For information about Farmer Mac's allowance for losses, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk – Loans and
Guarantees" and Note 2(h), Note 8, and Note 12 to the consolidated financial statements.
Debt Issuance
FINANCING
Farmer Mac's charter authorizes Farmer Mac to issue debt obligations to purchase eligible loans and
securities, USDA Securities, and to maintain reasonable amounts of liquid investments to maintain an
adequate supply of liquidity. Farmer Mac funds its purchases of eligible program assets and liquidity
investment assets primarily by issuing debt obligations of various maturities in the public capital
markets. Farmer Mac also issues debt obligations to obtain funds to finance its obligations under
guarantees and LTSPCs. Farmer Mac's debt obligations include discount notes and medium-term notes,
including callable medium-term notes, all of which are unsecured general obligations of Farmer Mac.
Discount notes have original maturities of 1 year or less. Medium-term notes generally have maturities of
0.5 years to 25.0 years.
The interest and principal on Farmer Mac's debt obligations are not guaranteed by, and do not constitute
debts or obligations of, FCA, the United States, or any agency or instrumentality of the United States other
than Farmer Mac. Farmer Mac is an institution of the FCS but is not liable for any debt or obligation of
any other institution of the FCS. Likewise, neither the FCS nor any other individual institution of the FCS
is liable for any debt or obligation of Farmer Mac. Income to the purchaser of a Farmer Mac discount note
or medium-term note is not exempt under federal law from federal, state, or local taxation. Farmer Mac's
discount notes and medium-term notes are not currently rated by an NRSRO.
Farmer Mac invests the proceeds of its debt issuances in eligible program asset purchases, Farmer Mac
Guaranteed Securities, and liquidity investment assets in accordance with policies established by its board
of directors that comply with FCA's Liquidity and Investment Regulations, which establish limitations on
asset class, dollar amount, issuer concentration, and credit quality. Farmer Mac's regular debt issuance
supports its access to the capital markets, and Farmer Mac's liquidity investment assets provide an
alternative source of funds should market conditions be unfavorable.
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For more information about the Liquidity and Investment Regulations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." For more
information about Farmer Mac's outstanding investments and indebtedness, see Note 4 and Note 7 to the
consolidated financial statements.
Equity Issuance
Farmer Mac's charter authorizes Farmer Mac to issue voting common stock, non-voting common stock,
and non-voting preferred stock. Farmer Mac may obtain additional capital from future issuances of
common stock and preferred stock.
Common Stock
Only banks, other financial entities, insurance companies, and institutions of the FCS may hold voting
common stock. No holder of Class A voting common stock may directly or indirectly be a beneficial
owner of more than 33% of the outstanding shares of Class A voting common stock. There are no
restrictions on the maximum number or percentage of outstanding shares of Class B voting common stock
that may be held by an eligible stockholder. No ownership restrictions apply to Class C non-voting
common stock, and those securities are freely transferable.
The dividend rights of all three classes of Farmer Mac's common stock are the same, and dividends may
be paid on common stock only when, as, and if declared by Farmer Mac's board of directors in its sole
discretion, subject to compliance with applicable capital requirements and the payment of dividends on
outstanding preferred stock. Upon liquidation, dissolution, or winding up of the business of Farmer Mac,
after payment and provision for payment of outstanding debt of Farmer Mac, the holders of shares of
preferred stock would be paid at par value out of assets available for distribution, plus all declared and
unpaid dividends, before the holders of shares of common stock received any payment.
As of December 31, 2021, the following shares of Farmer Mac common stock were outstanding:
•
•
•
1,030,780 shares of Class A voting common stock;
500,301 shares of Class B voting common stock; and
9,235,205 shares of Class C non-voting common stock.
During first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting
common stock at a cost of approximately $0.2 million under a share repurchase program that Farmer
Mac's board of directors approved in 2015 and modified in 2019. Shortly after these repurchases were
completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve
capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic.
In March 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous
terms (with a remaining authorization of up to $9.8 million in stock repurchases) and extended the
expiration date of the program to March 2023. As of December 31, 2021, Farmer Mac had repurchased
approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $19.8
million under the share repurchase program since 2015.
26
The following table presents the dividends declared on Farmer Mac's common stock during and after
2021:
Date
Dividend
Declared
February 23, 2021
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
Per
Share
Amount
$0.88
$0.88
$0.88
$0.88
$0.95
For
Holders Of
Record As Of
March 16, 2021
June 15, 2021
Date
Paid
March 31, 2021
June 30, 2021
September 15, 2021
September 30, 2021
December 15, 2021
December 31, 2021
March 16, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on March 31, 2022.
Farmer Mac's ability to declare and pay common stock dividends could be restricted if it were to fail to
comply with applicable capital requirements. See Note 9 to the consolidated financial statements and
"Business—Government Regulation of Farmer Mac—Capital Standards."
Preferred Stock
No ownership restrictions apply to any preferred stock issued by Farmer Mac, and those securities are
freely transferable. As of December 31, 2021, the following shares of Farmer Mac preferred stock were
outstanding:
•
•
•
•
•
3,000,000 shares of Series C Preferred Stock, all of which were issued in June 2014;
4,000,000 shares of Series D Preferred Stock, all of which were issued in May 2019;
3,180,000 shares of Series E Preferred Stock, all of which were issued in May 2020;
4,800,000 shares of Series F Preferred Stock, all of which were issued in August 2020; and
5,000,000 shares of Series G Preferred Stock, all of which were issued in May 2021.
The Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, and Series G Preferred Stock, (collectively, "Outstanding Preferred Stock") each has a par value of
$25.00 per share and an initial liquidation preference of $25.00 per share. Since each of their respective
issuances, Farmer Mac has not issued any more shares of any series of Outstanding Preferred Stock. Each
series of Outstanding Preferred Stock ranks senior to Farmer Mac's outstanding Class A voting common
stock, Class B voting common stock, Class C non-voting common stock, and any other common stock of
Farmer Mac issues in the future.
The Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, and Series G Preferred
Stock pay an annual dividend rate fixed at 5.700%, 5.750%, 5.250%, and 4.875%, respectively, for the life
of the securities. The Series C Preferred Stock pays an annual dividend rate of 6.000% from the date of
issuance to and including the quarterly payment date on July 17, 2024 and thereafter at a floating rate
equal to three-month LIBOR plus 3.260%. Dividends on all series of Outstanding Preferred Stock are non-
cumulative, so if the board of directors has not declared a dividend before the applicable dividend
payment date for any dividend period, the dividend will not be paid or accumulate, and Farmer Mac will
not be obligated to pay dividends for that dividend period, whether or not dividends on any series of
Outstanding Preferred Stock are declared for any future dividend period. Farmer Mac may pay dividends
on the Outstanding Preferred Stock without paying dividends on any class or series of stock Farmer Mac
may issue in the future that ranks junior to the Outstanding Preferred Stock.
27
The Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock, and Series G Preferred Stock rank equally with each other and will rank equally with any other
class or series of stock Farmer Mac may issue in the future of equal priority as to dividends and upon
liquidation. Farmer Mac has the right, but not the obligation, to redeem some or all of the issued and
outstanding shares of Series C Preferred Stock on and any time after July 18, 2024, the Series D Preferred
Stock on and after July 17, 2024, the Series E Preferred Stock on and after July 17, 2025, the Series F
Preferred Stock on and after October 17, 2025, and the Series G Preferred Stock on and any time after
July 17, 2026, all at a price equal to the then-applicable liquidation preference. Any redemption date for
the Series D, Series E, Series F, or Series G Preferred Stock must be a scheduled quarterly dividend
payment date. The Outstanding Preferred Stock is considered Tier 1 capital for Farmer Mac. For more
information on Farmer Mac's capital requirements, see "Business—Government Regulation of Farmer
Mac—Capital Standards."
The following table presents the dividends declared and paid on Series C Preferred Stock during and after
2021:
Date
Dividend
Declared
February 23, 2021
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
Per
Share
Amount
$0.3750
$0.3750
$0.3750
$0.3750
$0.3750
For
Period
Beginning
January 18, 2021
April 18, 2021
July 18, 2021
For
Period
Ending
April 17, 2021
July 17, 2021
Date
Paid
April 17, 2021
July 17, 2021
October 17, 2021
October 17, 2021
October 18, 2021
January 17, 2022
January 17, 2022
January 18, 2022
April 17, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on April 17, 2022.
The following table presents the dividends declared and paid on Series D Preferred Stock during and after
2021:
Date
Dividend
Declared
February 23, 2021
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
Per
Share
Amount
$0.35625
$0.35625
$0.35625
$0.35625
$0.35625
For
Period
Beginning
January 18, 2021
April 18, 2021
July 18, 2021
For
Period
Ending
April 17, 2021
July 17, 2021
Date
Paid
April 17, 2021
July 17, 2021
October 17, 2021
October 17, 2021
October 18, 2021
January 17, 2022
January 17, 2022
January 18, 2022
April 17, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on April 17, 2022.
The following table presents the dividends declared and paid on Series E Preferred Stock during and after
2021:
Date
Dividend
Declared
February 23, 2021
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
Per
Share
Amount
$0.359375
$0.359375
$0.359375
$0.359375
$0.359375
For
Period
Beginning
January 18, 2021
April 18, 2021
July 18, 2021
For
Period
Ending
April 17, 2021
July 17, 2021
Date
Paid
April 17, 2021
July 17, 2021
October 17, 2021
October 17, 2021
October 18, 2021
January 17, 2022
January 17, 2022
January 18, 2022
April 17, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on April 17, 2022.
28
The following table presents the dividends declared and paid on Series F Preferred Stock during and after
2021:
Date
Dividend
Declared
Per
Share
Amount
For
Period
Beginning
February 23, 2021
$0.3281250
January 18, 2021
$0.3281250
April 18, 2021
For
Period
Ending
April 17, 2021
July 17, 2021
Date
Paid
April 17, 2021
July 17, 2021
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
$0.3281250
July 18, 2021
October 17, 2021
October 17, 2021
$0.3281250
October 18, 2021
January 17, 2022
January 17, 2022
$0.3281250
January 18, 2022
April 17, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on April 17, 2022.
The following table presents the dividends declared and paid on Series G Preferred Stock during and after
2021:
Date
Dividend
Declared
June 1, 2021
August 11, 2021
November 10, 2021
February 24, 2022
Per
Share
Amount
For
Period
Beginning
For
Period
Ending
Date
Paid
$0.1692708
May 28, 2021
July 17, 2021
July 17, 2021
$0.3046875
July 18, 2021
October 17, 2021
October 17, 2021
$0.3046875
October 18, 2021
January 17, 2022
January 17, 2022
$0.3046875
January 18, 2022
April 17, 2022
*
* The dividend declared on February 24, 2022 is scheduled to be paid on April 17, 2022.
FARMER MAC'S AUTHORITY TO BORROW FROM THE U.S. TREASURY
Farmer Mac is authorized to borrow up to $1.5 billion from the U.S. Treasury through the issuance of debt
obligations to the U.S. Treasury. Any funds borrowed from the U.S. Treasury may be used solely to fulfill
Farmer Mac's guarantee obligations. Farmer Mac's charter provides that the U.S. Treasury is required to
purchase Farmer Mac's debt obligations up to the authorized limit if Farmer Mac certifies that:
•
•
a portion of the guarantee fees assessed by Farmer Mac has been set aside as a reserve against
losses arising out of Farmer Mac's guarantee activities in an amount determined by Farmer Mac's
board of directors to be necessary and such reserve has been exhausted (that amount was
$110.5 million as of December 31, 2021); and
the proceeds of such obligations are needed to fulfill Farmer Mac's guarantee obligations.
Any debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined
by the U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of
the United States as of the last day of the last calendar month ending before the date of the purchase of the
obligations from Farmer Mac. Farmer Mac would be required to repurchase any of its debt obligations
held by the U.S. Treasury within a "reasonable time." As of December 31, 2021, Farmer Mac had not used
this borrowing authority and does not expect to use this borrowing authority in the future.
The United States government does not guarantee payments due on securities guaranteed by Farmer Mac,
funds invested in the equity or debt securities of Farmer Mac, any dividend payments on shares of Farmer
Mac stock, or the profitability of Farmer Mac.
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GOVERNMENT REGULATION OF FARMER MAC
General
Farmer Mac was created by federal statute in 1988 in the aftermath of the collapse of the agricultural
credit delivery system. Farmer Mac's primary committees of jurisdiction in Congress – the Committee on
Agriculture of the U.S. House of Representatives and the U.S. Senate Committee on Agriculture, Nutrition
and Forestry – added requirements for Farmer Mac that had not been included in any of the other statutes
establishing other GSEs. Unlike the other existing GSEs at the time, Farmer Mac was required to be
regulated by an independent regulator, FCA, which has the authority to regulate Farmer Mac's safety and
soundness. The statute creating Farmer Mac expressly requires that eligible Farm & Ranch loans meet
minimum credit and appraisal standards that represent sound loans to profitable businesses. The enabling
legislation also did not contain a specific federal securities law exemption, which had the effect of
requiring Farmer Mac to comply with the periodic reporting requirements of the SEC, including filing
annual and quarterly reports on the financial status of Farmer Mac and current reports when there are
significant developments. Farmer Mac's charter also requires offerings of securities backed by eligible
loans and guaranteed by Farmer Mac to be registered under the Securities Act of 1933 and related
regulations (collectively, "Securities Act"), unless an exemption for an offering is available that is not
based on Farmer Mac's status as an instrumentality of the United States.
Since Farmer Mac's creation, Congress has amended Farmer Mac's charter five times:
•
•
•
•
•
in 1990 to authorize Farmer Mac to purchase, and guarantee securities backed by, USDA
Securities;
in 1991 to clarify Farmer Mac's authority to purchase its guaranteed securities, establish OSMO as
Farmer Mac's financial regulator, and set minimum regulatory capital requirements for Farmer
Mac;
in 1996 to remove certain barriers to and restrictions on Farmer Mac's operations to be more
competitive (e.g., allowing Farmer Mac to buy loans directly from lenders and issue guaranteed
securities representing 100% of the principal of the purchased loans and modifying capital
requirements);
in 2008 to authorize Farmer Mac to purchase, and guarantee securities backed by, loans or interests
in loans by lenders organized as cooperatives to borrowers to finance electrification and
telecommunications systems in rural areas; and
in 2018 to expand the acreage exception to the Farm & Ranch loan amount limitation from 1,000
acres to 2,000 acres, subject to FCA's feasibility assessment (which was completed in June 2019),
and to repeal obsolete provisions and make technical corrections.
Farmer Mac's authorities and regulatory structure were not revised by legislation adopted in 2008 to
regulate other GSEs.
Office of Secondary Market Oversight (OSMO)
As an institution of the FCS, Farmer Mac (including its subsidiaries) is subject to the regulatory authority
of FCA. Farmer Mac's charter assigns to FCA, acting through OSMO within FCA, the responsibility for
the examination of Farmer Mac and the general supervision of the safe and sound performance of the
powers, functions, and duties vested in Farmer Mac by its charter. The charter also authorizes FCA, acting
through OSMO, to apply its general enforcement powers to Farmer Mac. Farmer Mac (including its
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subsidiaries) is the only entity regulated by OSMO, which was created as a separate office in recognition
of the different role that Farmer Mac plays in providing a secondary market, as compared to the roles of
other FCS institutions as primary lenders. The Director of OSMO is selected by and reports to the FCA
board.
Farmer Mac's charter requires an annual examination of the financial transactions of Farmer Mac and
authorizes FCA to assess Farmer Mac for the cost of its regulatory activities, including the cost of any
examination. Each year, OSMO conducts an examination of Farmer Mac to evaluate its safety and
soundness, compliance with applicable laws and regulations, and mission achievement. The examination
includes a review of Farmer Mac's capital adequacy, asset quality, management performance, earnings,
liquidity, and sensitivity to interest rate risk. OSMO may also conduct additional oversight and
examination activities unrelated to its annual examination of Farmer Mac at any other time it determines
necessary. Farmer Mac is also required to file quarterly reports of condition with FCA.
Capital Standards
General Requirements. Farmer Mac's charter establishes three capital standards for Farmer Mac:
•
Statutory minimum capital requirement. Farmer Mac's minimum capital level is an amount of core
capital (stockholders' equity less accumulated other comprehensive income) equal to the sum of
2.75% of Farmer Mac's aggregate on-balance sheet assets, as calculated for regulatory purposes,
plus 0.75% of Farmer Mac's aggregate off-balance sheet obligations, specifically including:
◦
◦
◦
the unpaid principal balance of outstanding loan-backed securities guaranteed by Farmer Mac;
instruments issued or guaranteed by Farmer Mac that are substantially equivalent to securities
guaranteed by Farmer Mac, including LTSPCs; and
other off-balance sheet obligations of Farmer Mac.
•
Statutory critical capital requirement. Farmer Mac's critical capital level is an amount of core
capital equal to 50% of the total minimum capital requirement at that time.
• Risk-based capital. The charter directs FCA to establish a risk-based capital stress test for Farmer
Mac, using specified stress-test parameters.
Farmer Mac must comply with the higher of the minimum capital requirement and the risk-based capital
requirement.
The risk-based capital stress test promulgated by FCA is intended to determine the amount of regulatory
capital (core capital plus the allowance for losses) that Farmer Mac would need to maintain positive
capital during a ten-year period in which:
•
•
annual losses occur at a rate of default and severity "reasonably related" to the rates of the highest
sequential two years in a limited U.S. geographic area; and
interest rates are shocked by the lesser of 600 basis points or 50% of the ten-year U.S. Treasury
rate, and interest rates remain at such level for the remainder of the period.
31
The risk-based capital stress test then adds an additional 30% to the resulting capital requirement for
management and operational risk. Farmer Mac's risk-based capital requirement as of December 31, 2021
was $218.7 million, and Farmer Mac's regulatory capital of $1.2 billion exceeded that amount by
approximately $1.0 billion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—Capital Requirements" for a presentation of
Farmer Mac's current regulatory capital position.
Enforcement Levels. Farmer Mac's charter directs FCA to classify Farmer Mac within one of four
enforcement levels to determine compliance with the capital standards established by Farmer Mac's
charter. As of December 31, 2021, Farmer Mac was classified as within level I – the highest compliance
level.
Failure to comply with the applicable required capital level in the charter would result in Farmer Mac
being classified as within level II (below the applicable risk-based capital level, but above the minimum
capital level), level III (below the minimum capital level, but above the critical capital level) or level IV
(below the critical capital level). If Farmer Mac were classified as within level II, III or IV, the charter
requires the Director of OSMO to take specified mandatory supervisory measures and provides the
Director with discretionary authority to take various optional supervisory measures depending on the level
in which Farmer Mac is classified. The mandatory measures applicable to level II and level III include:
•
•
•
requiring Farmer Mac to submit and comply with a capital restoration plan;
prohibiting the payment of dividends if the payment would result in Farmer Mac being reclassified
as within a lower level and requiring the pre-approval of any dividend payment even if the
payment would not result in reclassification as within level IV; and
reclassifying Farmer Mac as within one level lower if it does not submit a capital restoration plan
that is approved by the Director, or the Director determines that Farmer Mac has failed to make, in
good faith, reasonable efforts to comply with such a plan and fulfill the schedule for the plan
approved by the Director.
If Farmer Mac were classified as within level III, then, in addition to the mandatory supervisory measures
described above, the Director of OSMO could take any of the following discretionary supervisory
measures:
•
•
•
•
•
imposing limits on any increase in, or ordering the reduction of, any obligations of Farmer Mac,
including off-balance sheet obligations;
limiting or prohibiting asset growth or requiring the reduction of assets;
requiring the acquisition of new capital in an amount sufficient to provide for reclassification as
within a higher level;
terminating, reducing, or modifying any activity the Director determines creates excessive risk to
Farmer Mac; or
appointing a conservator or a receiver for Farmer Mac.
Farmer Mac's charter does not specify any supervisory measures, either mandatory or discretionary, to be
taken by the Director if Farmer Mac were classified as within level IV.
The Director of OSMO has the discretionary authority to reclassify Farmer Mac to a level that is one level
below its then current level (for example, from level I to level II) if the Director determines that Farmer
Mac is engaging in any action not approved by the Director that could result in a rapid depletion of core
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capital or if the value of property subject to mortgages backing securities guaranteed by Farmer Mac has
decreased significantly.
Capital Adequacy Requirements. Under FCA's rule on capital planning, Farmer Mac must develop and
submit to OSMO for approval annually a plan for capital that considers the sources and uses of Farmer
Mac's capital, addresses capital projections under stress scenarios, assesses Farmer Mac's overall capital
adequacy, and incorporates a Farmer Mac board-approved policy on capital adequacy. In accordance with
this regulation, Farmer Mac's board of directors oversees a policy that requires Farmer Mac to maintain an
adequate level of "Tier 1" capital, consisting of retained earnings, paid-in-capital, common stock,
qualifying preferred stock, and accumulated other comprehensive income allocable to "non-program"
investments that are not included in the Agricultural Finance and Rural Infrastructure Finance lines of
business. Under this policy, Farmer Mac must maintain at all times a Tier 1 capital ratio of at least 7.0% of
risk-weighted assets, calculated using an advanced internal ratings based asset risk weighting regime that
is consistent with current Basel-based principles.
The policy also requires Farmer Mac to maintain a "capital conservation buffer" of additional Tier 1
capital of more than 2.5% of risk-weighted assets. If the capital conservation buffer drops to various levels
at or below 2.5%, as shown in the table below, the policy requires Farmer Mac to restrict distributions of
current quarter Tier 1-eligible dividends and any discretionary bonus payments to an amount not to exceed
the corresponding payout percentage specified in the table below, which represents the percentage of the
cumulative core earnings for the four quarters immediately preceding the distribution date:
Capital Conservation Buffer
Payout Percentage
(percentage of risk-weighted assets)
(percentage of four quarters' accumulated core earnings)
greater than 2.5%
No limitation
greater than 1.875% to and including 2.5%
greater than 1.25% to and including 1.875%
greater than 0.625% to and including 1.25%
60%
40%
20%
equal to or less than 0.625%
0% (no payout permitted)
These distribution restrictions would remain for so long as the Tier 1 capital conservation buffer remains
at or below the minimum level of 2.5%, and Farmer Mac's board of directors may consider other factors,
such as earnings presented in accordance with generally accepted accounting principles in the United
States ("GAAP") and other regulatory requirements, in determining whether to restrict capital
distributions, including dividends and bonus payments. As of December 31, 2021, Farmer Mac's Tier 1
capital ratio was 14.7%. The calculation of Farmer Mac's Tier 1 capital ratio does not include certain
interest rate risk components of the risk weighting of assets, which reflects the fact that Farmer Mac
pursues an approach to funding its assets with liabilities of similar duration and convexity characteristics
and therefore does not bear material interest rate risk in its portfolio. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital
Requirements" for more information on Farmer Mac's Tier 1 capital ratio.
Liquidity Requirements
Liquidity Reserve Requirement and Supplemental Liquidity. Farmer Mac's Liquidity and Investment
Regulations require that Farmer Mac maintain at all times a liquidity reserve sufficient to fund at least
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90 days of the principal portion of maturing obligations and other borrowings. Farmer Mac may also
maintain supplemental liquidity to fund obligations and borrowings maturing after 90 days. The
investments that Farmer Mac holds as its liquidity reserve and as supplemental liquidity must consist of
unencumbered and readily marketable assets that are diversified in accordance with categories prescribed
by FCA, including limitations on asset class, dollar amount, issuer concentration, and credit quality.
Farmer Mac must report, in writing, to OSMO no later than the next business day following the discovery
of any breach of Farmer Mac's minimum liquidity reserve requirement.
Liquidity Management. Under the Liquidity and Investment Regulations, Farmer Mac must develop and
approve annually a liquidity policy that outlines Farmer Mac's purpose and objectives for liquidity
reserves, diversification requirements for liquidity reserves, target liquidity levels, maximum investment
amounts as a percentage of Farmer Mac's program assets, exception parameters (and approval
requirements), delegations of investment authority, and reporting requirements to Farmer Mac's board of
directors and to OSMO. The regulations also require Farmer Mac to develop a liability maturity
management plan and a contingency funding plan, each of which must be reviewed and approved annually
by Farmer Mac's board of directors.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources" for more information about Farmer Mac's liquidity and "Management's Discussion
and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Other
Investments" for more information about Farmer Mac's eligible investments.
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Item 1A.
Risk Factors
Farmer Mac's business activities, financial performance, and results of operations are, by their nature,
subject to risks and uncertainties, including those related to the agricultural industry, the rural utilities
industry, access to the capital markets, the regulatory environment, the level of prevailing interest rates
and overall market conditions. The following risk factors should be considered along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report,
including the risks and uncertainties described in the "Forward-Looking Statements" section. Because
new risk factors likely will emerge from time to time, management can neither predict all potential risk
factors nor assess the effects of those factors on Farmer Mac's business, operating results, and financial
condition or how much any factor, or combination of factors, may affect Farmer Mac's actual results and
financial condition. If any of the following risks materialize, Farmer Mac's business, financial condition,
or results of operations could be materially and adversely affected. Farmer Mac undertakes no obligation
to update or revise this risk factor discussion, unless required by applicable law.
COVID-19 Pandemic Risk
The continuing effects of the COVID-19 pandemic are uncertain and may heighten the risk factors
described in this report or could otherwise have a material adverse effect on Farmer Mac's business,
operations, operating results, financial condition, liquidity, or capital levels.
The COVID-19 pandemic continues to impact the global economy and the lives of individuals throughout
the world. How much the pandemic affects Farmer Mac’s business, results of operations, and financial
condition will depend on many factors beyond Farmer Mac’s control, including:
•
•
the duration and severity of the pandemic and the effectiveness of government and public health
responses, including to the prevalence of any new strains of the novel coronavirus;
how quickly and to what extent normal economic and operating conditions can resume, including
whether any future COVID-19 outbreaks interrupt economic recovery; and
• whether the COVID-19 pandemic causes any residual negative effects to Farmer Mac's business
once the pandemic has subsided.
The full effects of the COVID-19 pandemic on Farmer Mac’s business, results of operations, and financial
condition may not be fully known for some time and may heighten the risk factors described below or may
otherwise materially and adversely affect Farmer Mac’s business, operations, operating results, financial
condition, liquidity, or capital levels.
Credit and Counterparty Risk
Factors outside of Farmer Mac's or borrowers' control may impair borrowers' profitability and ability
to repay their loans in Farmer Mac's portfolio, which could have a material adverse effect on Farmer
Mac's financial condition, results of operations, liquidity, or capital levels.
External factors beyond Farmer Mac's or borrowers' control could impair borrowers' profitability, such as
severe or protracted adverse weather and related effects; volatility in demand for agricultural products or
electricity in rural areas; variability in borrowers' input costs; supply-chain disruptions that negatively
impact borrowers' production or distribution capabilities, protracted regional, domestic, or global
35
economic stress (whether due to the continued COVID-19 pandemic or otherwise); legislative or
regulatory actions affecting rural borrowers; U.S. trade policy affecting the demand for agricultural
exports or the price of imports required for borrowers' operations; increased competition among producers
due to oversupply or available alternatives; and adverse changes in interest rates and land values. Any of
these factors could put downward pressure on the profitability of a farming, agribusiness or rural utilities
operation, which could then inhibit the related borrower's repayment capacity on one or more loans that
Farmer Mac may have from that borrower in its portfolio.
Farmer Mac assumes the ultimate credit risk of borrower defaults on its agricultural mortgage and rural
utilities loan assets, and Farmer Mac's earnings, which come from net interest income, guarantee fees, and
commitment fees on those assets, depend significantly on their performance. Widespread and sustained
repayment shortfalls on loans in Farmer Mac's portfolio could result in losses, particularly if the value of
the available collateral does not cover Farmer Mac's exposure, and this could have a material adverse
effect on Farmer Mac's financial condition, results of operations, liquidity, or capital levels.
Climate change and the occurrence of weather-related events, or other natural or environmental
disasters could have a material adverse effect on Farmer Mac’s business, operating results, or financial
condition.
In addition to the general risks posed by adverse weather conditions, Farmer Mac’s exposure to credit risk
and the market value of loan collateral is potentially subject to risks associated with the long-term effects
of climate change, as farmers and ranchers may face increasing, as well as increasingly-severe, weather
incidents. The U.S. experienced 20 separate billion-dollar weather disasters in 2021, the second-highest
level in the 40 years tracked by the National Oceanic and Atmospheric Administration behind 2020.
Many of those events affected agriculture, including a midwestern derecho, western wildfires and western
drought. Many climatologists predict increases in average temperatures, more extreme temperatures and
increases in volatile weather over time. These physical changes may prompt changes in regulations or
consumer preferences, which in turn could have negative consequences for the business models of
borrowers, such as increasing costs, reducing the value of assets and increasing operating expenses. For
example, in 2021, “exceptional drought” conditions, the most severe drought classification, covered
significant areas of the western states, and approximately half of the continental United States experienced
abnormally dry conditions or worse. Although drought conditions improved in fourth quarter 2021 and
early weeks of 2022, 12% of the continental United States remained in exceptional or extreme drought as
of February 1, 2022, according to data from the National Drought Mitigation Center. The effects of
climate change may be more significant along coastlines, such as in the California coastal areas, due to
rising sea levels resulting from the melting of polar ice caps, which could result in an increased risk of
coastal erosion, flooding, degradation in the quality of groundwater aquifers and an expansion of
agricultural weed and pest populations. As a result, the effects of climate change could make some
agricultural properties less suitable for farming or for other alternative uses. For example, extended
periods of drought and dryness can reduce agricultural productivity, cause lasting damage to permanent
crops like fruit and tree nuts, and result in producers leaving some fields fallow due to lack of water.
These and other effects of climate change could have an adverse impact on farming operations and the
value of loan collateral, which could have a material adverse effect on Farmer Mac’s business, operating
results, or financial condition.
36
Concentrations in Farmer Mac's loan or investments portfolios, or to one or more borrowers or
counterparties, may increase Farmer Mac's exposure to credit risk, which could materially and
adversely affect its business, operating results, and financial condition.
Farmer Mac's exposure to credit risk may increase due to concentrations in its loan portfolio, which can
include concentrated exposure to particular commodities, geographic regions, or collateral types, as well
as concentrations in processing and manufacturing segments of agricultural supply chains. Widespread
weakening in the financial condition of borrowers within a particular geographic region, that produce
particular commodities or rely on particular collateral, or that engage in processes or production that is
dependent on a fluid supply chain could negatively affect Farmer Mac’s financial condition if sufficient
diversity in these areas does not successfully mitigate concentration risk.
Farmer Mac's credit risk may also increase due to decline in the collateral values securing the loans in
Farmer Mac's portfolio. Single-use or highly improved collateral, such as storage and processing facilities
or permanent plantings, increase the risk of undercollateralization in a default scenario, because producers
requiring single-use or highly improved collateral are generally less able to adapt their operations or
switch functional production when faced with adverse conditions. Highly improved properties also face
higher risk of loss in a default scenario, as the pool of potential purchasers in a sale or foreclosure action
may be smaller for a highly improved property than for a property that is adaptable to multiple uses. The
farming of permanent plantings generally involves more risk than farming of annual row crops because
permanent plantings generally require more time and capital to plant and permanent plantings are more
expensive to replace in the event of disease, drought, mismanagement, catastrophic condition (such as
wildfire), or adverse weather conditions.
Farmer Mac's exposure to credit risk may also increase due to concentrated exposure to a particular
borrower or counterparty. Farmer Mac’s Farm & Ranch portfolio consists of loans varying in size and by
borrower, including large exposures ($25 million or more) to individual borrowers. The default of any
one of these borrowers could negatively affect Farmer Mac's financial condition. Farmer Mac also has
concentrated exposures to individual business counterparties on AgVantage securities, which are general
obligations of institutional counterparties secured by eligible loans held by the issuing institution.
Although AgVantage securities are collateralized by eligible loans in a principal amount equal to or
greater than the principal amount of the securities outstanding, Farmer Mac could suffer losses if the
market value of the loan collateral declines and the counterparty defaults. Taking possession of the loan
collateral upon a default by the AgVantage counterparty could also result in higher current expected credit
losses for Farmer Mac's loans held on balance sheet, as well as increased capital requirements. Most of
Farmer Mac's AgVantage exposure is concentrated in a few issuers. As of December 31, 2021, $7.6
billion of the $8.1 billion of AgVantage securities outstanding had been issued by three counterparties.
A default by any of these counterparties could have a significant adverse effect on Farmer Mac's business,
operating results, and financial condition.
Farmer Mac's exposure to credit risk may also increase due to concentrated exposure to one or more
investment types or counterparties in the investment portfolio Farmer Mac maintains for liquidity. This
investment portfolio consists primarily of cash and cash equivalents, U.S. Treasury securities, investment
securities guaranteed by U.S. Government agencies and GSEs, and asset-backed securities backed
primarily by U.S. Government-guaranteed loans. Farmer Mac regularly reviews concentration limits to
ensure that its investments are appropriately diversified and comply with policies approved by Farmer
Mac's board of directors and with applicable FCA regulations, but Farmer Mac is still exposed to credit
risk from issuers of the investment securities it holds, particularly to issuers to whom Farmer Mac may
37
have a higher concentration of exposure relative to the rest of Farmer Mac's investment portfolio. For
example, as of December 31, 2021, Farmer Mac held at fair value $2.3 billion of investment securities
guaranteed by GSEs. A default by multiple issuers of investment securities held by Farmer Mac or by a
single issuer of investment securities in which Farmer Mac is more heavily concentrated could have an
adverse effect on Farmer Mac's business, operating results, and financial condition.
Farmer Mac Guaranteed Securities and LTSPCs expose Farmer Mac to significant contingent
liabilities, and Farmer Mac's ability to fulfill its obligations under its guarantees and LTSPCs may be
limited.
Farmer Mac's guarantee and purchase commitment obligations to third parties, including LTSPCs and
securities guaranteed by Farmer Mac, are obligations of Farmer Mac only and are not backed by the full
faith and credit of the United States, FCA, or any other agency or instrumentality of the United States
other than Farmer Mac. As of December 31, 2021, Farmer Mac had $3.8 billion of contingent liabilities
related to LTSPCs and securities issued to third parties and guaranteed by Farmer Mac, which represents
Farmer Mac's exposure if all loans underlying these LTSPCs and guarantees defaulted and Farmer Mac
recovered no value from the related collateral. If this were to occur, the funds available for payment on
these guarantees and LTSPCs could be substantially less than the aggregate amount of the corresponding
liabilities. As of December 31, 2021, Farmer Mac held cash, cash equivalents, and other investment
securities with a fair value of $4.8 billion that could be used as a source of funds for payment on its
obligations, including its guarantee and LTSPC obligations. Although Farmer Mac believes that it
remains well-collateralized on the assets underlying its guarantee and LTSPC obligations to third parties
and that the estimated probable losses for these obligations remain low relative to the amount available for
payment of claims on these obligations, Farmer Mac's total contingent liabilities for these obligations
could exceed the amount it may have available for payment of Farmer Mac's obligations, including claims
on Farmer Mac's contingent obligations. See "Management's Discussion and Analysis—Risk
Management—Credit Risk – Loans and Guarantees" for more information on Farmer Mac's management
of credit risk.
Farmer Mac is exposed to counterparty risk on both its cleared and non-cleared swaps transactions that
could materially and adversely affect its business, operating results, and financial condition.
Farmer Mac uses interest rate swap contracts and hedging arrangements to manage its interest rate risk.
Farmer Mac clears a significant portion of its interest rate swaps through a swap clearinghouse and uses
the services of a futures commission merchant to post and receive mark-to-market margin amounts.
Farmer Mac also transacts non-cleared (bilateral) derivative contracts directly with swap counterparties
and posts and receives collateral to secure the market value of those contracts. A failure of any of these
counterparties could cause intra-day disruption for Farmer Mac's swap operations if the failure were to
prompt a termination of all or part of Farmer Mac's swap positions or if Farmer Mac were unable to
quickly access margin or collateral amounts. These conditions could be exacerbated in volatile market
conditions, in which the market could move against Farmer Mac's position before Farmer Mac had time to
reposition its swaps. Farmer Mac's derivative contracts executed before March 2017 have market value
thresholds ranging from $15 to $25 million that must be exceeded before Farmer Mac must post collateral.
Repositioning these swaps under current margin rules if the related counterparty were to fail could require
Farmer Mac to post significant collateral within a short time frame. Any of these factors resulting from a
failure of the swap clearinghouse, futures commission merchant, or any of Farmer Mac's bilateral swap
counterparties could have a negative effect on Farmer Mac's operations and liquidity and could expose
Farmer Mac to more interest rate risk, which could materially and adversely affect its business, operating
38
results, and financial condition. As of December 31, 2021, the aggregate notional balance of Farmer
Mac's cleared swaps was $14.9 billion, and the aggregate notional balance of Farmer Mac's non-cleared
swaps was $2.6 billion (including $0.1 billion notional amount of non-cleared swaps executed before
March 2017).
Strategic/Business Risk
Farmer Mac's business, operating results, financial condition, and capital levels may be materially and
adversely affected by external factors that may affect the demand for Farmer Mac's secondary market,
the price or marketability of Farmer Mac's products, or Farmer Mac's ability to offer its products and
services.
Farmer Mac's business, operating results, financial condition, and capital levels may be materially and
adversely affected by external factors that may affect the price or marketability of Farmer Mac's products
and services or Farmer Mac's ability to offer its products and services, including, but not limited to:
disruptions in the capital markets;
competitive pressures in Farmer Mac's loan purchase and guarantee activities or in the issuance of
its debt securities;
changes in interest rates that may increase Farmer Mac's funding costs;
•
• market or customer perception of Farmer Mac's reputation;
•
legislative or regulatory developments adversely affecting Farmer Mac's ability to offer new
products, the ability or motivation of lenders to participate in Farmer Mac's lines of business, or
the cost of related corporate activities;
reduced demand for agricultural real estate loans or Rural Utilities loans due to regional, domestic,
or global economic conditions; and
expanded funding alternatives available to agricultural and rural utilities borrowers.
•
•
•
•
An inability to access the equity and debt capital markets could have a material adverse effect on
Farmer Mac's business, operating results, financial condition, liquidity, and capital levels.
Farmer Mac's ability to operate its business, meet its obligations, generate asset volume growth, and fulfill
its statutory mission depends on Farmer Mac's continued access to the U.S. financial markets at favorable
rates and terms to remain adequately capitalized through the issuance of equity and with adequate access
to liquidity through the issuance of debt securities. The issuance of debt securities is Farmer Mac's
primary source for repaying or refinancing existing debt and to fund contingent liabilities, as needed.
Farmer Mac's ability to access the debt and equity markets to raise capital, fund its assets, repay debt, and
earn net interest income depends on market perception of Farmer Mac. If Farmer Mac were unable to
access the U.S. financial markets to issue equity or debt securities at favorable rates and terms, Farmer
Mac's business, operating results, liquidity, or financial condition could be adversely affected.
The loss of business from key business counterparties or customers, including AgVantage
counterparties, could weaken Farmer Mac's business and decrease its revenues and profits.
Farmer Mac's business and ability to generate revenues and profits largely depends on its ability to
purchase eligible loans or place eligible loans under guarantees or LTSPCs and to purchase or guarantee
AgVantage securities. Farmer Mac conducts a significant portion of its business with a few business
counterparties. This concentration of business could potentially result in increased variability in Farmer
39
Mac's business as existing assets pay down or mature and the status and needs of Farmer Mac's customers
evolve. In 2021, ten institutions generated approximately 62% of loan purchase volume in the
Agricultural Finance line of business. As of December 31, 2021, approximately 93.9% of the $8.1 billion
outstanding principal amount of AgVantage securities (of which $2.6 billion and $0.9 billion will be
maturing in 2022 and 2023, respectively) were issued by three institutions. As of December 31, 2021,
transactions with two institutions represented nearly all of the business volume under Farmer Mac's Rural
Infrastructure Finance line of business. Farmer Mac's ability to maintain the current relationships with its
business counterparties or customers and the business generated by those business counterparties or
customers is significant to Farmer Mac's business. As a result, the loss of business from any one of
Farmer Mac's key business counterparties could decrease Farmer Mac's revenues and profitability.
Farmer Mac may be unable to replace the loss of business of a key business counterparty or customer with
alternate sources of business due to limitations on the types of assets eligible for Farmer Mac's secondary
market, which could adversely affect Farmer Mac's business and decrease its revenues and profits.
Farmer Mac's efforts to balance fulfilling its mission with providing a return to its stockholders may
result in business transactions that involve lower returns or higher risk, which could adversely affect its
business, operating results, or financial condition.
Congress created Farmer Mac to provide for a secondary market for agricultural mortgage loans, Rural
Utilities loans, and the guaranteed portions of USDA-guaranteed loans. In pursuing this mission, Farmer
Mac's secondary market activities are designed to:
•
•
•
increase the availability of credit to rural borrowers at stable interest rates;
provide greater liquidity and lending capacity in extending credit to rural borrowers; and
provide an arrangement for new lending by facilitating capital market investments in funding for
rural borrowers, including funds at fixed rates of interest.
Farmer Mac's charter provides that its standards for Farm & Ranch loans shall not discriminate against
small originators or small agricultural mortgage loans of at least $50,000. The charter also requires
Farmer Mac's board of directors to promote and encourage the inclusion of qualified loans for small farms
and family farmers in the agricultural mortgage secondary market.
Although Farmer Mac strives to undertake its mission-related activities in a manner consistent with
providing an accretive return to Farmer Mac's stockholders, these activities could contribute to a lower
return to stockholders than if Farmer Mac's sole purpose were to maximize stockholder value. If Farmer
Mac were to undertake activities involving greater risk or lower returns to satisfy its mission, Farmer
Mac's business, operating results, or financial condition could be adversely affected.
A few stockholders who own large amounts of Farmer Mac voting common stock may seek to influence
Farmer Mac's business, strategy, or board composition, and the interests of these stockholders may
differ from the interests of Farmer Mac or other holders of Farmer Mac's common stock.
The ownership of Farmer Mac's two classes of voting common stock is concentrated in a few
institutions. Four financial institutions hold approximately 53% of Farmer Mac's Class A voting common
stock, with 31% held by one institution. Five FCS institutions hold approximately 97% of Farmer Mac's
Class B voting common stock (two of which are related to each other through a parent-subsidiary
relationship). The holders of Farmer Mac's Class A voting common stock and the holders of Farmer
Mac's Class B voting common stock each have the right to elect one-third of the membership of Farmer
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Mac's board of directors. Many of these holders are rural lenders that may compete directly with each
other. As long as Farmer Mac's Class A and Class B voting common stock is highly concentrated in a few
institutions, these institutions could seek to influence (and may succeed in influencing), Farmer Mac's
business, strategy, or board composition in a way that may not be in the best interests of either Farmer
Mac or other stockholders.
Operational Risk
The inadequacy or failure of Farmer Mac's operational systems, cybersecurity program, internal
controls or processes, or infrastructure, or those of third parties, could have a material adverse effect
on Farmer Mac's business, operating results, or financial condition.
Farmer Mac is exposed to operational risk due to the complex nature of its business operations and the
processes and systems used to undertake its business activities and comply with regulatory requirements.
Operational risk includes the risk of loss to Farmer Mac resulting from:
•
•
•
•
•
inadequate or failed internal processes, systems, cybersecurity program, or infrastructure;
Farmer Mac's inability to successfully implement enhancements to any of these or migrate to new
systems or infrastructure;
failed execution based on human error;
inadequate or failed internal controls or processes to detect or prevent fraud or other violations of
law or regulations; or
external events, including a disruption involving physical site access, cyber incidents, catastrophic
events, natural disasters, terrorist activities, or disease pandemics.
Farmer Mac relies on business processes that largely depend on people, technology, and the use of
complex systems and models to manage its business, process a high volume of daily transactions, and
generate the records on which Farmer Mac's financial statements are based. Inadequacies or failures in
Farmer Mac's internal processes, personnel, systems, cybersecurity program, or infrastructure could lead
to a significant disruption in its business operations, financial and economic loss, errors in its financial
statements, impairment of its liquidity, liability or service interruptions to its customers, increased
regulatory or legislative scrutiny, or reputational damage.
In response to the challenges presented by the COVID-19 pandemic, Farmer Mac has modified its
business practices to focus on protecting its employees and the public while continuing to fulfill its critical
mission and maintaining its regular business operations in support of the farmers, ranchers, and rural
utilities of America. On March 12, 2020, Farmer Mac activated its Business Continuity Plan (“BCP”) and
has been operating uninterrupted since then with most employees working remotely from their homes.
Farmer Mac has provided guidance and support to its employees to ensure that they have the tools and
knowledge needed to effectively work from home, and Farmer Mac’s technology platform and BCP have
been functioning as designed in support of all functions of the organization. Nonetheless, because the
technology in employees’ homes may not be as robust and resilient as in Farmer Mac’s offices and could
cause the networks, information systems, applications, and other tools available to employees to be more
limited or less reliable than Farmer Mac’s in-office technology, the continuation of these work-from-home
measures introduces more operational risk. These risks include but are not limited to greater cybersecurity
risk and disruption or failure of local technology networks, which could impair Farmer Mac's ability to
perform critical functions. The realization of any of these risks could have a material adverse effect on
Farmer Mac’s business, results of operations, or financial condition.
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The potential for operational risk exposure also exists as a result of Farmer Mac's interactions with, and
reliance on, third parties. Farmer Mac's business relies on its ability to process, evaluate, and interpret
significant amounts of information, much of which third parties provide. Yet Farmer Mac's ability to
implement safeguards preventing disruption to third-party systems or infrastructure is more limited than
for its own systems or infrastructure. If the financial, accounting, data processing, backup, information
technology, or other operating systems and infrastructure of third parties with whom Farmer Mac interacts
or upon whom it relies fail to operate properly or are disrupted, then Farmer Mac's operations and its
ability to conduct its business in the ordinary course may be adversely affected, which could have a
material adverse effect on Farmer Mac's business, results of operations, or financial condition.
Farmer Mac’s business depends, in part, on effective and reliable loan servicing, and Farmer Mac’s
internal loan servicing function and reliance on third-party servicers could expose Farmer Mac to
operational risks that could adversely affect its business, operating results, or financial condition.
Effective and reliable loan servicing is essential for Farmer Mac to successfully operate its business.
During third quarter 2021, Farmer Mac expanded its internal loan servicing function through a strategic
acquisition that included the loan servicing rights for a sizeable portion of Farmer Mac’s Agricultural
Finance mortgage loan and USDA Securities portfolios, as well as experienced servicing personnel and an
operational servicing platform. This strategic acquisition has required Farmer Mac to implement processes
and controls for a business function that Farmer Mac has previously not operated and has minimal
experience executing and managing. Farmer Mac also continues to rely on experienced third-party
servicers to service the portion of Farmer Mac’s Agricultural Finance mortgage loan portfolio not serviced
directly by Farmer Mac. Although Farmer Mac has established servicing standards and requirements to
which these third-party servicers are required by contract to adhere and on which they must report to
Farmer Mac, Farmer Mac does not manage the processes and controls of these third-party servicers. The
ineffective implementation, operation, or oversight of one or more of the servicing processes or controls
employed by Farmer Mac or any of its third-party servicers could expose Farmer Mac to operational risk
that could adversely affect Farmer Mac’s business, operating results, or financial condition.
Any deficiency, failure, interruption, or breach in Farmer Mac's or our service providers' technology
and information systems, infrastructure, or cybersecurity program, including the occurrence of
successful cyber-attacks, could result in a loss of business, damage to Farmer Mac's reputation, the
disclosure or misuse of confidential or proprietary information, or increased costs or liability to Farmer
Mac, which could adversely affect Farmer Mac's business, operating results, or financial condition.
Farmer Mac relies heavily on technology and information systems, including from third parties, for the
secure collection, processing, transmission, and storage of confidential, proprietary, and personal
information in our information systems (and those of third parties) to conduct and manage its business
operations. These technology and information systems encompass an integrated set of hardware, software,
infrastructure, and personnel organized to facilitate the planning, control, coordination, operations, and
decision-making processes within Farmer Mac. As the importance and complexity of Farmer Mac’s
technology and information systems has increased, and as new technologies are developed that are used by
our customers, Farmer Mac, or our service providers to support our business and operations, so too have
the risks posed to Farmer Mac’s information systems and data from cybersecurity attacks that threaten the
confidentiality, integrity, or availability of Farmer Mac’s information technology assets and resources and
its data. Like many other financial institutions, Farmer Mac and its service providers face regular attempts
to gain unauthorized access to, or disrupt, its information systems and access or acquire its data, including
42
from organized criminal groups, hackers, nation states, activists, insiders, and other unauthorized third
parties. These threats come from a variety of different sources, including cyber-attacks, computer viruses,
malware, exploits of system and network vulnerabilities, human error, phishing, ransomware, and
distributed denial of service attacks. The methods used to gain unauthorized access to or disrupt our
information systems and data, or those of our service providers, are evolving. We may not be able to
prevent or recognize them and may be unable to implement effective preventive measures or proactively
address these threats until after a cybersecurity event has been discovered. Moreover, any employees or
agents of Farmer Mac’s (or its third-party customers or vendors) who have authorized access to
confidential, proprietary, or personal information could also intentionally, inadvertently, or erroneously
disseminate the information to unauthorized third parties.
Although Farmer Mac has implemented what we believe is an appropriate information security program
with cybersecurity procedures, policies, practices, and controls, Farmer Mac may be unable to prevent
unauthorized access to its information technology assets or data, resulting in the unauthorized access to or
acquisition, destruction, alteration, release, theft, or loss of confidential, proprietary, or personal data of
Farmer Mac, our employees, our customers, or our third-party vendors, which could disrupt our operations
and ability to conduct business with customers, loan servicers, service providers, or other counterparties,
adversely affect Farmer Mac’s business, operating results, reputation, or financial condition, cause
financial loss or costs, cause loss of customers or vendors, and result in regulatory inquiries, enforcement
proceedings, or litigation. Also, the risk of unauthorized access to confidential, proprietary, or personal
information through information system breaches or inadvertent dissemination may be heightened in a
remote-working environment, which is currently more prevalent due to the COVID-19 pandemic.
Farmer Mac relies on third-party service providers to facilitate our business operations and our
cybersecurity program, including for the secure collection, processing, transmission, and storage of
confidential, proprietary, and personal information. The control systems, cybersecurity program,
infrastructure, and personnel associated with third parties with which we do business or obtain services are
beyond our control. Cybersecurity attacks or disruptions of software, hardware, or infrastructure of third
parties may adversely affect our business, systems, and controls.
Failure by Farmer Mac's third-party loan servicers, information systems providers, and other service
providers to protect confidential information from unauthorized access and dissemination could result
in liability for Farmer Mac or damage Farmer Mac's reputation, which could have a negative effect on
Farmer Mac's business, operating results, or financial condition.
Farmer Mac relies on third parties, including loan servicers, information systems providers, software-as-a-
service (SaaS) providers, cloud computing service providers, and other service providers, to perform
various functions that support Farmer Mac’s business and operations. Farmer Mac depends on these third
parties to collect, process, and store a variety of confidential, proprietary, or personal information,
including sensitive financial information. Just as Farmer Mac is subject to numerous cyber attacks from a
variety of actors, so too are these third parties. Although Farmer Mac requires third parties who collect,
process, or store confidential, proprietary, or personal data to adhere to security policies, processes, and
controls, if a third party is unable to prevent unauthorized access to its information technology assets or
data, it could result in the unauthorized access to or acquisition, destruction, alteration, release, theft, or
loss of confidential, proprietary, or personal data of Farmer Mac, our employees, or our customers, which
could disrupt our operations and ability to conduct business with customers, loan servicers, service
providers, or other counterparties, adversely affect Farmer Mac’s business, operating results, reputation, or
43
financial condition, cause financial loss or costs, cause loss of customers or vendors, or result in regulatory
inquiries, enforcement proceedings, or litigation.
If Farmer Mac's management of risk associated with its loan assets and investment securities based on
model assumptions and output is not effective, its business, operating results, financial condition, or
capital levels could be materially adversely affected.
Farmer Mac continually develops and adapts profitability and risk management models to adequately
address a wide range of possible market developments. Some of Farmer Mac's qualitative tools and
metrics for managing risk are based on its use of observed historical market behavior. Farmer Mac applies
statistical and other tools to these observations to quantify its risks. These tools and metrics may fail to
predict future or unanticipated risks or may not be effective in mitigating its risk exposure in all economic
market environments or against all types of risk, which could expose Farmer Mac to material
unanticipated losses. The inability of Farmer Mac to effectively identify and manage the risks inherent in
its business could have a material adverse effect on its business, operating results, financial condition, or
capital levels.
Farmer Mac's efforts to expand product offerings and services to its customers exposes Farmer Mac to
operational risk that could materially and adversely affect its business, operating results, or financial
condition.
As the needs of Farmer Mac's customer base and rural America evolve, Farmer Mac seeks to respond by
offering new products and services to meet these needs. As Farmer Mac expands its product offerings and
services, it is exposed to operational risk in implementing these new products and services. New products
and services may require new operational processes, which often require new internal controls to manage
new risks that these new processes present. If these controls are insufficient or ineffective to manage the
risks inherent in these new processes, or if there is human error in executing these new controls either due
to their novelty or otherwise, Farmer Mac could face financial loss, reputational damage, or regulatory
enforcement, which could materially and adversely affect Farmer Mac's business, operating results, or
financial condition.
Market Risk
Farmer Mac is exposed to interest rate risk that could materially and adversely affect its operating
results or financial condition.
Farmer Mac is subject to interest rate risk due to the timing differences in the cash flows of the assets it
holds and the liabilities issued to fund those assets. Farmer Mac's primary strategy for managing interest
rate risk is to fund asset purchases with debt together with financial derivatives that have similar duration
and convexity characteristics to help mitigate impacts from interest rate changes across the yield curve.
However, the ability of borrowers to prepay their loans before the scheduled maturities increases the
likelihood of asset and liability cash flow mismatches. In a changing interest rate environment, these cash
flow mismatches affect Farmer Mac's earnings if assets repay sooner than expected and the resulting cash
flows must be reinvested in lower-yielding investments, particularly if Farmer Mac's related funding costs
cannot be correspondingly repaid. Conversely, if assets repay more slowly than anticipated and the
associated debt issued to fund the assets must be reissued at a higher interest rate, Farmer Mac's earnings
could be adversely affected.
44
Volatility in market conditions during 2020 stemming from the effects of the COVID-19 pandemic
prompted the Federal Reserve to significantly lower the target range for the federal funds rate, resulting in
a low interest rate environment during 2020 and 2021. The Federal Reserve has signaled that it intends to
increase the target range for the federal funds rate and is tapering its purchases of U.S. Treasury and GSE
mortgage-backed securities. The resulting potential for higher interest rates may create periods of market
volatility that could adversely affect Farmer Mac's ability to manage interest rate risk, which could have a
material adverse effect on Farmer Mac's operating results or financial condition.
Farmer Mac is also subject to repricing risk, which is the risk that Farmer Mac's funding cost relative to a
benchmark index (for example, the London Interbank Offered Rate known as "LIBOR" or the Secured
Overnight Financing Rate known as "SOFR") will increase from the time the initial funding was issued
and the time the liabilities are re-funded. This repricing risk arises from a funding strategy whereby
Farmer Mac issues floating rate debt across a variety of maturities to fund floating or synthetically floating
rate assets that on average may have longer maturities. A significant increase in the difference between
Farmer Mac's funding cost relative to the benchmark index, including LIBOR and SOFR, could compress
spread income on the assets Farmer Mac holds and seeks to re-fund with the higher cost funding.
Widespread compression within a short timeframe could adversely affect Farmer Mac's operating results
or financial condition.
Changes in interest rates relative to Farmer Mac's management of interest rate risk through derivatives
may cause volatility in financial results and capital levels and may adversely affect Farmer Mac's net
income, liquidity position, or operating results.
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.
Although Farmer Mac's financial derivatives provide economic hedges of interest rate risk, changes in the
fair values of financial derivatives can cause volatility in net income and in capital, particularly if those
financial derivatives are not designated in hedge accounting relationships or if there is any ineffectiveness
in a hedge accounting relationship. As interest rates increase or decrease, the fair values of Farmer Mac's
derivatives change based on the position Farmer Mac holds relative to the specific characteristics of the
derivative. Farmer Mac's core capital available to meet its statutory minimum capital requirement can be
affected by changes in the fair values of financial derivatives, as noted above. Adverse changes in the fair
values of Farmer Mac's financial derivatives that are not designated in hedge accounting relationships and
any hedge ineffectiveness that results in a loss would reduce the amount of core capital available to meet
this requirement. In 2021 and 2020, Farmer Mac recorded a loss of $5.1 million and a loss of $3.7
million, respectively, from changes in the fair values of its financial derivatives as a result of movements
in interest rates during those years. In addition, Farmer Mac recorded losses of $1.5 million and $9.2
million in 2021 and 2020, respectively, related to ineffectiveness in hedge accounting relationships.
Changes in interest rates have required, and in the future may require, Farmer Mac to post cash or
investment securities to collateralize its derivative exposures due to corresponding changes in the fair
market values of these derivatives. If changes in interest rates were to result in a significant decrease in
the fair value of Farmer Mac's derivatives, Farmer Mac would be required to post cash, cash equivalents,
or investment securities, possibly within a short period of time, to satisfy its obligations under its
derivatives contracts. As of December 31, 2021, Farmer Mac posted $16.6 million of cash and $177.9
million of investment securities as collateral for its derivatives in net liability positions. If Farmer Mac is
required to fully collateralize a significant portion of its derivatives in an adverse interest rate
45
environment, it could have a material adverse effect on Farmer Mac's liquidity position or operating
results.
Discontinuation of the LIBOR benchmark interest rate could adversely affect Farmer Mac's business,
operating results, or financial condition.
In July 2017, the United Kingdom's Financial Conduct Authority ("UKFCA"), which regulates U.S.
Dollar LIBOR ("LIBOR"), announced that it would no longer persuade or compel banks to submit rates
for the calculation of LIBOR after 2021 and would support the LIBOR indexes through 2021 to allow for
a transition to any alternative reference rates. In November 2020, the UKFCA and the ICE Benchmark
Administration, which administers LIBOR, announced that most tenors of LIBOR would continue to be
published through June 2023. These announcements indicate that the continuation of LIBOR in its current
form will be discontinued after June 2023. Farmer Mac continues to evaluate the potential effect on its
business of the replacement of the LIBOR benchmark interest rate, including using replacement
benchmark interest rates such as SOFR. As of December 31, 2021, Farmer Mac held $3.6 billion of
floating rate assets in its lines of business and its investment portfolio, had issued $1.1 billion of floating
rate debt, and had entered into $13.7 billion notional amount of interest rate swaps, each of which resets
based on LIBOR. In addition, Farmer Mac's Series C Preferred Stock will be indexed to LIBOR after July
17, 2024. The market transition away from LIBOR and towards an alternative benchmark interest rate
that may be developed is expected to be complicated and may require the development of term and credit
adjustments to accommodate for differences between the benchmark interest rates. The introduction of an
alternative reference rate may also introduce additional re-funding and repricing risk for Farmer Mac if an
alternative benchmark interest rate index is used along with LIBOR during a transition period. If an
alternative benchmark interest rate does not become widely used or accepted in place of LIBOR, then
there may be uncertainty or differences in the calculation of the applicable interest rate or payment
amounts depending on the terms of the governing instruments for Farmer Mac's assets and liabilities. This
could result in different financial performance for previously booked transactions, require different
hedging strategies, or require renegotiation of previously booked transactions, and may affect Farmer
Mac's existing transaction data, products, systems, operations and pricing processes, which could
adversely affect Farmer Mac's business, operating results, or financial condition.
Financial Risk
Incorrect estimates and assumptions by management in preparing financial statements could adversely
affect Farmer Mac's business, operating results, reported assets and liabilities, financial condition,
reputation, or capital levels.
Farmer Mac's accounting policies and methods are fundamental to how it records and reports its financial
condition and results of operations. Some of these policies and methods require management to make
estimates and assumptions in preparing Farmer Mac's consolidated financial statements. Incorrect
estimates and assumptions by management in connection with preparing Farmer Mac's consolidated
financial statements could adversely affect the reported amounts of assets and liabilities and the reported
amounts of income and expenses. For example, as of December 31, 2021, Farmer Mac's assets and
liabilities recorded at fair value included financial instruments valued at $6.4 billion whose fair values
management estimated in the absence of readily observable fair values (in other words, level 3). These
financial instruments measured with significant unobservable inputs represented 25.3% of total assets and
62.2% of financial instruments measured at fair value as of December 31, 2021. See "Management's
Discussion and Analysis—Critical Accounting Estimates—Fair Value Measurement" for more
46
information about fair value measurement. If management makes incorrect assumptions or estimates that
result in understating or overstating reported financial results, it could materially and adversely affect
Farmer Mac's business, operating results, reported assets and liabilities, financial condition, reputation, or
capital levels.
Changes in accounting standards or in applying accounting policies could adversely affect Farmer
Mac's business, operating results, financial condition, or capital levels.
Farmer Mac is subject to the requirements of entities that set and interpret the accounting standards
governing the preparation of Farmer Mac's consolidated financial statements. These entities, which
include the Financial Accounting Standards Board ("FASB"), the SEC, and Farmer Mac's independent
registered public accounting firm, may add new accounting standards or change their interpretations of
how those standards should be applied. These changes may be difficult to predict and could affect how
Farmer Mac records and reports its financial condition and results of operations. In some cases, Farmer
Mac could be required to apply a new or revised standard retrospectively, potentially resulting in changes
to previously reported financial results. For example, the FASB issued a new accounting standard in
2016, which was effective for Farmer Mac on January 1, 2020, that required entities to measure credit
losses based on an "expected credit loss" approach rather than an "incurred loss" approach previously
required under GAAP. The new approach requires entities to measure all expected credit losses for
financial assets carried at amortized cost and debt securities classified as available-for-sale, based on
historical experience, current conditions, and reasonable forecasts of collectability. This new accounting
standard could cause increases and more volatility in Farmer Mac's provision for credit losses and could
adversely affect Farmer Mac's business, operating results, financial condition, or capital levels. See Note
2(r) to the consolidated financial statements for more information about this new accounting standard.
Changes in the value or composition of Farmer Mac's investment securities could adversely affect
Farmer Mac's business, operating results, financial condition, liquidity or capital levels.
Deterioration in financial or credit market conditions could reduce the fair value of Farmer Mac's
investment securities, particularly those securities that are less liquid and more subject to market
variability. Some securities owned by Farmer Mac, including auction-rate certificates, do not have well-
established secondary trading markets, making it more difficult to estimate current fair values for those
securities. This requires Farmer Mac to rely on market observations and internal models to estimate the
fair values of its investment securities and to determine whether credit losses exist. However, available
market data may not reflect the actual sale conditions Farmer Mac may face when selling its investment
securities, particularly in adverse financial market conditions. Internal models require Farmer Mac to
exercise judgment about estimates and assumptions used in the models. If Farmer Mac uses unreliable
market data or incorrect estimates or assumptions in its internal models to estimate the fair value of its
investment securities, those estimates could adversely affect results of operations during the reporting
period. And if Farmer Mac decides to sell securities in its investment portfolio, the price ultimately
realized will depend on the demand and liquidity in the market at the time of sale, which could be
significantly less than Farmer Mac's estimates for fair value. Failure to accurately estimate the fair value
of Farmer Mac's investment securities could adversely affect Farmer Mac's business, operating results,
financial condition, liquidity or capital levels.
47
The trading price for Farmer Mac's Class C non-voting common stock may be volatile due to market
influences, trading volume, the effects of equity awards for Farmer Mac's officers, directors, and
employees, or sales of significant amounts of the stock by large holders.
The trading price of Farmer Mac's Class C non-voting common stock ("Class C stock") has at times
experienced substantial price volatility and may remain volatile. For example, the closing price of the
Class C stock ranged from $74.76 per share to $136.81 per share during 2021. The trading price may
fluctuate in response to various factors, including short sales, hedging, the presence or absence of a share
repurchase program, stock market influences in general that are unrelated to Farmer Mac's operating
performance (including COVID-19), or sales of significant amounts of the stock by large holders. Farmer
Mac typically grants equity awards each year that are based on the Class C stock, including grants that
vest over time or upon the achievement of specified performance goals. Sales of stock acquired upon
vesting or the exercise of equity awards by Farmer Mac's officers, directors, or employees, whether under
an established trading plan or otherwise, could adversely affect the trading price of the Class C stock. All
of these factors may be exacerbated during periods of low trading volume for Farmer Mac's Class C stock,
which averaged 39,800 shares daily during 2021, and may have a prolonged negative effect on its trading
price or increase price volatility.
Regulatory and Compliance Risk
Farmer Mac and many of its business counterparties are subject to comprehensive government
regulation, and changes to applicable laws and regulations could adversely affect Farmer Mac's
business, operating results, reputation, or financial condition.
Farmer Mac was established under a statutory charter that the U.S. Congress may amend at any time and
is regulated by various government agencies, including the FCA and the SEC. Farmer Mac is therefore
exposed to the risk of legal or regulatory penalties; material financial loss including fines, judgments,
damages, or settlements; or loss of reputation if it violates applicable laws, regulations, rules, regulatory
requests, self-regulatory organization standards, or codes of conduct applicable to its business activities.
Future legislative or regulatory actions affecting Farmer Mac's statutory charter or its business activities,
including increased regulatory supervision, and any required changes to Farmer Mac's business or
operations resulting from such actions, could result in a financial loss for Farmer Mac or otherwise reduce
its profitability, impose more compliance and other costs on Farmer Mac, limit the products offered by
Farmer Mac or its ability to pursue business opportunities in which it might otherwise consider engaging,
curtail business activities in which it is currently engaged, affect the value of assets that Farmer Mac
holds, or otherwise adversely affect Farmer Mac's business, results of operations, reputation, or financial
condition.
The financial services industry, in which most of Farmer Mac's business counterparties and customers
operate, is subject to significant legislation and regulations. To the extent that current or future legislation,
regulations, or supervisory activities affect the activities of banks, insurance companies, other rural
lenders, derivatives counterparties, clearinghouses, securities dealers, or other regulated entities that
constitute a large portion of Farmer Mac's business counterparties or customers, Farmer Mac could
experience loss of business or business opportunities, increased compliance costs, disadvantageous
business terms in its dealings with counterparties, and unfavorable changes to its business practices or
activities. As a result, Farmer Mac's business, operating results, reputation, or financial condition could be
adversely affected.
48
Farmer Mac's capital requirements may change, and failure to meet those requirements could result in
supervisory measures or the inability of Farmer Mac to declare dividends, or otherwise materially and
adversely affect Farmer Mac's business, operating results, or financial condition.
Farmer Mac is required by statute and regulation to maintain certain capital levels. Any inability by
Farmer Mac to meet these capital requirements could result in supervisory measures by FCA, adversely
affect Farmer Mac's ability to declare dividends on its common and preferred stock, or otherwise
materially and adversely affect Farmer Mac's business, operating results, or financial condition. As
required by an FCA regulation on capital planning, Farmer Mac has adopted a policy to maintain a
sufficient level of Tier 1 capital and to restrict paying Tier 1-eligible dividends if Tier 1 capital falls below
specified thresholds. For more information about Farmer Mac's capital requirements, including the Tier 1
capital requirement, see "Business—Government Regulation of Farmer Mac—Regulation—Capital
Standards." Factors that could adversely affect the adequacy of Farmer Mac's capital levels in the future,
and which may be beyond Farmer Mac's control, include:
•
•
•
•
•
credit losses;
adverse changes in interest rates or credit spreads;
the need to increase the level of the allowance for losses on loans;
legislative or regulatory actions that increase Farmer Mac's capital requirements; and
changes in GAAP.
Political Risk
Farmer Mac is a GSE that may be materially and adversely affected by legislative or political
developments.
Farmer Mac is a GSE with a statutory charter that may be amended by Congress at any time, and is also
regulated by government agencies, including the FCA and the SEC. Although Farmer Mac is not aware of
any pending legislative or regulatory proposals that would materially impact its business or operations,
Farmer Mac's ability to effectively conduct its business is subject to risks and uncertainties related to
political developments that could affect Farmer Mac or GSEs generally. These political risks and
uncertainties may be heightened under a new Congress or Presidential administration. Farmer Mac cannot
predict whether or when legislative or regulatory initiatives may commence that, if successful, could
negatively affect the status of Farmer Mac as a GSE or how Farmer Mac operates, and which could have a
material and adverse effect on Farmer Mac's business, operating results, financial condition, or capital
levels. See "Business—Government Regulation of Farmer Mac" for more information about the rules and
regulations governing Farmer Mac's activities.
Human Capital Risk
Farmer Mac's ability to attract and retain motivated and qualified employees is critical to the success of
its business, and significant or sustained disruption in the continuity of Farmer Mac's employees or
executive leaders may materially adversely affect Farmer Mac's business performance, operations,
financial condition, or reputation.
Farmer Mac relies on its employees' breadth and depth of knowledge of Farmer Mac and related industries
to run its business operations successfully. If Farmer Mac cannot continue to retain and attract motivated
and qualified employees or does not have adequate human capital to achieve its business objectives,
49
Farmer Mac's business performance, operations, financial condition, or reputation could be materially
adversely affected. A significant disruption in the continuity of Farmer Mac's employees or any
significant executive leadership change could also result in a loss of productivity and affect Farmer Mac's
ability to successfully execute business strategies by creating uncertainty or instability or requiring Farmer
Mac to divert or expend more resources to replace personnel. For example, after the termination of
employment of Farmer Mac's former Chief Financial Officer in July 2019 and resignation of Farmer Mac's
former Chief Credit Officer in February 2020, Farmer Mac expended significant resources and attention to
identify their successors. Loss of key leadership personnel could also damage the public or market
perception of Farmer Mac or result in the departure of other executives or key employees. Any of these
factors could materially adversely affect Farmer Mac's business performance, operations, financial
condition, or reputation.
Any of the risks described in this section could materially and adversely affect Farmer Mac's business,
operating results, financial condition, reputation, capital levels, and future earnings. For more information
about Farmer Mac's risk management, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations—Risk Management" in Item 7 of this Annual Report on Form 10-K.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Farmer Mac maintains its principal office at 1999 K Street, N.W., 4th Floor, Washington, D.C. 20006,
under a sublease that began on October 1, 2011 and ends on August 30, 2024. Farmer Mac also maintains
two other office locations: (1) 9169 Northpark Drive, Johnston, Iowa 50322, under a lease that began on
October 1, 2017 and ends on June 30, 2023; and (2) 9249 Northpark Drive, Johnston, IA 50322, under a
lease that began on August 1, 2021 and ends on June 30, 2023. Farmer Mac believes that its offices are
suitable and adequate for its current and anticipated needs for the near future. Farmer Mac's activities at
each property encompass its Agricultural Finance line of business. Farmer Mac's activities at its
Washington, D.C. office encompass all of its segments.
Item 3.
Legal Proceedings
None.
Item 4.
Mine Safety Disclosures
Not applicable.
50
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer
Purchases for Equity Securities
(a)
Farmer Mac has three classes of common stock outstanding – Class A voting common stock,
Class B voting common stock, and Class C non-voting common stock. Ownership of Class A voting
common stock is restricted to banks, insurance companies, and other financial institutions or similar
entities that are not institutions of the FCS. Ownership of Class B voting common stock is restricted to
institutions of the FCS. There are no ownership restrictions on the Class C non-voting common stock. In
the original public offering of the Class A and Class B voting common stock, Farmer Mac reserved the
right to redeem at book value any shares of either class held by an ineligible holder.
Farmer Mac's Class A voting common stock and Class C non-voting common stock are listed on the New
York Stock Exchange under the symbols AGM.A and AGM, respectively. The Class B voting common
stock, which has a limited market and trades infrequently, is not listed or quoted on any exchange or other
quotation system, and Farmer Mac is not aware of any publicly available quotations or prices for that class
of common stock.
As of February 7, 2022, Farmer Mac had 873 registered owners of the Class A voting common stock,
75 registered owners of the Class B voting common stock, and 823 registered owners of the Class C non-
voting common stock.
The dividend rights of all three classes of Farmer Mac's common stock are the same, and dividends may
be paid on common stock only when, as, and if declared by Farmer Mac's board of directors in its sole
discretion, subject to compliance with applicable capital requirements and payment of dividends on any
outstanding preferred stock. On February 24, 2020, Farmer Mac's board of directors declared a dividend
of $0.80 per share on Farmer Mac's common stock payable for first quarter 2020. That dividend was paid
quarterly through fourth quarter 2020. On February 23, 2021, Farmer Mac's board of directors declared a
dividend of $0.88 per share on Farmer Mac's common stock payable for first quarter 2021. That dividend
was paid quarterly through fourth quarter 2021. On February 24, 2022, Farmer Mac's board of directors
declared a dividend of $0.95 per share on Farmer Mac's common stock payable for first quarter 2022. See
"Business—Financing—Equity Issuance" for more information on Farmer Mac's common stock.
The quarterly dividend of $0.95 per share on all three classes of common stock for first quarter 2022
represents an increase of $0.07 per common share, or 8%, over the quarterly dividend payout in 2021 and
reflects the board's goal to maintain Farmer Mac's common stock dividend payout target as a percentage
of annual core earnings at 35%. In deciding to maintain Farmer Mac's common stock dividend payout
target, the board of directors considered Farmer Mac's strong capital position and the consistency of and
outlook for earnings, balanced against the need for capital to fund the significant growth objectives
identified in the company's strategic plan and to meet regulatory requirements and metrics established by
the board of directors. These actions are also consistent with Farmer Mac's goal of providing a competitive
return on its common stockholders' investments through the payment of cash dividends.
The declaration and payment of future dividends to holders of Farmer Mac's common stock are, however,
at the discretion of Farmer Mac's board of directors and depend on many factors, including Farmer Mac's
financial condition, actual results of operations and earnings, the capital needs of Farmer Mac's business,
regulatory requirements, and other factors that Farmer Mac's board deems relevant. Farmer Mac's ability
to pay dividends on its common stock is also subject to the payment of dividends on its outstanding
51
preferred stock. Applicable FCA regulations also require Farmer Mac to provide FCA with 15 days'
advance notice of certain capital distributions. Farmer Mac's ability to declare and pay dividends could be
restricted if it were to fail to comply with applicable capital requirements. See Note 9 to the consolidated
financial statements for more information about Farmer Mac's capital position and see "Business—
Government Regulation of Farmer Mac—Regulation—Capital Standards" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—
Capital Requirements" for more information on the capital requirements applicable to Farmer Mac.
Information about securities authorized for issuance under Farmer Mac's equity compensation plans
appears under "Equity Compensation Plans" in Farmer Mac's definitive proxy statement to be filed on or
about April 14, 2022. That portion of the definitive proxy statement is incorporated by reference into this
Annual Report on Form 10-K.
Farmer Mac is a federally chartered instrumentality of the United States, and its common stock is exempt
from registration under Section 3(a)(2) of the Securities Act. One type of transaction related to Farmer
Mac's common stock occurred during fourth quarter 2021 that was not registered under the Securities Act
and not otherwise reported on a Current Report on Form 8-K:
•
In October 2021, consistent with Farmer Mac's policy that permits directors of Farmer Mac to elect
to receive shares of Class C non-voting common stock in lieu of their cash retainers, Farmer Mac
issued an aggregate of 427 shares of Class C non-voting common stock to the five directors who
elected to receive such stock in lieu of a portion of their cash retainers. The number of shares
issued to the directors was calculated based on a price of $108.52 per share, which was the closing
price of the Class C non-voting common stock on September 30, 2021, the last business day of the
third quarter, as reported by the New York Stock Exchange.
Performance Graph. The following graph compares the performance of Farmer Mac's Class A voting
common stock and Class C non-voting common stock with the performance of the New York Stock
Exchange Composite Index ("NYSE Comp") and the Standard & Poor's 500 Diversified Financials Index
("S&P 500 Div Fin") over the period from December 31, 2016 to December 31, 2021. The graph assumes
that $100 was invested on December 31, 2016 in each of: Farmer Mac's Class A voting common stock;
Farmer Mac's Class C non-voting common stock; the NYSE Composite Index; and the S&P 500
Diversified Financials Index. The graph also assumes that all dividends were reinvested into the same
securities throughout the past five years. Farmer Mac obtained the information in the performance graph
from S&P Global Market Intelligence.
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This performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC, and
this performance graph shall not be incorporated by reference into any of Farmer Mac's filings under the
Securities Act or the Securities Exchange Act of 1934 and related regulations, or any other document,
whether made before or after the date of this report and despite any general incorporation language
contained in a filing or document (except to the extent Farmer Mac specifically incorporates this section
by reference into a filing or document).
(b)
(c)
Not applicable.
None.
Item 6.
[Reserved].
53
Index ValueTotal Return PerformanceFarmer Mac Class C (AGM)Farmer Mac Class A (AGM.A)S&P 500 Div FinNYSE Comp12/31/1612/31/1712/31/1812/31/1912/31/2012/31/2175100125150175200225250275
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The objective of this section of the report is to provide a discussion and analysis, from management’s
perspective, of the material information necessary to assess Farmer Mac's financial condition and results
of operations for the year ended December 31, 2021, including an evaluation of the amounts and certainty
of cash flows from operations and from outside sources. Financial information included in this report is
consolidated to include the accounts of Farmer Mac and its two subsidiaries – Farmer Mac Mortgage
Securities Corporation and Farmer Mac II LLC. This discussion and analysis of financial condition and
results of operations should be read together with Farmer Mac's consolidated financial statements and the
related notes to the consolidated financial statements for the fiscal years ended December 31, 2021, 2020,
and 2019.
Overview
Farmer Mac is a mission-focused, purpose-driven company determined to improve the economic
opportunity in rural America by increasing the availability and affordability of credit. As the nation’s
secondary market for agricultural and rural infrastructure loans, we provide a broad array of financial
solutions to lenders that support flexible low-cost financing to farmers, ranchers, agribusinesses,
renewable energy projects, rural utilities, and other institutions. Farmer Mac also serves as a critical
investment tool for states, counties, municipalities, pension funds, banks, public trust funds, and credit
unions by providing diversification in their investment portfolios, issuance structure flexibility, and the
opportunity to earn a competitive return on their investment dollars.
During 2021:
• we provided $8.6 billion in liquidity and lending capacity to lenders serving rural America;
• we closed on a newly-designed structured securitization transaction involving approximately
$300 million of agricultural mortgage loans;
• we closed on a strategic acquisition that enhanced our operations by expanding our internal loan
servicing function and acquiring the loan servicing rights for a sizeable portion of our Farm &
Ranch loan and USDA Guaranteed Securities portfolios;
• we added 32 net new employees to our workforce (a 26% increase compared to year-end 2020) to
enable continued growth of our business and to fulfill our mission to rural America;
• we maintained uninterrupted access to the debt capital markets and a strong capital position; and
• we maintained strong liquidity in our investment portfolio well above regulatory requirements.
Farmer Mac’s performance during 2021, described in more detail below, reflects the success of our
continued focus on pursuing new channels and innovative ways to further our mission to help build a
strong and vital rural America. The discussion below of Farmer Mac's financial information includes
"non-GAAP measures," which are measures of financial performance not presented in accordance with
generally accepted accounting principles in the United States ("GAAP"). For more information about the
non-GAAP measures Farmer Mac uses, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations—Use of Non-GAAP Measures."
54
Net Income and Core Earnings
The following table shows our net income attributable to common stockholders and core earnings for the
periods presented. Core earnings and core earnings per share are non-GAAP measures that differ from net
income attributable to common stockholders and earnings per common share, respectively, by excluding
the effects of fair value fluctuations and specified infrequent or unusual transactions.
Table 1
For the Years Ended December 31,
2021
2020
2019
(in thousands)
Net income attributable to common stockholders
$
107,583 $
89,176 $
Core earnings
113,570
100,612
93,650
93,742
The $18.4 million year-over-year increase in net income attributable to common stockholders was due to a
$23.8 million after-tax increase in net interest income, a net change in our (release)/provision for credit
losses of $8.1 million after tax, and a $5.2 million after-tax gain on sale of mortgage loans. These factors
were partially offset by a $9.5 million after-tax increase in operating expenses, a $6.9 million increase in
preferred stock dividends, and a $2.5 million after-tax decrease in the fair value of undesignated financial
derivatives.
The $4.5 million decrease in net income attributable to common stockholders for 2020 compared to 2019
was primarily due to a $7.5 million after-tax increase in operating expenses, a $4.4 million after-tax
decrease in the fair value of undesignated financial derivatives due to fluctuations in long-term interest
rates, a $3.9 million increase in preferred stock dividends, and a $3.6 million after-tax increase in the total
provision for credit losses. These decreases were partially offset by a $13.8 million after-tax increase in
net interest income and a $1.3 million after-tax increase in other income.
The $13.0 million year-over-year increase in core earnings was due to a $18.7 million after-tax increase in
net effective spread, a net change in our (release)/provision for credit losses of $8.1 million after tax, and a
$5.2 million after-tax gain on sale of mortgage loans. These factors were partially offset by a $9.5 million
after-tax increase in operating expenses, a $6.9 million increase in preferred stock dividends, a $1.3
million after-tax decrease in guarantee fees, and a $0.8 million after-tax decrease in other income.
The $6.9 million increase in core earnings for 2020 compared to 2019 was primarily due to a $22.4
million after-tax increase in net effective spread. This increase was partially offset by a $7.5 million after-
tax increase in operating expenses, a $3.9 million increase in preferred stock dividends, and a $3.6 million
after-tax increase in the total provision for credit losses.
For more information about net income attributable to common stockholders, the composition of core
earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations." For more information about the non-GAAP measures Farmer Mac uses, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP
Measures."
55
Net Interest Income and Net Effective Spread
The following table shows our net interest income and net effective spread in both dollars and percentage
yield or spread for the periods presented. Farmer Mac uses net effective spread, a non-GAAP measure, as
an alternative to net interest income because management believes it is a useful metric that reflects the
economics of the net spread between all the assets owned by Farmer Mac and all related funding,
including any associated derivatives, some of which may not be included in net interest income.
Table 2
Net interest income
Net interest yield %
Net effective spread
Net effective spread %
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$
$
220,775
$
190,588
$
173,135
0.94 %
0.85 %
0.87 %
220,668
$
196,956
$
168,608
0.98 %
0.93 %
0.91 %
The $30.2 million year-over-year increase in net interest income was primarily due to a $16.7 million
increase related to net new business volume, a $6.9 million decrease in funding costs, and a $7.7 million
increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated
financial derivatives). In percentage terms, the year-over-year 0.09% increase was primarily attributable to
an increase of 0.04% in net new business volume, an increase of 0.03% in net fair value changes from
designated financial derivatives, and a decrease of 0.01% in funding costs.
The $17.5 million increase in net interest income for 2020 compared to 2019 was primarily due to a
$23.2 million increase related to net new business volume. This was partially offset by a $4.1 million
increase in funding and liquidity costs and a $1.3 million decrease in the fair value of derivatives
designated in fair value hedge accounting relationships (designated financial derivatives). In percentage
terms, the decrease of 0.02% in net interest income yield was primarily attributable to an increase of
0.05% in funding and liquidity costs and 0.01% in net fair value changes from designated financial
derivatives, partially offset by an increase of 0.04% related to net new business volume.
The $23.7 million year-over-year increase in net effective spread in dollars was primarily due to an
increase of $16.7 million from net new business volume and a $6.3 million decrease in non-GAAP
funding costs. In percentage terms, the year-over-year increase of 0.05% was primarily attributable to an
increase of 0.04% in net new business volume and a decrease of 0.01% in funding costs.
The $28.3 million increase in net effective spread in dollars for 2020 compared to 2019 was primarily due
to net new business volume, which increased net effective spread by approximately $23.2 million, and a
$4.6 million decrease in non-GAAP funding costs. In percentage terms, the increase of 0.02% was
primarily attributable to net new business volume.
For more information about Farmer Mac's use of net effective spread as a financial measure, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-
GAAP Measures." For a reconciliation of net interest income to net effective spread, see Table 11 in
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Net Interest Income."
56
Business Volume
Our outstanding business volume was $23.6 billion as of December 31, 2021, a net increase of $1.7 billion
from December 31, 2020 after taking into account all new business, maturities, sales, and paydowns on
existing assets. The net increase was primarily attributable to net increases of $1.1 billion in the
Agricultural Finance line of business and $0.6 billion in the Rural Infrastructure Finance line of business.
For more information about Farmer Mac's business volume, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations—Results of Operations—Business Volume."
Capital
Table 3
Core capital
Capital in excess of minimum capital level required
As of
December 31, 2021 December 31, 2020
(in thousands)
$
1,200,560 $
1,006,400
486,810
325,455
The increase in capital in excess of the minimum capital level required was primarily due to the issuance
of the Series G Preferred Stock in May 2021 and an increase in retained earnings.
Credit Quality
The following table presents Agricultural Finance on-balance sheet loan purchase and off-balance sheet
LTSPCs and Farmer Mac Guaranteed Securities substandard assets, in dollars and as a percentage of the
respective portfolio as of December 31, 2021 and December 31, 2020:
Table 4
On-Balance Sheet
Off-Balance Sheet
Substandard Assets
% of Portfolio
Substandard Assets
% of Portfolio
December 31, 2021
December 31, 2020
Increase/(decrease) from prior year-ending
$
$
185,758
180,823
4,935
(dollars in thousands)
2.7 % $
2.9 %
60,922
110,671
(0.2) % $
(49,749)
2.1 %
4.6 %
(2.5) %
The increase of $4.9 million in on-balance sheet substandard assets during 2021 was primarily driven by
credit downgrades during the year in permanent plantings, partially offset by credit upgrades in livestock
and crops as well as the payoff of one substandard storage and processing loan. The on-balance sheet
Agricultural Finance mortgage loan portfolio grew by $670.6 million, which, when coupled with credit
upgrades, caused the percentage of substandard assets to decrease. The $49.7 million decrease in
substandard assets in our off-balance sheet LTSPC and Farmer Mac Guaranteed Securities portfolios
during 2021 was primarily due to credit upgrades across the portfolios during the year, particularly crops
and livestock.
There was one substandard asset in the Rural Infrastructure Finance loan purchase portfolio (a Rural
Utilities loan) as of December 31, 2021 and none as of December 31, 2020.
57
For an analysis of current loan-to-value ratios across substandard and other internally assigned risk
ratings, see Table 26 in "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Risk Management—Credit Risk—Loans and Guarantees."
The following table presents 90-day delinquencies for on-balance sheet Agricultural Finance mortgage
loan purchases and off-balance sheet LTSPCs and Farmer Mac Guaranteed Securities, in dollars and as a
percentage of the respective balance sheet category as of December 31, 2021 and December 31, 2020:
Table 5
December 31, 2021
December 31, 2020
Increase/(decrease) from prior year-ending
On-Balance Sheet
Off-Balance Sheet
90-Day
Delinquencies
% of Portfolio
90-Day
Delinquencies
% of Portfolio
$
$
43,710
34,799
8,911
(dollars in thousands)
0.64 % $
0.56 %
3,597
11,433
0.12 %
0.48 %
0.08 % $
(7,836)
(0.36) %
On-balance sheet Farm & Ranch loans 90 or more days delinquent increased in all commodity groups,
except storage and processing where one loan paid off. Off-balance sheet Farm & Ranch loans 90 days or
more delinquent decreased in crops and part-time farms and was partially offset by increases in permanent
plantings and livestock. The top ten borrower exposures over 90 days delinquent in either the on- or off-
balance sheet Agricultural Finance portfolio represented over half of the aggregate 90-day delinquencies
as of December 31, 2021.
As of both December 31, 2021 and 2020, there were no 90-day delinquencies in Farmer Mac's portfolio of
Rural Infrastructure Finance loan purchases and loans underlying LTSPCs.
For more information about Farmer Mac's credit metrics, including 90-day delinquencies, the total
allowance for losses, and substandard assets, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations—Risk Management—Credit Risk—Loans and Guarantees."
COVID-19 Update
Farmer Mac has operated successfully throughout the COVID-19 pandemic with most employees still
working remotely. Farmer Mac has maintained uninterrupted access to the debt capital markets during that
time and remains a source of capital and liquidity to rural borrowers facing economic or market volatility
stemming from the ongoing pandemic. For more information on the effects of the COVID-19 pandemic on
Farmer Mac's business, see "Business—Human Capital" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Outlook."
Critical Accounting Estimates
The preparation of Farmer Mac's consolidated financial statements in conformity with GAAP requires the
use of estimates and assumptions that affect the amounts reported in the consolidated financial statements
and related notes for the periods presented. Farmer Mac considers an accounting estimate made in
accordance with GAAP to be critical when it involves a significant level of estimation uncertainty and it
has had or is likely to have a material impact on our financial condition or results of operations.
58
The accounting estimate that Farmer Mac considers to be critical in the preparation of its consolidated
financial statements is the estimation of the fair value of AgVantage Securities that are classified as
available for sale (AgVantage AFS). Farmer Mac considers the fair value of AgVantage AFS to be a
critical estimate due to the significance of the periodic measurement of mark-to-market adjustments
relative to the company's total assets, comprehensive income, and equity. Farmer Mac also considers the
fair value of AgVantage AFS to be a critical accounting estimate because Farmer Mac applies a discount
rate in calculating the net present value of future expected cash flows that is both significant to the
estimate of their fair value and unobservable in the market. Farmer Mac relies upon this significant
unobservable input to estimate the fair value of AgVantage AFS because there are no observable
transactions in these securities in the market.
The fair value of AgVantage AFS had accumulated unrealized gains in the amount of $212.9 million and
$368.3 million as of December 31, 2021 and 2020, respectively. See Note 5 to the consolidated financial
statements – Farmer Mac Guaranteed Securities and USDA Securities for more information.
Farmer Mac applies discount rates that are commensurate with the risks involved to estimate the fair value
measurement of AgVantage AFS. As of December 31, 2021, Farmer Mac applied discount rates that
ranged from 0.9% to 2.1% (with a weighted average of 1.7%), As of December 31 2020, Farmer Mac
applied discount rates that ranged from 0.8% to 2.3% (with a weighted average of 1.3%).
Use of different discount rates than those selected by Farmer Mac may result in materially different
estimates of fair value for AgVantage AFS. Farmer Mac selects the discount rate for each AgVantage AFS
security by analyzing credit default swap levels and the long-term credit outlook of Farmer Mac's major
counterparties and estimating an appropriate credit spread relative to U.S. Treasury yields. The periodic
measurement of fair value and underlying discount rate methodology is subject to Farmer Mac’s internal
controls and review by management. As of December 31, 2021, a 0.50% increase in the discount rates
used to determine the fair value of AgVantage AFS would decrease the overall GAAP carrying value by
approximately 2.5%. See Note 13 to the consolidated financial statements – Fair Value Disclosures for
more information.
For a description of Farmer Mac’s accounting policy for fair value measurements, see Note 2(n) to the
consolidated financial statements – Significant Accounting Policies, Fair Value Measurements.
Use of Non-GAAP Measures
In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which
are measures of financial performance that are not presented in accordance with GAAP. Specifically,
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.
59
Core Earnings and Core Earnings Per Share
The main difference between core earnings and core earnings per share (non-GAAP measures) and net
income attributable to common stockholders and earnings per common share (GAAP measures) is that
those non-GAAP measures exclude 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.
Another difference is that these two non-GAAP measures exclude specified infrequent or unusual
transactions that we believe 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 and core earnings per share any losses on retirement of preferred stock. 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, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Results of Operations."
Net Effective Spread
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. As further explained below, net effective
spread differs from net interest income and net interest yield by excluding certain items from net interest
income and net interest yield and including certain other items that net interest income and net interest
yield do not contain.
Farmer Mac excludes from net effective spread the premiums and discounts on assets consolidated at fair
value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not
expected to have an economic effect on Farmer Mac's financial performance if the assets are held to
maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and
interest expense associated with the consolidated trusts and the average balance of the loans underlying
these trusts to reflect management's view that the net interest income Farmer Mac earns on the related
Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the
excluded interest income and interest expense associated with consolidated trusts is reclassified to
guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes
from net effective spread the fair value changes of financial derivatives and the corresponding assets or
liabilities designated in fair value hedge accounting relationships because they are not expected to have an
economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and
corresponding hedged items to maturity.
Net effective spread also differs from net interest income and net interest yield because it includes 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"). Farmer Mac uses
interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate
reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts
due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the
yield or cost of the hedged item and is included in net interest income. For undesignated financial
derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts
due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations. However,
60
the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer
Mac's calculation of net effective spread.
Net effective spread also differs from net interest income and net interest yield because it includes the net
effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of
cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures
that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash
payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in
net effective spread is intended to reflect our view of the complete net spread between an asset and all of
its related funding, including any associated derivatives, whether or not they are designated in a hedge
accounting relationship.
For a reconciliation of net interest income and net interest yield to net effective spread, see Table 11 in
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Net Interest Income."
Results of Operations
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:
61
Table 6
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings
Net income attributable to common stockholders
$
107,583 $
89,176 $
93,650
For the Years Ended December 31,
2021
2020
2019
(in thousands, except per share amounts)
Less reconciling items:
(Losses)/gains on undesignated financial derivatives due to fair value
changes (see Table 14)
Losses on hedging activities due to fair value changes
Unrealized (losses)/gains on trading securities
Net effects of amortization of premiums/discounts and deferred gains on
assets consolidated at fair value
Net effects of terminations or net settlements on financial derivatives
Issuance costs on the retirement of preferred stock
Income tax effect related to reconciling items
Sub-total
Core earnings
Composition of Core Earnings:
Revenues:
Net effective spread(1)
Guarantee and commitment fees(2)
Gain on sale of mortgage loans
Other(3)
Total revenues
Credit related expense (GAAP):
(Release of)/provision for losses
REO operating expenses
Gains on sale of REO
Total credit related expense
Operating expenses (GAAP):
Compensation and employee benefits
General and administrative
Regulatory fees
Total operating expenses
Net earnings
Income tax expense(4)
Preferred stock dividends (GAAP)
Core earnings
Core earnings per share:
Basic
Diluted
Weighted-average shares:
Basic
(5,103)
(2,985)
(115)
130
494
—
1,592
(5,987)
113,570 $
(3,691)
(10,019)
51
58
1,236
(1,667)
2,596
(11,436)
100,612 $
220,668 $
196,956 $
17,533
6,539
1,680
246,420
(2,187)
—
—
(2,187)
42,847
27,507
3,062
73,416
175,191
36,944
24,677
19,150
—
2,687
218,793
8,055
—
(463)
7,592
36,502
21,976
2,925
61,403
149,798
31,381
17,805
113,570 $
100,612 $
10.56 $
10.47
9.38 $
9.33
10,758
10,846
10,728
10,786
10,077
(9,010)
326
(122)
1,089
(1,956)
(496)
(92)
93,742
168,608
21,335
—
1,775
191,718
3,501
64
—
3,565
28,762
20,311
2,788
51,861
136,292
28,610
13,940
93,742
8.76
8.70
10,696
10,778
$
$
$
$
Diluted
(1)
Net effective spread is a non-GAAP measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of
Non-GAAP Measures—Net Effective Spread" for an explanation of net effective spread. See Table 11 for a reconciliation of net interest income to net
effective spread.
62
(2)
(3)
(4)
Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and
commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer
Mac Guaranteed Securities.
Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net
settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the
recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.
Table 7
Reconciliation of GAAP Basic Earnings Per Share to Core Earnings - Basic Earnings Per Share
GAAP - Basic EPS
Less reconciling items:
(Losses)/gains on undesignated financial derivatives due to fair value changes (see
Table 14)
Losses on hedging activities due to fair value changes
Unrealized (losses)/gains on trading securities
Net effects of amortization of premiums/discounts and deferred gains on assets
consolidated at fair value
Net effects of terminations or net settlements on financial derivatives
Issuance costs on the retirement of preferred stock
Income tax effect related to reconciling items
Sub-total
Core Earnings - Basic EPS
For the Years Ended December 31,
2021
2020
2019
(in thousands, except per share amounts)
$
10.00 $
8.31 $
8.76
(0.47)
(0.28)
(0.01)
0.01
0.04
—
0.15
(0.56)
10.56 $
$
(0.34)
(0.94)
—
0.01
0.12
(0.16)
0.24
(1.07)
9.38 $
0.94
(0.83)
0.03
(0.01)
0.10
(0.18)
(0.05)
—
8.76
Shares used in per share calculation (GAAP and Core Earnings)
10,758
10,728
10,696
Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings - Diluted Earnings Per Share
GAAP - Diluted EPS
Less reconciling items:
(Losses)/gains on undesignated financial derivatives due to fair value changes (see
Table 14)
Losses on hedging activities due to fair value changes
Unrealized (losses)/gains on trading securities
Net effects of amortization of premiums/discounts and deferred gains on assets
consolidated at fair value
Net effects of terminations or net settlements on financial derivatives
Issuance costs on the retirement of preferred stock
Income tax effect related to reconciling items
Sub-total
Core Earnings - Diluted EPS
For the Years Ended December 31,
2021
2020
2019
(in thousands, except per share amounts)
$
9.92 $
8.27 $
8.69
(0.47)
(0.28)
(0.01)
0.01
0.05
—
0.15
(0.55)
10.47 $
$
(0.34)
(0.93)
—
0.01
0.11
(0.15)
0.24
(1.06)
9.33 $
0.93
(0.83)
0.03
(0.01)
0.10
(0.18)
(0.05)
(0.01)
8.70
Shares used in per share calculation (GAAP and Core Earnings)
10,846
10,786
10,778
63
The non-GAAP reconciling items between net income attributable to common stockholders and core
earnings are:
1. Losses on financial derivatives due to fair value changes are presented by two reconciling items in
Table 6 above: (a) Losses on undesignated financial derivatives due to fair value changes; and (b) Losses
on hedging activities due to fair value changes. The table below calculates the non-GAAP reconciling item
for losses on hedging activities due to fair value changes:
Table 8
Non-GAAP Reconciling Items for (Losses)/Gains on Hedging Activities due to Fair Value Changes
Losses due to fair value changes (see Table 6.2)
Initial cash payment (received) at inception of swap
Losses on hedging activities due to fair value changes
For the Years Ended December 31,
2021
2020
2019
(in thousands)
(1,515) $
(1,470)
(9,184) $
(835)
(2,985) $
(10,019) $
$
$
(7,907)
(1,103)
(9,010)
2. Unrealized (losses)/gains on trading securities. The unrealized (losses)/gains on trading securities are
reported on Farmer Mac's consolidated statements of operations, which represent changes during the
period in fair values for trading assets remaining on Farmer Mac's balance sheet as of the end of the
reporting period.
3. The net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair
value. The amount of this non-GAAP reconciling item is the recorded amount of premium, discount, or
deferred gain amortization during the reporting period on those assets for which the premium, discount, or
deferred gain was based on the application of an accounting principle (e.g., consolidation of variable
interest entities) rather than on a cash transaction (e.g., a purchase price premium or discount).
4. The net effects of terminations or net settlements on financial derivatives. These terminations or net
settlements relate to:
•
•
Forward contracts on the debt of other GSEs and futures contracts on U.S. Treasury securities.
These contracts are used as a short-term economic hedge of the issuance of debt. For GAAP
purposes, realized gains or losses on settlements of these contracts are reported in the consolidated
statements of operations in the period in which they occur. For core earnings purposes, these
realized gains or losses are deferred and amortized as net yield adjustments over the term of the
related debt, which generally ranges from 3 to 15 years.
Initial cash payments received by Farmer Mac upon the inception of certain swaps. When there is
no direct payment arrangement between a swap dealer counterparty and a debt dealer issuing
Farmer Mac's medium-term notes for a particular transaction, Farmer Mac may receive an initial
cash payment from the swap dealer at the inception of the swap to offset dollar-for-dollar the
amount of the discount on the associated hedged debt. For GAAP purposes, changes in fair value
of the swaps are recognized in "Gains on financial derivatives," while the economically offsetting
discount on the associated hedged debt is amortized over the term of the debt as an adjustment to
its yield. For purposes of core earnings, these initial cash payments are deferred and amortized as
net yield adjustments over the term of the related debt, which generally ranges from 3 to 25 years.
5. The recognition of deferred issuance costs on the retirements of the Series A Preferred Stock in 2020
and Series B Preferred Stock in 2019 has been excluded from core earnings because they are not
64
frequently occurring transactions, nor are they indicative of future operating results. This is consistent with
Farmer Mac's previous treatment of deferred issuance costs associated with the retirement of preferred
stock. The next eligible preferred stock redemption date is in 2024.
The following sections provide more detail about specific components of Farmer Mac's results of
operations.
Net Interest Income. The following table provides information about interest-earning assets and funding
for the years ended December 31, 2021, 2020, and 2019. The average balance of non-accruing loans is
included in the average balance of loans, Farmer Mac Guaranteed Securities, and USDA Securities
presented, though the related income is accounted for on a cash basis. Therefore, as the average balance of
non-accruing loans and the income received increases or decreases, the net interest income and yield will
fluctuate accordingly. The average balance of loans in consolidated trusts with beneficial interests owned
by third parties is disclosed in the net effect of consolidated trusts and is not included in the average
balances of interest-earning assets and interest-bearing liabilities. The interest income and expense
associated with these trusts are shown in the net effect of consolidated trusts.
Table 9
Interest-earning assets:
December 31, 2021
For the Year Ended
December 31, 2020
December 31, 2019
Average
Balance
Income/
Expense
Average
Rate
Average
Balance
Income/
Expense
Average
Rate
Average
Balance
Income/
Expense
Average
Rate
(dollars in thousands)
Cash and investments
$ 4,726,552 $ 18,660
0.39 % $ 4,180,158 $ 42,144
1.01 % $ 3,218,286 $ 81,522
2.53 %
Loans, Farmer Mac Guaranteed
Securities and USDA Securities(1)
17,838,238
367,154
2.06 % 16,950,819
407,296
2.40 % 15,214,248
502,694
Total interest-earning assets
22,564,790
385,814
1.71 % 21,130,977
449,440
2.13 % 18,432,534
584,216
Funding:
Notes payable due within one year
Notes payable due after one year(2)
Total interest-bearing
liabilities(3)
3,779,689
3,820
0.10 % 3,937,104
24,242
0.62 % 3,758,256
86,031
18,004,757
166,083
0.92 % 16,869,918
241,211
1.43 % 14,116,085
332,719
21,784,446
169,903
0.78 % 20,807,022
265,453
1.28 % 17,874,341
418,750
2.34 %
Net non-interest-bearing funding
780,344
—
323,955
—
558,193
—
Total funding
22,564,790
169,903
0.75 % 21,130,977
265,453
1.26 % 18,432,534
418,750
2.27 %
Net interest income/yield prior to
consolidation of certain trusts
22,564,790
215,911
0.96 % 21,130,977
183,987
0.87 % 18,432,534
165,466
Net effect of consolidated trusts(4)
1,049,521
4,864
0.46 % 1,396,850
6,601
0.47 % 1,544,052
7,669
Net interest income/yield
$ 23,614,311 $ 220,775
0.94 % $ 22,527,827 $ 190,588
0.85 % $ 19,976,586 $ 173,135
0.90 %
0.50 %
0.87 %
(1)
(2)
(3)
(4)
Excludes interest income of $39.0 million, $54.1 million, and $60.9 million in 2021, 2020, and 2019, respectively, related to consolidated trusts with
beneficial interests owned by third parties.
Includes current portion of long-term notes.
Excludes interest expense of $34.1 million, $47.5 million, and $53.2 million in 2021, 2020, and 2019, respectively, related to consolidated trusts with
beneficial interests owned by third parties.
Includes the effect of consolidated trusts with beneficial interests owned by third parties.
The $30.2 million year-over-year increase in net interest income was primarily due to a $16.7 million
increase related to net new business volume, a $6.9 million decrease in funding costs, and a $7.7 million
increase in the fair value of derivatives designated in fair value hedge accounting relationships (designated
financial derivatives). In percentage terms, the year-over-year 0.09% increase was primarily attributable to
an increase of 0.04% in net new business volume, an increase of 0.03% in net fair value changes from
designated financial derivatives, and a decrease of 0.01% in funding costs.
For 2020 compared to 2019, the $17.5 million increase in net interest income was primarily due to net
65
3.30 %
3.17 %
2.29 %
2.36 %
business volume growth across most lines of business, which contributed $23.2 million to net interest
income. This was partially offset by a $4.1 million increase in funding and liquidity costs and a decrease
of $1.3 million in net fair value changes from designated financial derivatives as a result of fluctuations in
interest rates. In percentage terms, the decrease of 0.02% in net interest income yield was primarily
attributable to an increase of 0.05% in funding and liquidity costs and 0.01% in net fair value changes
from designated financial derivatives, partially offset by an increase of 0.04% related to new business
volume.
The following table sets forth information about changes in the components of Farmer Mac's net interest
income prior to consolidation of certain trusts for the periods indicated. For each category, information is
provided on changes attributable to changes in volume (change in volume multiplied by old rate), and
changes in rate (change in rate multiplied by old volume), and then allocated based on the relative size of
rate and volume changes from the prior period.
Table 10
2021 vs. 2020
2020 vs. 2019
Increase/(Decrease) Due to
Increase/(Decrease) Due to
Rate
Volume
Total
Rate
Volume
Total
(in thousands)
Income from interest-earning assets:
Cash and investments
$
(28,400) $
4,916 $
(23,484) $
(58,877) $
19,499 $
(39,378)
Loans, Farmer Mac Guaranteed Securities
and USDA Securities
Total
(60,647)
(89,047)
Expense from other interest-bearing liabilities
(107,497)
20,505
25,421
11,947
(40,142)
(148,159)
(63,626)
(207,036)
(95,550)
(213,715)
52,761
72,260
60,418
(95,398)
(134,776)
(153,297)
Change in net interest income prior to
consolidation of certain trusts(1)
$
18,450 $
13,474 $
31,924 $
6,679 $
11,842 $
18,521
(1)
Excludes the effect of debt in consolidated trusts with beneficial interests owned by third parties.
The following table presents a reconciliation of net interest income and net interest yield to net effective
spread. Net effective spread is measured by: including (1) expenses related to undesignated financial
derivatives, which consists of income or expense related to contractual amounts due on financial
derivatives not designated in hedge relationships (the income or expense related to financial derivatives
designated in hedge accounting relationships is already included in net interest income), and (2) the
amortization of losses due to terminations or net settlements of financial derivatives; and excluding (3) the
amortization of premiums and discounts on assets consolidated at fair value, (4) the net effects of
consolidated trusts with beneficial interests owned by third parties, and (5) the fair value changes of
financial derivatives and corresponding financial assets or liabilities in fair value hedge relationships. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-
GAAP Measures—Net Effective Spread" for more information about net effective spread.
66
Table 11
For the Years Ended December 31,
2021
2020
2019
Dollars
Yield
Dollars
Yield
Dollars
Yield
(dollars in thousands)
Net interest income/yield
Net effects of consolidated trusts
$ 220,775
0.94 % $ 190,588
0.85 % $ 173,135
0.87 %
(4,864)
0.02 %
(6,601)
0.02 %
(7,669)
0.03 %
Expense related to undesignated financial derivatives
2,841
0.01 %
3,468
0.02 %
(5,095)
(0.03) %
Amortization of premiums/discounts on assets consolidated at
fair value
Amortization of losses due to terminations or net settlements on
financial derivatives
(45)
— %
197
— %
398
— %
446
— %
120
— %
(68)
— %
Fair value changes on fair value hedge relationships
1,515
0.01 %
9,184
0.04 %
7,907
Net effective spread
$ 220,668
0.98 % $ 196,956
0.93 % $ 168,608
0.04 %
0.91 %
The $23.7 million year-over-year increase in net effective spread in dollars was primarily due to an
increase of $16.7 million from net new business volume and a $6.3 million decrease in non-GAAP
funding costs. In percentage terms, the year-over-year increase of 0.05% was primarily attributable to an
increase of 0.04% in net new business volume and a decrease of 0.01% in funding costs.
For 2020 compared to 2019, the $28.3 million increase in net effective spread in dollars was primarily due
to net business volume growth across most lines of business, which contributed $23.2 million to net
effective spread, and a $4.6 million decrease in non-GAAP funding costs. In percentage terms, the
increase of 0.02% was primarily attributable to new business volume.
See Note 14 to the consolidated financial statements for more information about net interest income and
net effective spread from Farmer Mac's individual business segments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Supplemental Information" for quarterly net
effective spread by line of business.
67
Provision for and Release of Allowance for Losses and Reserve for Losses. The following table
summarizes the components of Farmer Mac's total allowance for losses for each year in the three-year
period ended December 31, 2021:
Table 12
Balance as of January 1, 2019
Provision for/(release of) losses
Charge-offs
Balance as of December 31, 2019
Cumulative effect adjustment from adoption of current expected credit loss standard
Adjusted beginning balance
Provision for losses
Charge-offs
Balance as of December 31, 2020
Release of losses
Recovery
Charge-offs
Allowance
for
Losses
Reserve
for Losses
(in thousands)
Total
Allowance
for Losses
$
$
$
7,017 $
2,167 $
3,504
(67)
(3)
—
10,454 $
2,164 $
1,793
863
12,247 $
3,027 $
7,810
(5,759)
250
—
$
14,298 $
3,277 $
(860)
1,054
—
(1,327)
—
—
9,184
3,501
(67)
12,618
2,656
15,274
8,060
(5,759)
17,575
(2,187)
1,054
—
Balance as of December 31, 2021
$
14,492 $
1,950 $
16,442
See Notes 8 and 12 to the consolidated financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans and
Guarantees."
Guarantee and Commitment Fees. The following table presents guarantee and commitment fees, which
compensate Farmer Mac for assuming the credit risk on loans underlying off-balance sheet Farmer Mac
Guaranteed Securities and LTSPCs, for the years ended December 31, 2021, 2020, and 2019:
Table 13
For the Years Ended December 31,
2021
2020
2019
(in thousands)
Guarantee and commitment fees
$
12,669 $
12,549 $
13,666
Guarantee and commitment fees were relatively flat for the year ended December 31, 2021 compared to
2020, which was due to stability in the average outstanding balance of LTSPCs and off-balance sheet
Farmer Mac Guaranteed Securities during 2021. As adjusted for the core earnings presentation, guarantee
and commitment fees were $17.5 million for the year ended December 31, 2021, respectively, compared
to $19.2 million and $21.3 million for the 2020 and 2019, respectively. In Farmer Mac's presentation of
core earnings, guarantee and commitment fees include interest income and interest expense related to
consolidated trusts owned by third parties to reflect management's view that the net interest income
Farmer Mac earns is effectively a guarantee fee on those consolidated Farmer Mac Guaranteed Securities.
For more information about net income attributable to common stockholders, the composition of core
earnings, and a reconciliation of net income attributable to common stockholders to core earnings, see
68
Table 6 in "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Results of Operations." For more information about the non-GAAP measures Farmer Mac uses, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-
GAAP Measures."
(Losses)/gains on financial derivatives. The components of gains and losses on financial derivatives for
the years ended December 31, 2021, 2020, and 2019 are summarized in the following table:
Table 14
(Losses)/gains due to fair value changes
Accrual of contractual payments
(Losses)/gains due to terminations or net settlements
(Losses)/gains on financial derivatives
For the Years Ended December 31,
2021
2020
2019
(in thousands)
(5,103) $
(3,691) $
2,841
(1,086)
(3,348) $
3,468
(23)
(246) $
$
$
10,077
(5,095)
300
5,282
These changes in fair value are primarily the result of fluctuations in long-term interest rates. The accrual
of periodic cash settlements for interest paid or received from Farmer Mac's interest rate swaps that are
undesignated financial derivatives is shown as expense related to financial derivatives. Payments or
receipts to terminate undesignated derivative positions or net cash settled forward sales contracts on the
debt of other GSEs and undesignated U.S. Treasury security futures and initial cash payments received
upon the inception of certain undesignated swaps are included in "(Losses)/gains due to terminations or
net settlements" in the table above. For undesignated swaps, when there is no direct payment arrangement
between a swap dealer counterparty and a debt dealer issuing Farmer Mac's medium-term notes for a
particular transaction, Farmer Mac may receive an initial cash payment from the swap dealer at the
inception of the swap to offset dollar-for-dollar the amount of the discount on the associated hedged debt.
Changes in the fair value of these swaps are recognized immediately in "(Losses)/gains on financial
derivatives," while the offsetting discount on the hedged debt is amortized over the term of the debt as an
adjustment to its yield. The amounts of initial cash payments received by Farmer Mac vary depending on
the number of the aforementioned type of swaps it executes during a quarter.
69
Gains on Sale of Mortgage Loans
Table 15
For the Years Ended December 31,
2021
2020
2019
(in thousands)
Gain on sale of mortgage loans
$
6,539 $
— $
—
In fourth quarter 2021, Farmer Mac executed a newly-designed structured securitization of a
$299.4 million pool of Farm & Ranch loans. The transaction was structured into two pass-through
tranches, Class A and Class B, each of which were sold to third-party investors in the capital markets, as
well as an interest-only Farmer Mac Guaranteed Security ("IO-FMGS") that Farmer Mac retained. The
Class A tranche makes up 92.5% of the pool and is guaranteed as to principal and interest by Farmer Mac.
The IO-FMGS is guaranteed as to interest by Farmer Mac. The Class B tranche makes up the remaining
7.5% of the pool and is subordinated in right of interest and principal payments in the event of a shortfall
to the Class A tranche and the IO-FMGS. As a result of this transaction, Farmer Mac recognized the
following:
1. A guarantee obligation and corresponding guarantee fee related to the Farmer Mac-guaranteed
Class A tranche;
2. A servicing asset and corresponding servicing fee related to Farmer Mac’s role as master servicer
for the entire pool and as central servicer for the portion of the pool for which it serves as central
servicer; and
3. A security representing the IO-FMGS.
These assets and liabilities were initially recorded on the balance sheet at fair value.
Other Income. The following table presents other income for the years ended December 31, 2021, 2020,
and 2019:
Table 16
Late fees
Servicing fees
Mortgage servicing rights amortization
Other
Total other income
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$
951 $
1,292 $
1,135
291
(128)
955
—
—
2,195
$
2,069 $
3,487 $
—
—
769
1,904
The decrease in other income for the year ended December 31, 2021 compared to 2020 is primarily due to
a decrease in rate modification fees on Farm & Ranch loans.
70
Operating Expenses. The components of operating expenses for the years ended December 31, 2021,
2020, and 2019 are summarized in the following table:
Table 17
Compensation and employee benefits
General and administrative
Regulatory fees
Total Operating Expenses
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$
42,847 $
36,502 $
27,507
3,062
21,976
2,925
$
73,416 $
61,403 $
28,762
20,311
2,788
51,861
a. Compensation and Employee Benefits. The increase in compensation and employee benefits
expenses for 2021 compared to 2020 was due to increased headcount. We hired 32 net new
employees this year, including ten new employees in connection with the strategic acquisition of
loan servicing rights in third quarter 2021. The increase in compensation and employee benefits
expenses for 2020 compared to 2019 was primarily due to increased headcount in the current
period, higher bonus expense, and severance payments made to an executive who resigned in first
quarter 2020.
b. General and Administrative Expenses (G&A). The increase in G&A expenses for 2021 compared
to 2020 was primarily due to increased spending on software licenses, information technology and
other consultants to support growth and strategic initiatives. We entered into a transition services
agreement in connection with the strategic acquisition of loan servicing rights in third quarter
2021. Under that agreement, we have agreed to pay $1.25 million to the seller of the servicing
rights in installments through December 31, 2022 for continuing transition assistance. The increase
in G&A expenses for 2020 compared to 2019 was primarily due to increased spending on software
licenses and information technology consultants to support growth and strategic initiatives
Income Tax Expense. The following table presents income tax expense and the effective income tax rate
for the years ended December 31, 2021, 2020, and 2019:
Table 18
Income tax expense
Effective tax rate
For the Years Ended December 31,
2021
2020
2019
(dollars in thousands)
$
35,353
$
28,785
$
29,105
21.1 %
20.9 %
20.9 %
71
Business Volume.
The following table sets forth the net growth or decrease in Farmer Mac's lines of business for the years
ended December 31, 2021 and 2020:
Table 19
Net New Business Volume
On or Off
Balance Sheet
For the Years Ended December 31,
2021
Net Growth/
(Decrease)
2020
Net Growth/
(Decrease)
(in thousands)
Agricultural Finance:
Farm & Ranch:
Loans
Loans held in consolidated trusts:
Beneficial interests owned by third-party investors
IO-FMGS
USDA Securities
AgVantage Securities
LTSPCs and unfunded commitments
Farmer Mac Guaranteed Securities
Loans serviced for others
Total Farm & Ranch
Corporate AgFinance:
Loans
AgVantage Securities
Unfunded Loan Commitments
Total Corporate AgFinance
Total Agricultural Finance
Rural Infrastructure Finance:
Rural Utilities:
Loans
AgVantage Securities
LTSPCs and Unfunded Loan Commitments
Farmer Mac Guaranteed Securities
Total Rural Utilities
Renewable Energy:
Loans
Unfunded Loan Commitments
Total Renewable Energy
Total Rural Infrastructure Finance
Total
On-balance sheet
$
795,216 $
917,071
On-balance sheet
On-balance sheet
On-balance sheet
On-balance sheet
Off-balance sheet
Off-balance sheet
Off-balance sheet
On-balance sheet
On-balance sheet
Off-balance sheet
$
$
$
$
(338,422)
12,297
(41,614)
300,000
272,189
199,748
22,331
1,221,745 $
213,761 $
(376,646)
36,604
(126,281) $
1,095,464 $
On-balance sheet
$
114,996 $
On-balance sheet
Off-balance sheet
Off-balance sheet
On-balance sheet
Off-balance sheet
$
$
$
$
$
467,425
412
(1,657)
581,176 $
13,728 $
—
13,728 $
594,904 $
1,690,368 $
(313,872)
—
256,461
(350,000)
(78,106)
(117,927)
—
313,627
296,682
28,364
10,466
335,512
649,139
525,886
(376,096)
(52,854)
(3,155)
93,781
63,233
—
63,233
157,014
806,153
Farmer Mac's outstanding business volume was $23.6 billion as of December 31, 2021, a net increase of
$1.7 billion from December 31, 2020 after taking into account all new business, maturities, sales, and
paydowns on existing assets.
72
The $1.2 billion net increase in Farm & Ranch was comprised of $5.9 billion of new purchases and
guarantees, partially offset by $4.7 billion of scheduled maturities, repayments, and sales. Farmer Mac
purchased a total of $2.1 billion in loans, which was primarily driven by farm real estate acquisitions due
to improved borrower economics as well as a continued competitive interest rate environment resulting in
demand for long-term financing solutions. The $2.1 billion in gross Farm & Ranch loan purchases was
partially offset by $1.3 billion in scheduled maturities, repayments, and sales, including the sale of $299.4
million of agricultural mortgage loans through Farmer Mac's newly-designed structured securitization
executed in the fourth quarter. The securitization resulted in $289.5 million in Farmer Mac Guaranteed
Securities backed by the sold loans.
Farmer Mac also purchased a total of $2.2 billion in AgVantage Securities, which primarily reflected the
refinancing of maturing securities as well as financial counterparties seeking additional short-term, low-
cost securities to manage their asset-liability maturity profile. The $2.2 billion in gross purchases was
partially offset by $1.9 billion in scheduled maturities. While the short-term nature of the AgVantage
securities added during 2021 may create volatility in AgVantage volumes, Farmer Mac does not anticipate
a material impact to its net effective spread given the low-cost nature of these securities due to the short
maturity profile.
Farmer Mac entered into $788.3 million of new LTSPCs, which was offset by $516.1 million of maturities
on existing LTSPCs. The new volume in LTSPCs during 2021 was driven primarily by Farm Credit
System institutions seeking credit risk management solutions to address increasing commodity and
borrower hold limits resulting from strong loan growth in in their regional portfolios.
The $126.3 million net decrease in Corporate AgFinance was comprised of $880.2 million of new loan
and AgVantage security purchases, which was offset by $1.0 billion of scheduled maturities, repayments,
and sales. Farmer Mac purchased a total of $314.9 million in AgVantage Securities, which was offset by
$691.6 million in scheduled maturities and repayments. This net decrease in AgVantage Securities was
primarily due to improved borrower economics that reduced the demand for higher priced institutional
financing, counterparties diversifying wholesale funding sources, and competitive funding availability for
institutional counterparties.
Farmer Mac purchased a total of $509.1 million in Corporate AgFinance loans in furtherance of Farmer
Mac's strategic initiative to support larger and more complex farming operations, agribusinesses focused
on agriculture production, food and fiber processing, and other supply chain production. The
$509.1 million in gross purchases was partially offset by $295.4 million in scheduled maturities and
repayments.
The $581.2 million net increase in Rural Utilities was comprised of $1.8 billion of new purchases and
guarantees, which was partially offset by $1.2 billion of scheduled maturities and repayments. Farmer
Mac purchased a total of $1.5 billion in AgVantage Securities which was partially offset by $982.6 million
in scheduled maturities. The net increase in AgVantage Securities of $467.4 million was a result of a key
counterparty proactively managing its capital structure as well as Farmer Mac's ability to offer
competitively priced financing structures.
Farmer Mac purchased a total of $313.4 million in Rural Utilities loans, which was fueled by a
competitive interest rate environment resulting in demand for long-term financing solutions for planned
maintenance, capital expenditures, and refinancing higher cost debt. The $313.4 million in loan purchases
was partially offset by $198.4 million in scheduled maturities and repayments.
73
The $13.7 million net increase in Renewable Energy was comprised of $43.6 million of new loan
purchases, which was partially offset by $29.9 million of repayments.
Farmer Mac's outstanding business volume was $21.9 billion as of December 31, 2020, a net increase of
$806.2 million from December 31, 2019 after taking into account all new business, scheduled maturities,
sales, and paydowns on existing assets.
The $313.6 million net increase in Farm & Ranch was comprised of $3.8 billion of new purchases and
guarantees, partially offset by $3.5 billion of scheduled maturities and repayments.
The $335.5 million net increase in Corporate AgFinance was comprised of $899.4 million of new
purchases, which was partially offset by $563.9 million of scheduled maturities and repayments.
The $93.8 million net increase in Rural Utilities was comprised of $949.3 million of new purchases and
guarantees, which was partially offset by $855.5 million of scheduled maturities and repayments.
The $63.2 million net increase in Renewable Energy was comprised of $64.3 million of new purchases,
which was partially offset by $1.1 million of repayments.
The level and composition of Farmer Mac’s outstanding business volume is based on the relationship
between new business, scheduled maturities, and repayments on existing assets from year to year. This
relationship in turn depends on a variety of factors both internal and external to Farmer Mac. The external
factors include general market forces, competition, and our counterparties’ liquidity needs, access to
alternative funding, desired products, and assessment of strategic factors. The internal factors include our
assessment of profitability, mission fulfillment, credit risk, and customer relationships. For more
information about potential growth opportunities in Farmer Mac's lines of business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Outlook" in this report.
The following table sets forth information about the Farmer Mac Guaranteed Securities issued during the
periods indicated:
Table 20
AgVantage securities
Structured securitization transactions
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$
3,919,907 $
1,298,751 $
2,258,550
289,519
—
—
Loans securitized and held in consolidated trusts with beneficial interests owned by
third parties
Farmer Mac Guaranteed USDA Securities
113,175
165,054
—
—
Total Farmer Mac Guaranteed Securities Issuances
$
4,322,601 $ 4,322,601
1,463,805 $
$
263,561
57,853
2,579,964
Farmer Mac either retains the loans it purchases or securitizes them and retains or sells Farmer Mac
Guaranteed Securities backed by those loans. During 2021, Farmer Mac executed a structured
securitization transaction, whereby it sold and securitized agricultural mortgage loans resulting in
$289.5 million of additional Farmer Mac Guaranteed Securities from this transaction.
74
During 2021, Farmer Mac realized $5.2 million gain after tax from the sale of Farmer Mac Guaranteed
Securities in its structured securitization transaction.
During 2021 and 2020, Farmer Mac realized no gains or losses from the securitization of loans that it
holds in consolidated trusts. Farmer Mac consolidates these loans and presents them as "Loans held for
investment in consolidated trusts, at amortized cost" on the consolidated balance sheets.
During 2021 and 2020, Farmer Mac realized no gains or losses from the issuance of Farmer Mac
Guaranteed USDA Securities, or AgVantage Securities.
The following table sets forth information about outstanding volume in each of Farmer Mac's lines of
business as of the dates indicated:
75
Table 21
Agricultural Finance:
Farm & Ranch:
Loans
Loans held in consolidated trusts:
Outstanding Business Volume
On or Off
Balance Sheet
As of December 31,
2021
2020
2019
(in thousands)
On-balance sheet
$
4,775,070 $
3,979,854 $
3,062,783
Beneficial interests owned by third-party investors
On-balance sheet
IO-FMGS
USDA Securities
AgVantage Securities
LTSPCs and unfunded commitments
Farmer Mac Guaranteed Securities
Loans serviced for others
Total Farm & Ranch
Corporate AgFinance:
Loans
AgVantage Securities
Unfunded Loan Commitments
Total Corporate AgFinance
Total Agricultural Finance
Rural Infrastructure Finance:
Rural Utilities:
Loans
On-balance sheet
On-balance sheet
On-balance sheet
Off-balance sheet
Off-balance sheet
Off-balance sheet
948,623
12,297
2,445,806
4,725,000
2,587,154
578,358
22,331
1,287,045
1,600,917
—
2,487,420
4,425,000
2,314,965
378,610
—
—
2,230,959
4,775,000
2,393,071
496,537
—
$
16,094,639 $
14,872,894 $
14,559,267
On-balance sheet
$
1,123,300 $
909,539 $
On-balance sheet
Off-balance sheet
367,464
47,070
744,110
10,466
612,857
715,746
—
$
$
1,537,834 $
1,664,115 $
1,328,603
17,632,473 $
16,537,009 $
15,887,870
On-balance sheet
$
2,302,373 $
2,187,377 $
1,661,491
AgVantage Securities
On-balance sheet
3,033,262
2,565,837
2,941,933
LTSPCs and Unfunded Loan Commitments
Farmer Mac Guaranteed Securities
Total Rural Utilities
Off-balance sheet
Off-balance sheet
556,837
2,755
556,425
4,412
609,279
7,567
$
5,895,227 $
5,314,051 $
5,220,270
Renewable Energy:
Loans
Unfunded Loan Commitments
Total Renewable Energy
Total Rural Infrastructure Finance
Total
On-balance sheet
$
86,763 $
73,035 $
Off-balance sheet
—
—
9,802
—
9,802
$
$
$
86,763 $
73,035 $
5,981,990 $
5,387,086 $
5,230,072
23,614,463 $
21,924,095 $
21,117,942
The following table summarizes by maturity date the scheduled principal amortization of loans held, loans
underlying off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and
LTSPCs, USDA Securities, and Farmer Mac Guaranteed USDA Securities as of December 31, 2021:
76
Table 22
2022
2023
2024
2025
2026
Thereafter
Total
Schedule of Principal Amortization as of December 31, 2021
Loans
Underlying
Off-Balance
Sheet Farmer
Mac
Guaranteed
Securities and
LTSPCs
Loans Held
USDA Securities
and Farmer Mac
Guaranteed
USDA Securities
Total
(in thousands)
$
380,999 $
248,877 $
115,980 $
745,856
368,059
380,945
406,447
460,738
236,628
210,773
211,653
231,084
118,486
117,940
120,298
126,211
723,173
709,658
738,398
818,033
7,238,941
2,382,578
2,094,717
11,716,236
$
9,236,129 $
3,521,593 $
2,693,632 $ 15,451,354
Of Farmer Mac's $23.6 billion outstanding principal balance of business volume as of December 31, 2021,
$8.1 billion were AgVantage securities included in the Agricultural Finance and Rural Infrastructure
Finance lines of business. Unlike business volume in the form of purchased loans, USDA Securities, and
loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, most AgVantage
securities do not require periodic payments of principal based on amortization schedules and instead have
fixed maturity dates when the secured general obligation is due. The following table summarizes by
maturity date the outstanding principal amount of both on- and off-balance sheet AgVantage securities as
of December 31, 2021:
Table 23
2022
2023
2024
2025
2026
Thereafter(1)
Total
AgVantage Balances by Year of Maturity
As of
December 31, 2021
(in thousands)
$
$
2,638,903
1,090,564
796,416
361,025
975,660
2,265,913
8,128,481
(1)
Includes various maturities ranging from 2026 to 2044.
The weighted-average remaining maturity of the outstanding AgVantage securities shown in the table
above was 4.7 years as of December 31, 2021.
Related Party Transactions. As provided by Farmer Mac's statutory charter, only banks, insurance
companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting
common stock, and only institutions of the FCS may hold Farmer Mac's Class B voting common
stock. Farmer Mac's charter also provides that holders of Class A voting common stock elect five
members of Farmer Mac's 15-member board of directors and that holders of Class B voting common stock
77
elect five members of the board of directors. The ownership of Farmer Mac's two classes of voting
common stock is currently concentrated in a small number of institutions. Approximately 53% of the
Class A voting common stock is held by four financial institutions, with 31% held by one institution.
Approximately 97% of the Class B voting common stock is held by five FCS institutions (two of which
are related to each other through a parent-subsidiary relationship).
Unlike some other GSEs, specifically other FCS institutions and the Federal Home Loan Banks, Farmer
Mac is not structured as a cooperative owned exclusively by member institutions and established to
provide services exclusively to its members. Farmer Mac, as a stockholder-owned, publicly-traded
corporation, seeks to fulfill its mission of serving the financing needs of rural America in a way that is
consistent with providing a return on the investment of its stockholders, including those who do not
directly participate in the secondary market provided by Farmer Mac. Farmer Mac's generally requires
most financial institutions that participate in Farmer Mac's Agricultural Finance line of business to own a
requisite amount of common stock, based on the size and type of institution. As a result of this
requirement, coupled with the ability of holders of Class A and Class B voting common stock to elect two-
thirds of Farmer Mac's board of directors, Farmer Mac regularly conducts business with "related parties,"
including institutions affiliated with members of Farmer Mac's board of directors and institutions that own
large amounts of Farmer Mac's voting common stock. Farmer Mac has adopted a Code of Business
Conduct and Ethics and other related corporate policies that govern any conflicts of interest that may arise
in these transactions, and Farmer Mac's policy is to require that any transactions with related parties be
conducted in the ordinary course of business, with terms and conditions comparable to those available to
any other counterparty not related to Farmer Mac.
The following table summarizes the material relationships between Farmer Mac and certain related
parties. The related parties listed in the table below consist of (1) all holders of at least five percent of a
class of Farmer Mac voting common stock as of December 31, 2021 and (2) other institutions that are
considered "related parties" through an affiliation with a Farmer Mac director and that have conducted
business with Farmer Mac during the two years ended December 31, 2021. The table below does not
specify any relationships based on the ownership of Farmer Mac's non-voting common stock or any series
of preferred stock.
Table 24
Primary Aspects of Institution's
Business Relationship with Farmer Mac
In both 2021 and 2020, Farmer Mac earned
approximately $1.2 million in fees
attributable to transactions with AgFirst,
primarily commitment fees for LTSPCs.
Farmer Mac did not conduct any business
with AgriBank during 2021 or 2020.
Ownership of
Farmer Mac
Voting Common Stock
Affiliation with Any
Farmer Mac Directors
Name of Institution
AgFirst Farm Credit
Bank
None
84,024 shares of Class B
voting common stock
(16.79% of outstanding
Class B stock and 5.49%
of total voting common
stock outstanding)
AgriBank, FCB
201,621 shares of Class
B voting common stock
(40.30% of outstanding
Class B stock and
13.17% of total voting
common stock
outstanding)
Farmer Mac director
Richard H. Davidson served
as director of AgriBank
until March 2021 and
former Farmer Mac director
(through May 2021) Daniel
L. Shaw serves as director
of AgriBank.
78
Name of Institution
Bath State Bank
Ownership of
Farmer Mac
Voting Common Stock
Less than 5% ownership
CoBank, ACB
163,253 shares of Class
B voting common stock
(32.63% of outstanding
Class B stock and
10.66% of total voting
common stock
outstanding)
Affiliation with Any
Farmer Mac Directors
Farmer Mac director
Dennis L. Brack serves as a
director of Bath State Bank
and Bath State Bancorp, the
holding company of Bath
State Bank.
Farmer Mac director
Everett M. Dobrinski served
as a director of CoBank
through December 2019.
Although no longer a
director of CoBank, Mr.
Dobrinski currently serves
on CoBank's independent
nominating committee that
screens and interviews
director candidates and
recommends a slate of
candidates for consideration
by CoBank's membership.
Farm Credit Bank of
Texas (FCBT)
None
38,503 shares of Class B
voting common stock
(7.70% of outstanding
Class B stock and 2.51%
of total voting common
stock outstanding)
Matthew 25
Management Corp.
None
77,412 shares of Class A
voting common stock
(7.51% of outstanding
Class A stock and 5.06%
of total voting common
stock outstanding)
Primary Aspects of Institution's
Business Relationship with Farmer Mac
Farmer Mac purchased $2.3 million and
$9.2 million in USDA Securities from Bath
State Bank in 2021 and 2020, respectively.
Additionally, Farmer Mac purchased $5.0
million in Agricultural Finance mortgage
loans from Bath State Bank in 2021. Farmer
Mac did not purchase any Agricultural
Finance mortgage loans from Bath State
Bank in 2020.
Farmer Mac purchased $207.5 million and
$416.8 million in participation interests in
loans from CoBank in 2021 and 2020,
respectively. This represented 60.2% and
56.0% of loan purchases under the Rural
Infrastructure Finance line of business for
2021 and 2020, respectively.
Farmer Mac entered into $72.0 million in
unfunded commitments from CoBank in
2021. Farmer Mac did not purchase any of
these from CoBank in 2020.
In 2021 and 2020, CoBank retained $3.2
million and $2.3 million of servicing fees
related to the loan participations sold to
Farmer Mac, respectively.
In 2021 and 2020, Farmer Mac earned
approximately $1.9 million and $1.2 million,
respectively, in fees attributable to
transactions with FCBT, primarily
commitment fees for LTSPCs.
In both 2021 and 2020, FCBT retained
approximately $0.1 million in servicing fees
for its work as a Farmer Mac servicer.
Farmer Mac did not conduct any business
with Matthew 25 Management Corp. during
2021 or 2020.
National Rural
Utilities
Cooperative
Finance
Corporation (CFC)
81,500 shares of Class A
voting common stock
(7.91% of outstanding
Class A stock and 5.32%
of total voting common
stock outstanding)
Farmer Mac director
Todd P. Ware served as a
director of CFC from June
2015 through June 2021.
Transactions with CFC represented 36.9%
and 36.7% of loan purchases under the Rural
Infrastructure Finance line of business
during 2021 and 2020, respectively.
In 2021 and 2020, Farmer Mac earned
commitment fees of approximately $1.2
million and $1.3 million, respectively,
attributable to transactions with CFC.
In 2021 and 2020, Farmer Mac earned
interest income of $50.0 million and $63.1
million, respectively, attributable to
AgVantage transactions with CFC.
In both 2021 and 2020, CFC retained
approximately $3.3 million in servicing fees
for its work as a Farmer Mac servicer.
79
Name of Institution
The Vanguard
Group, Inc.
66,056 shares of Class A
voting common stock
(6.41% of outstanding
Class A stock and 4.31%
of total voting common
stock outstanding)
Zions
Bancorporation,
National
Association (Zions)
322,100 shares of Class
A voting common stock
(31.25% of outstanding
Class A stock and
21.04% of total voting
common stock
outstanding)
Ownership of
Farmer Mac
Voting Common Stock
Affiliation with Any
Farmer Mac Directors
Primary Aspects of Institution's
Business Relationship with Farmer Mac
None
None
Farmer Mac did not conduct any business
with The Vanguard Group during 2021 or
2020.
In 2021 and 2020, Farmer Mac's purchases
of on-balance sheet Agricultural Finance
mortgage loans from Zions represented
approximately 8.0% and 7.1%, respectively,
of Agricultural Finance mortgage loan
purchase volume for those years. Those
purchases represented 5.6% and 6.2%,
respectively, of total Agricultural Finance
mortgage loan business volume (excluding
AgVantage and USDA Securities) for those
years. The purchases of USDA Securities
from Zions represented approximately 2.1%
and 1.4%, respectively, of the USDA
Guarantees purchases for the years ended
December 31, 2021 and 2020. Transactions
with Zions represented 3.4% and 4.1%,
respectively, of Farmer Mac's total
outstanding business volume as of
December 31, 2021 and 2020.
In 2021 and 2020, Zions retained
approximately $11.0 million and $11.8
million, respectively, in servicing fees for its
work as a Farmer Mac servicer.
As discussed in more detail in Note 2(o) to the consolidated financial statements, Farmer Mac’s
consolidated financial statements include the accounts of variable interest entities ("VIEs") in which
Farmer Mac determines itself to be the primary beneficiary, including securitization trusts where Farmer
Mac shares the power to make decisions about default mitigation with a related party. If that related party
status changes, consolidation or deconsolidation of securitization trusts may occur. For more information
about related party transactions, see Note 3 to the consolidated financial statements.
Outlook
Farmer Mac continues to provide a stable source of liquidity, capital, and risk management tools as a
secondary market that helps meet the financing needs of rural America. The pace and trajectory of Farmer
Mac's growth will depend on the capital and liquidity needs of the lending institutions in the agriculture
and rural utilities business and the overall financial health of borrowers in the sectors we serve. Farmer
Mac foresees opportunities for profitable growth across our lines of business driven by several key factors:
• As agricultural and rural infrastructure lenders seek to manage equity capital and return on equity
capital requirements or reduce exposure due to lending or concentration limits, Farmer Mac can
provide relief for those institutions through loan and portfolio purchases, participations,
guarantees, LTSPCs, or wholesale funding.
• As a result of business and product development efforts and continued interest in the agricultural
asset class from institutional investors and nontraditional agricultural real estate lenders, Farmer
80
•
•
Mac's customer base and product set continue to expand and diversify, which may generate more
demand for Farmer Mac's products from new sources.
Farmer Mac's growing relationships with larger regional and national lenders, as well as
consolidation within the agricultural lending industry, continue to provide opportunities that could
influence Farmer Mac's loan demand and increase the average transaction size within Farmer
Mac's lines of business.
Future growth opportunities in Farmer Mac's Rural Infrastructure Finance line of business may
evolve by deepening business relationships with eligible counterparties, financing broadband-
related capital expenditures and rural telecommunications facilities, growing opportunities for
renewable energy project finance, and exploring new types of loan products. These opportunities
may be limited by sector growth, credit quality, and the competitiveness of Farmer Mac's products.
• Expansion and refinancing opportunities for agricultural producers resulting from continued-low
interest rates have increased financing requirements for mergers and acquisitions, consolidation,
and vertical integration across many sectors of the agricultural industry, which may also generate
demand for Farmer Mac's loan products.
• Lower market interest rates have driven a cyclical increase in agricultural loan refinancings over
the last two years. Future changes to monetary policy and the overall level of interest rates could
impact the pace and timing of Agricultural Finance mortgage loan purchase demand.
As we grow outstanding business volume through the products described above, we are also developing
new ways to obtain funding and manage our overall credit risk. In October 2021, we completed a
structured agricultural mortgage-backed securitization (AMBS) that included a $277.0 million senior
tranche guaranteed by Farmer Mac and a $22.5 million unguaranteed subordinate tranche sold to
investors, resulting in the sale of Farm & Ranch loans formerly held on Farmer Mac's balance sheet.
During fourth quarter 2021, Farmer Mac recorded a gain on this transaction of $5.2 million after-tax.
Farmer Mac will serve as the master servicer of the securitization and as central servicer for a portion of
the underlying loan pool. This new source of funding provides us with another tool to help manage capital
and credit risk and also provides an investment opportunity for leading institutional investors.
The disruptions from the COVID-19 pandemic experienced during 2020 were significantly moderated
during 2021. However, the recent and rapid increase in cases of COVID-19 resulting from variants of
coronavirus demonstrates the volatility and uncertainty stemming from the pandemic. Future variants and
outbreaks may result in increased market volatility and supply chain disruptions similar to the market
dislocations experienced in 2020 and 2021. Farmer Mac's mission is to support rural America, and the
disruptions caused by COVID-19 may continue to present new and expanded opportunities for Farmer
Mac to help meet the financing needs of rural America while also presenting uncertainties and risks. See
"Risk Factors" in Part I, Item 1A of this report for more information about the uncertainties and risks
associated with the COVID-19 pandemic on Farmer Mac and its business.
Operating Expense. Farmer Mac continues to expand its investments in human capital, technology, and
business infrastructure to increase capacity and efficiency as it seeks to accommodate its growth
opportunities and achieve its long-term strategic objectives. Farmer Mac expects continued increases in its
operating expenses over the next several years corresponding to business and revenue growth. We expect
these efforts to continue and increase over the next 12 - 18 months as we innovate and grow our business
while monitoring the growth in operating expenses commensurate with the growth in our revenue.
81
During third quarter 2021, we closed on a strategic acquisition that enhanced our operations by expanding
our internal loan servicing function and acquiring the loan servicing rights for a sizeable portion of our
Farm & Ranch loan and USDA Securities portfolios. This acquisition will increase our interest income on
our Farm & Ranch loans and USDA Securities that we service because there will not be any third-party
central servicer retaining a central servicer fee on those assets. That increased interest income is expected
to be partially offset by the increase in our operating expenses relating to our enhanced internal loan
servicing operations. In the short term, we do not expect the effect on core earnings to be significant. In
the medium to long term, the effect will depend on the size of our portfolio that we service and the long-
run costs of our servicing operations.
Operations. On March 12, 2020, Farmer Mac activated its business continuity plan and has been operating
uninterruptedly since then, with most of its employees working remotely throughout 2020 and 2021.
Farmer Mac has provided guidance and support to all of its employees to ensure that they have the tools
and knowledge needed to effectively work remotely, and Farmer Mac's technology platform and business
continuity plan have been functioning as designed in support of all functions of the organization with no
material disruption of business. As a secondary market participant in the agricultural and rural utilities
lending space, Farmer Mac's business model is already based on a remote interface with its customers and
vendors.
Agricultural Industry. Economic conditions throughout the agricultural, food, fuel, and fiber sectors were
generally positive throughout 2021. According to USDA estimates, gross farm income increased by 10%
in 2021 to a record high of $487.9 billion. Improved commodity prices for grains and animal proteins
drove the increase in gross cash receipts, and the increase in gross income was more than enough to offset
a 40% decline in direct government payments. The general price rally is largely a function of dwindling
global supplies for most major crop commodities. Farm expenses also rose in 2021 for most producers,
driven by rising feed, energy, and labor costs. However, growth in income outpaced growth in expense,
and net cash farm income increased nearly 15% in 2021 to $134.2 billion, the highest level since 2013.
Consumers returned to restaurants and food service establishments in 2021, with a 41% annual increase in
retail spending at food service and drinking places according to advance retail sales data from the U.S.
Census Bureau. Combined with an annual 8.4% increase in retail spending at food and drinking stores
(e.g., grocery), consumers have demonstrated the ability to absorb higher commodity prices in their food
budgets in 2021.
The increase in farm profitability combined with low overall interest rates drove a rapid rise in land values
and a decrease in farm delinquencies and bankruptcies. Land value survey data from the USDA show a
7.0% increase in average farm real estate values from June 2020 to June 2021. Annual farm real estate
value gains were highest in the Northern Plains (9.4%) and the Southern Plains (9.0%), but also strong in
Pacific states (8.6%) and the Corn Belt (7.7%). The Federal Reserve Bank of Chicago AgLetter reported
an 18% gain in farmland values in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin)
between October 2020 and October 2021. Data from the Federal Reserve Bank of Kansas City show a
similar rise in land values in the Tenth District (primarily Kansas, Missouri, Nebraska, and Oklahoma).
Historically, rising farm real estate values have paired with an increase in real estate secured debt. While
regional averages for farmland values provide a good barometer for the overall movement in U.S.
farmland values, economic forces affecting land markets are highly localized, and some markets may
experience greater volatility than state or national averages indicate.
82
In its first look at the 2022 farm economy, the USDA projects a tightening profitability outlook. The rapid
rise of input costs and interest expense is likely to increase the cost of production in 2022, putting
downward pressure on overall net farm income. However, the USDA projects a modest increase in net
cash farm income by 1.4% in 2022 to $136.1 billion due to cash revenue rising slightly faster than cash
expenses. Fertilizer prices spiked in 2021, with December prices paid by farmers 62% higher than 2020
levels. While fertilizer prices abated somewhat in early 2022, the elevated costs may have already been
incurred as prepaid input expense. Interest expense is also seen rising in 2022 due to a combination of
higher debt levels and rising short-term borrowing costs. The decline in net cash farm income is modest
historically, and most of the USDA's projected financial ratios show a robust food and farm economy in
2022. Farm equity is expected to rise for the third straight year, as forecasts for land values outpace the
expected increase in debt utilization. The farm sector's overall working capital and interest expense
coverage ratios are expected to reach their highest levels in eight years during 2022.
Economic conditions are likely to bring mixed effects to credit demand in 2022. Strong asset appreciation
and rising interest rates could signal a credit cycle expansion as financial decision-makers look to lock in
long-term economics for their appreciating farm and agribusiness assets. Farm profitability generally
increases asset values and demand for the asset class, which also contributes to increasing credit demand.
The low interest rate environment in 2021 increased farmland mortgage refinancing and loan prepayment
speeds throughout the year. A reduction in loan refinancing is possible in 2022, as fewer borrowers will
economically benefit from refinancing or restructuring their farm debt. This could have mixed effects on
mortgage portfolios, potentially lowering new sales and originations but also slowing portfolio
prepayments and exits. Finally, a rising yield curve coupled with widening market credit spreads could
increase opportunities for corporate and institutional lending, as Farmer Mac's programs become more
attractive at higher costs of capital. Combined, these factors are generally supportive of continued net
portfolio growth in 2022.
Positive economic conditions improved portfolio performance in 2021, and they could continue to
positively impact loan delinquencies and losses into 2022. Farmer Mac's 90-day delinquencies and
substandard assets levels improved in fourth quarter 2021 relative to fourth quarter 2020. One-third of the
loan volume past due 90-days or more in third quarter 2021 cured or paid off by December 31, 2021. The
overall delinquency rate fell from 0.58% of the Farm & Ranch operating segment as of September 30,
2021, to 0.48% of the Farm & Ranch portfolio by December 31, 2021, a significant improvement that
follows the seasonal pattern historically observed during the fourth quarter of each year. Year-over-year,
the delinquency rate fell by 6 basis points from 0.54% in fourth quarter 2020.
However, the ongoing COVID-19 pandemic and the potential for continued economic and weather-related
stress increase the level of uncertainty inherent in the agricultural credit sector and could alter the
trajectory of the current agricultural cycle. Another virus resurgence, economic disruption, continued or
worsening supply chain disruptions, or long-term damage to secured collateral from drought or wildfires
could result in elevated loan delinquencies and a higher percentage of loans rated substandard. Farmer
Mac believes that its portfolio continues to be highly diversified, both geographically and by commodity
and that its portfolio has been underwritten to high credit quality standards. Therefore, Farmer Mac
believes that its portfolio is well-positioned to endure reasonably foreseeable volatility from cyclical and
external factors. For more information about the loan balances, loan-to-value ratios, 90-day delinquencies,
and substandard asset rate for the Agricultural Finance mortgage loans in Farmer Mac's portfolio as of
December 31, 2021, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Risk Management—Credit Risk—Loans and Guarantees."
83
Exogenous factors facing farm and food producers can create uncertainty and market instability within the
sector. External market conditions that could adversely impact the farm and food sectors in 2022 include
supply chain disruptions, foreign trade and trade policy, and environmental conditions. The logistics of
growing, harvesting, processing, packaging, shipping, storing, and retailing food are complex and
intertwined. Labor shortages and transportation disruptions created supply chain stoppages in 2020 and
2021, and they could again challenge producers in 2022. The U.S. agricultural sector has become
increasingly dependent on foreign markets as a source of demand, making trade policy increasingly
important to farms and food. The USDA reports U.S. agricultural exports in the fiscal year 2021 at
$173.5 billion, 35% of the total estimated gross farm income in 2021. The USDA's initial forecast for
2022 is a modest increase in export value, but this outcome could be influenced by foreign relations or
foreign economic conditions should they worsen in markets important to exports or imported inputs. For
example, U.S. sanctions against Belarus in 2021 create upward pressure on fertilizer prices, and tensions
between Ukraine and Russia create uncertainty and volatility in global grain prices.
Severe weather conditions and long-term environmental change continue to shape agricultural sectors. The
U.S. experienced 20 separate billion-dollar weather disasters in 2021, the second-highest level in the 40
years tracked by the National Oceanic and Atmospheric Administration behind 2020. Many of those
events affected agriculture, including a midwestern derecho, western wildfires, and western drought.
Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face
increasingly-severe weather incidents. Long and persistent drought conditions impacted western
agriculture during much of 2021. Although drought conditions improved in fourth quarter 2021 and early
weeks of 2022, 12% of the continental U.S. remained in exceptional or extreme drought as of February 1,
2022, according to data from the National Drought Mitigation Center. Extended periods of drought and
dryness can reduce agricultural productivity, cause lasting damage to permanent crops like fruit and tree
nuts, and result in producers leaving some fields fallow due to lack of water. States also regulate water
use, and state laws like California's Sustainable Groundwater Management Act (SGMA) will continue to
shape state-led efforts to manage water infrastructure and use. Agricultural production in California,
Oregon, Washington, Arizona, and Utah is likely to experience the greatest impact from the 2021 drought
and future water management efforts. For loans in areas that commonly experience exceptional drought
(primarily in California), Farmer Mac's underwriting process includes an assessment of anticipated long-
term water availability for the related property and how that impacts the collateral value and borrower's
cash flow position to mitigate that risk. For more information about Farmer Mac's environmental risk
mitigation requirements, see "Management's Discussion and Analysis of Financial Condition and Results
of Operations—Risk Management—Credit Risk—Loans and Guarantees—Environmental
Considerations."
Rural Infrastructure Industry. Economic conditions affecting the rural infrastructure industry tend to
follow those in the general economy. According to data from the U.S. Energy Information Administration,
sales and the revenue from the sale of electricity to customers increased by 2.5% and 8.2%, respectively,
in 2021 through November compared to 2020. This increase was driven by higher sales to residential
markets, a rebound in sales to the industrial sector, and an increase in the retail price of electricity. Overall
economic conditions continued to improve throughout 2021, with improved employment, credit, and retail
sales activity, but COVID-19 variants and higher inflation continue to impact economic activity. Through
December 31, 2021, Farmer Mac had not observed material degradation in the financial performance of its
rural infrastructure portfolio.
Prospects for loan growth within the rural infrastructure industry overall appear to be moderate in the near
term, as ongoing normal-course capital expenditures related to maintaining and upgrading utility
84
infrastructure continue at typical levels. Farmer Mac's future growth opportunities for financing the
electric cooperative industry may be affected by the demand for electric power in rural areas, capital
expenditures by electric cooperatives driven by regulatory or technological changes, the continuation of a
low interest rate environment compared to historical rates, and competitive dynamics within the rural
utilities cooperative finance industry. In December 2020, the Federal Communications Commission's
Rural Digital Opportunity Fund (RDOF) auction awarded $9.2 billion in broadband-related operating cost
subsidies to winning bidders. As RDOF auction winners submit plans to the FCC and begin development,
Farmer Mac could see increased lending activity for rural utilities providers. In addition to RDOF
broadband, Farmer Mac could see an increase in financing opportunities to other telecommunications
providers to rural areas with wireless broadband increasingly important to economic opportunity and
precision agriculture.
The growth in renewable energy generation and deployment of energy storage technologies may help
deepen Farmer Mac's relationships with existing customers through new business opportunities.
According to data from the U.S. Energy Information Administration, renewable electricity capacity will
grow by 48% in the next five years, compared to total electric capacity growth of only 10%. This growth
may also broaden Farmer Mac's customer base with cooperative lenders focused on lending to renewable
energy customers. In response to this growth, Farmer Mac has deployed new financing products tailored
to the renewable energy sector, which represents a new market opportunity for Farmer Mac. Under this
new initiative, Farmer Mac's total outstanding loan purchase balance of renewable energy financing
transactions was $86.8 million as of December 31, 2021.
Weather is an ongoing source of uncertainty for the utilities sector. Drought, fires, and extreme storms can
drive demand, outages, and damage to power and telecommunications facilities. The recent drought and
wildfires in California have not materially impacted Farmer Mac's portfolio as of December 31, 2021, nor
has damage from Hurricane Ida. Farmer Mac continues to monitor the ongoing effects of the arctic freeze
weather event that occurred during mid-February 2021 in the mid-south region, particularly in Texas, on
our rural infrastructure portfolio. As of December 31, 2021, our rural infrastructure portfolio exposure in
Texas was approximately $428.0 million and split between distribution and generation and transmission
cooperatives. Many of these cooperatives were affected in some way by the arctic freeze, including
obstacles in receiving fuel for power plants or the inability to obtain contracted electricity, which resulted
in rolling blackouts across the state. In June 2021, the governor of Texas signed Texas Senate Bill 1580
into law allowing electric cooperatives impacted by the severe weather event to use securitization
financing to recover the extraordinary costs and expenses incurred during the event. In January 2022, the
first Texas electric cooperative announced plans to use securitization financing to recover these
extraordinary costs. We believe that the current risk ratings applied to our rural infrastructure portfolio
reflect any remaining financial stress resulting from the 2021 Texas freeze and elevated energy costs.
Legislative and Regulatory Outlook. Farmer Mac continues to monitor potential legislative and regulatory
changes that could affect Farmer Mac or its stakeholders, including:
•
Section 1005 of the American Rescue Plan Act of 2021 authorized the USDA to provide debt relief
to socially disadvantaged producers who had outstanding principal balances on Farm Service
Agency (FSA) loans as of January 1, 2021. In July 2021, a federal judge issued a preliminary
injunction that ordered USDA to halt all payments under that debt relief program pending
resolution of the constitutional objections raised against the program in ongoing litigation.
Congress has proposed replacing Section 1005 of the American Rescue Plan with a new program
that provides debt relief to "economically distressed" and "at-risk" farmers. If enacted, this
85
provision could lead to a short-term acceleration in the prepayment of the FSA guaranteed loans in
Farmer Mac's USDA Securities portfolio.
•
Farmer Mac continues to monitor legislative developments that could lead to changes in the tax
code that could affect Farmer Mac’s business. For example, an increase in the U.S. corporate tax
rate (currently at 21%) has been proposed in recent years as a possible offset to increased spending
on social programs. A proposed 1% excise tax on the fair market value of a corporation's stock
repurchased in a taxable year has been considered as well. Farmer Mac has an existing stock
buyback program that authorizes up to $9.8 million in repurchases of common stock that expires in
March 2023.
• The current farm bill is set to expire in 2023. The farm bill is an omnibus piece of legislation that
may impact several programs impacting farm profitability, the vitality of rural communities, and
Farmer Mac’s charter. The House and Senate Agriculture Committees are expected to begin
consideration of a new farm bill during 2022. Farmer Mac will continue to monitor this legislation
for any impact it may have to Farmer Mac and farm profitability.
• Agricultural exports from the United States were valued at more than $177 billion in the fiscal year
2021. The ability to produce food and fiber and transport it efficiently across the globe is critical
for the U.S. food and agricultural sectors' competitiveness internationally. In 2021, Congress
passed a $550 billion bipartisan infrastructure bill that provides for key investments to improve
roads, bridges, freight rail, electric, broadband, ports, and waterways that are expected to support
farmers and ranchers' profitability, competitiveness, and access to global markets.
• The prudential regulator of Farmer Mac is expected to undergo significant changes to its board this
calendar year. The three-member board of the Farm Credit Administration (FCA) currently has one
vacant seat, a member whose term expired in 2018, and a third member whose term expires in May
2022. The two current board members continue to serve until their replacement has been
confirmed the U.S. Senate. The Biden Administration is expected to nominate individuals to fill
these seats in the future. Changes to the composition of the FCA board may affect Farmer Mac's
regulatory environment.
86
Balance Sheet Review
The following table summarizes the balance sheet as of the periods indicated:
Table 25
Assets
Cash and cash equivalents
Investment securities, net of allowance
Farmer Mac Guaranteed Securities, net of allowance
USDA Securities
Loans, net of allowance
Loans held in trusts, net of allowance
Other
Total assets
Liabilities
Notes Payable
Debt securities of consolidated trusts held by third parties
Other
Total liabilities
Total equity
Total liabilities and equity
As of
Change
December 31, 2021
December 31, 2020
$
%
(in thousands)
$
908,785 $
1,033,941
$ (125,156)
(12) %
3,882,590
8,361,798
2,440,732
8,300,619
948,059
302,908
3,898,724
8,123,493
2,480,321
(16,134)
238,305
(39,589)
7,248,990
1,051,629
— %
3 %
(2) %
15 %
1,286,156
(338,097)
(26) %
283,876
19,032
$
$
$
25,145,491 25,145,491
$
24,355,501
$ 789,990
22,716,156
981,379
243,543
23,941,078 $
1,204,413
21,848,917
867,239
1,323,786
(342,407)
190,321
23,363,024
53,222
$ 578,054
992,477
211,936
25,145,491 $
24,355,501
$ 789,990
7 %
3 %
4 %
(26) %
28 %
2 %
21 %
3 %
Assets. The increase in total assets was primarily attributable to new loan volume.
Liabilities. The increase in total liabilities was primarily due to an increase in total notes payable, to fund
the acquisition of loan volume.
Equity. The increase in total equity was primarily due to the issuance of the Series G Preferred Stock, an
increase in retained earnings, and an increase in accumulated other comprehensive income.
Risk Management
Credit Risk – Loans and Guarantees.
Agricultural Finance - Direct Credit Exposure
Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans as of December 31, 2021 was
$9.8 billion across 48 states. Farmer Mac applies credit underwriting standards and methodologies to help
assess exposures to loan purchases, which may include collateral valuation, financial metrics, and other
appropriate borrower financial and credit information. For Corporate AgFinance loans, which are often
larger loan exposures to agriculture production and agribusinesses that support agriculture production,
food and fiber processing, and other supply chain production, and which may have risk profiles that differ
from smaller agricultural mortgage loans, Farmer Mac has implemented methodologies and parameters
that help assess credit risk based on the appropriate sector, borrower construct, and transaction
complexity. For more information about Farmer Mac's underwriting and collateral valuation standards for
Agricultural Finance mortgage loans, see "Business—Farmer Mac's Lines of Business—Agricultural
87
Finance—Underwriting and Collateral Standards—Farm & Ranch" and "Business—Farmer Mac's Lines
of Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance."
Farmer Mac's 90-day delinquency measure includes loans 90 days or more past due, as well as loans in
foreclosure and non-performing loans where the borrower is in bankruptcy. For Agricultural Finance
mortgage loans to which Farmer Mac has direct credit exposure, Farmer Mac's 90-day delinquencies as of
December 31, 2021, were $47.3 million (0.48% of the Agricultural Finance mortgage loan portfolio to
which Farmer Mac has direct credit exposure), compared to $46.2 million (0.54% of the Agricultural
Finance mortgage loan portfolio) as of December 31, 2020. Those 90-day delinquencies were comprised
of 32 and 38 delinquent loans as of December 31, 2021 and December 31, 2020, respectively. The
increase in 90-day delinquencies was primarily driven by increased delinquencies in crops, permanent
plantings, and livestock, partially offset by the payoff of a single delinquent loan in storage and
processing. The top ten borrower exposures over 90 days delinquent represented over half of the 90-day
delinquencies as of December 31, 2021. Farmer Mac believes that it remains adequately collateralized on
its delinquent loans.
Farmer Mac's 90-day delinquency rate as of December 31, 2021 was below Farmer Mac's historical
average. In the near-term, our delinquency rate may exceed our historical average due to the impact of
adverse weather events and/or supply chain disruptions on the agricultural economy. Farmer Mac's
average 90-day delinquency rate as a percentage of its Agricultural Finance mortgage loan portfolio over
the last 15 years is approximately 1%. The highest 90-day delinquency rate observed during that period
occurred in 2009 at approximately 2%, which coincided with increased delinquencies in loans within
Farmer Mac's ethanol loan portfolio.
The following table presents historical information about Farmer Mac's 90-day delinquencies in the
Agricultural Finance mortgage loan portfolio compared to the unpaid principal balance of all Agricultural
Finance mortgage loans to which Farmer Mac has direct credit exposure:
Table 26
As of:
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
Agricultural Finance
Mortgage Loans
90-Day
Delinquencies
Percentage
(dollars in thousands)
$
9,811,749 $
9,445,359
9,056,152
8,629,352
8,581,181
8,249,349
8,017,850
7,811,594
7,776,950
47,307
54,792
63,076
72,346
46,232
88,041
68,682
79,722
60,954
0.48 %
0.58 %
0.70 %
0.84 %
0.54 %
1.07 %
0.86 %
1.02 %
0.78 %
Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.20% of total outstanding
business volume as of December 31, 2021, compared to 0.21% as of December 31, 2020 and 0.29% as of
December 31, 2019.
88
The following table presents outstanding Agricultural Finance mortgage loans and 90-day delinquencies
as of December 31, 2021 by year of origination, geographic region, commodity/collateral type, original
loan-to-value ratio, and range in the size of borrower exposure:
89
Table 27
Agricultural Finance Mortgage Loans 90-Day Delinquencies as of December 31, 2021
Distribution of
Agricultural
Loans
Agricultural
Loans
(dollars in thousands)
90-Day
Delinquencies(1)
Percentage
By year of origination:
2011 and prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
By geographic region(2):
Northwest
Southwest
Mid-North
Mid-South
Northeast
Southeast
Total
By commodity/collateral type:
Crops
Permanent plantings
Livestock
Part-time farm
Ag. Storage and Processing
Other
Total
By original loan-to-value ratio:
0.00% to 40.00%
40.01% to 50.00%
50.01% to 60.00%
60.01% to 70.00%
70.01% to 80.00%(3)
80.01% to 90.00%(3)
Total
By size of borrower exposure(4):
Less than $1,000,000
$1,000,000 to $4,999,999
$5,000,000 to $9,999,999
$10,000,000 to $24,999,999
$25,000,000 and greater
Total
6 % $
2 %
3 %
3 %
4 %
7 %
7 %
7 %
10 %
23 %
28 %
532,267 $
236,822
331,265
274,519
427,958
666,632
685,753
672,594
954,909
2,288,796
2,740,234
100 % $
9,811,749 $
13 % $
32 %
27 %
15 %
4 %
9 %
100 % $
50 % $
22 %
19 %
5 %
4 %
—
100 % $
17 % $
24 %
35 %
21 %
3 %
— %
1,271,158 $
3,127,283
2,650,690
1,511,250
408,053
843,315
9,811,749 $
4,916,170 $
2,180,623
1,838,097
485,342
377,220
14,297
9,811,749 $
1,694,247 $
2,342,658
3,412,859
2,058,146
265,592
38,247
2,906
231
1,107
3,641
10,110
11,075
5,074
2,987
8,713
1,463
—
47,307
7,169
10,279
3,979
9,872
7,296
8,712
47,307
32,427
3,567
10,797
516
—
—
47,307
2,775
16,428
23,706
4,398
—
—
100 % $
9,811,749 $
47,307
34 % $
40 %
15 %
10 %
1 %
100 % $
3,326,506 $
3,897,862
1,501,123
999,255
87,003
9,811,749 $
6,632
26,068
14,607
—
—
47,307
0.55 %
0.10 %
0.33 %
1.33 %
2.36 %
1.66 %
0.74 %
0.44 %
0.91 %
0.06 %
0.06 %
0.48 %
0.56 %
0.33 %
0.15 %
0.65 %
1.79 %
1.03 %
0.48 %
0.66 %
0.16 %
0.59 %
0.11 %
— %
— %
0.48 %
0.16 %
0.70 %
0.69 %
0.21 %
— %
— %
0.48 %
0.20 %
0.67 %
0.97 %
— %
— %
0.48 %
(1)
(2)
(3)
(4)
Includes loans held and loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs that are 90 days or more past due, in
foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved
bankruptcy plan.
Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND,
SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL,
GA, MS, NC, SC, TN).
Primarily part-time farm loans. Loans with an original loan-to-value ratio of greater than 80% are required to have private mortgage insurance.
Includes aggregated loans to single borrowers or borrower-related entities.
90
Another indicator that Farmer Mac considers in analyzing the credit quality of its Agricultural Finance
mortgage loans is the level of internally-rated "substandard" assets, both in dollars and as a percentage of
the outstanding portfolio. Assets categorized as "substandard" have a well-defined weakness or
weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected. As of December 31, 2021, Farmer Mac's Agricultural Finance mortgage loans (to which it has
direct credit exposure) comprising substandard assets were $246.7 million (2.5% of the portfolio),
compared to $291.5 million (3.4% of the portfolio) as of December 31, 2020. Those substandard assets
comprised 274 loans as of December 31, 2021 and 343 loans as of December 31, 2020.
The decrease of $44.8 million in substandard assets during 2021 was primarily driven by credit upgrades
in our off-balance sheet portfolio, partially offset by credit downgrades in our on-balance sheet portfolio.
Substandard assets decreased as a percentage of the total on-balance sheet and off-balance sheet portfolios
due to a combination of credit upgrades in the off-balance sheet portfolio and growth in both portfolios.
The percentage of substandard assets within the portfolio as of December 31, 2021 was below the
historical average. Farmer Mac's average substandard assets as a percentage of its Agricultural Finance
mortgage loans over the last 15 years is approximately 4%. The highest substandard asset rate observed
during the last 15 years occurred in 2010 at approximately 8%, which coincided with an increase in
substandard loans within Farmer Mac's ethanol portfolio. If Farmer Mac's substandard asset rate increases
from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve
for losses will also increase.
Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that
losses associated with the current agricultural credit cycle will be moderated by the strength and diversity
of its portfolio, which Farmer Mac believes is adequately collateralized.
Farmer Mac considers a loan's original loan-to-value ratio as one of many factors in evaluating loss
severity. Loan-to-value ratios depend on the market value of a property, as determined in accordance with
Farmer Mac's collateral valuation standards. As of December 31, 2021 and December 31, 2020, the
average unpaid principal balances for Agricultural Finance mortgage loans outstanding and to which
Farmer Mac has direct credit exposure was $790,000 and $742,000, respectively. Farmer Mac calculates
the "original loan-to-value" ratio of a loan by dividing the original loan principal balance by the original
appraised property value. This calculation does not reflect any amortization of the original loan balance or
any adjustment to the original appraised value to provide a current market value. The original loan-to-
value ratio of any cross-collateralized loans is calculated on a combined basis rather than on a loan-by-
loan basis. The weighted-average original loan-to-value ratio for Agricultural Finance mortgage loans
purchased during 2021 was 49%, compared to 54% for loans purchased during 2020. The weighted-
average original loan-to-value ratio for Agricultural Finance mortgage loans and loans underlying off-
balance sheet Agricultural Finance Guaranteed Securities and LTSPCs was 52% as of both December 31,
2021 and December 31, 2020. The weighted-average original loan-to-value ratio for all 90-day
delinquencies was 51% and 50% as of December 31, 2021 and December 31, 2020, respectively.
The weighted-average current loan-to-value ratio (the loan to-value ratio based on original appraised value
and current outstanding loan amount adjusted to reflect amortization) for Agricultural Finance mortgage
loans and loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs was
47% and 46% as of December 31, 2021 and December 31, 2020, respectively.
91
The following table presents the current loan-to-value ratios for the Agricultural Finance mortgage loans
to which Farmer Mac has direct credit exposure, as disaggregated by internally assigned risk ratings:
Table 28
Agricultural Finance Mortgage Loans current loan-to-value ratio by internally assigned risk rating as of December 31, 2021
Acceptable
Special Mention
Substandard
Total
(in thousands)
Current loan-to-value ratio(1):
0.00% to 40.00%
40.01% to 50.00%
50.01% to 60.00%
60.01% to 70.00%
70.01% to 80.00%
80.01% and greater
Total
$
2,761,962 $
52,503 $
89,018 $
2,378,511
2,484,515
1,427,135
188,280
6,359
97,733
90,934
54,072
22,260
805
58,177
57,317
22,594
17,123
2,451
2,903,483
2,534,421
2,632,766
1,503,801
227,663
9,615
$
9,246,762 $
318,307 $
246,680 $
9,811,749
(1)
The current loan-to-value ratio is based on original appraised value (or most recently obtained appraisal, if available) and current outstanding loan amount
adjusted to reflect loan amortization.
92
The following table presents Farmer Mac's cumulative net credit losses relative to the cumulative original
balance for all Agricultural Finance mortgage loans as of December 31, 2021 by year of origination,
geographic region, and commodity/collateral type. The purpose of this information is to present
information about realized losses relative to original Farm & Ranch purchases, guarantees, and
commitments.
Table 29
Agricultural Finance Mortgage Loans Credit Losses Relative to Cumulative
Original Loans, Guarantees, and LTSPCs as of December 31, 2021
Cumulative Original Loans,
Guarantees and LTSPCs
Cumulative Net
Credit Losses/
(Recoveries)
Cumulative Loss
Rate
(dollars in thousands)
By year of origination:
2011 and prior
$
16,099,619 $
33,785
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
By geographic region(1):
Northwest
Southwest
Mid-North
Mid-South
Northeast
Southeast
Total
By commodity/collateral type:
Crops
Permanent plantings
Livestock
Part-time farm
Ag. Storage and Processing
Other
Total
32,943,345 $
37,580
0.11 %
1,161,476
1,470,293
1,059,486
1,227,120
1,542,996
1,641,538
1,326,813
1,533,503
2,832,102
3,048,399
—
—
—
(516)
—
4,311
—
—
—
—
4,323,709 $
11,248,086
8,263,325
4,450,935
1,753,860
2,903,430
11,191
8,542
17,165
(613)
323
972
32,943,345 $
37,580
15,250,131 $
7,171,387
7,322,393
1,829,054
1,206,989
163,391
2,887
9,783
3,836
1,090
19,984
—
37,580
0.21 %
— %
— %
— %
(0.04) %
— %
0.26 %
— %
— %
— %
— %
0.26 %
0.08 %
0.21 %
(0.01) %
0.02 %
0.03 %
0.11 %
0.02 %
0.14 %
0.05 %
0.06 %
1.66 %
— %
0.11 %
$
$
$
$
$
32,943,345 $
(1)
Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND,
SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL,
GA, MS, NC, SC, TN).
93
Analysis of portfolio performance indicates that commodity type is the primary determinant of Farmer
Mac's exposure to loss on a given loan. The following tables present concentrations of Agricultural
Finance mortgage loans by commodity type within geographic region and cumulative credit losses by
origination year and commodity type:
Table 30
As of December 31, 2021
Agricultural Finance Mortgage Loans Concentrations by Commodity Type within Geographic Region
Crops
Permanent
Plantings
Livestock
Part-time
Farm
Ag. Storage and
Processing
Other
Total
(dollars in thousands)
By geographic region(1):
Northwest
$ 634,469
$ 190,687
$ 291,914
$ 105,312
$
48,695
$
81
$ 1,271,158
6.5 %
1.9 %
3.0 %
1.1 %
0.5 %
— %
13.0 %
Southwest
673,514
1,639,929
570,639
96,212
134,629
12,360
3,127,283
6.9 %
16.7 %
5.8 %
1.0 %
1.4 %
0.1 %
31.9 %
Mid-North
2,257,009
11,761
208,460
99,043
72,781
1,636
2,650,690
Mid-South
835,252
72,925
495,756
64,200
43,086
31
1,511,250
23.0 %
0.1 %
2.1 %
1.0 %
0.7 %
— %
26.9 %
Northeast
Southeast
Total
8.5 %
0.7 %
5.1 %
0.7 %
0.4 %
— %
15.4 %
197,876
43,229
79,836
54,097
33,015
—
408,053
2.0 %
0.4 %
0.8 %
0.6 %
0.3 %
— %
4.1 %
318,050
222,092
191,492
66,478
45,014
189
843,315
3.2 %
2.3 %
2.0 %
0.7 %
0.5 %
— %
8.7 %
$4,916,170
$2,180,623
$1,838,097
$485,342
$377,220
$14,297
$9,811,749
50.1 %
22.1 %
18.8 %
5.1 %
3.8 %
0.1 %
100.0 %
(1)
Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND,
SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL,
GA, MS, NC, SC, TN).
94
Table 31
As of December 31, 2021
Agricultural Loans Cumulative Credit Losses by Origination Year and Commodity Type
Crops
Permanent
Plantings
Livestock
Part-time
Farm
Ag. Storage and
Processing
Total
(in thousands)
By year of origination:
2011 and prior
$
3,427 $
9,783 $
3,836 $
1,066 $
15,673 $
33,785
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
—
—
—
(540)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24
—
—
—
—
—
—
—
—
—
—
—
4,311
—
—
—
—
—
—
—
(516)
—
4,311
—
—
—
—
$
2,887 $
9,783 $
3,836 $
1,090 $
19,984 $
37,580
For more information about the credit quality of Farmer Mac's Agricultural Finance mortgage loans and
the associated allowance for losses please refer to Note 8 and Note 12 to the consolidated financial
statements. Activity affecting the allowance for loan losses and reserve for losses is discussed in
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Provision for and Release of Allowance for Loan Losses and Reserve for Losses."
Rural Infrastructure Finance - Direct Credit Exposure
Farmer Mac's direct credit exposure to Rural Utilities loans held and loans underlying LTSPCs as of
December 31, 2021 was $2.9 billion across 45 states. For more information about Farmer Mac's
underwriting and collateral valuation standards for Rural Utilities loans, see "Business—Farmer Mac's
Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral Standards." As of
December 31, 2021, there were no delinquencies in Farmer Mac's portfolio of Rural Utilities loans.
Farmer Mac evaluates credit risk for these assets by reviewing a variety of borrower credit risk
characteristics. These characteristics can include (but is not limited to) financial metrics, internal risk
ratings, ratings assigned by ratings agencies, types of customers served, sources of power supply, and the
regulatory environment.
The following table presents Farmer Mac’s portfolio of generation and transmission ("G&T") and
distribution cooperative borrowers, as well as renewable energy loans, disaggregated by internally
assigned risk ratings.
95
Table 32
Rural Infrastructure Finance portfolio by internally assigned risk rating as of December 31, 2021
Acceptable
Special Mention
Substandard
Total
Distribution Cooperative
G&T Cooperative
Renewable Energy
Rural Utilities Total
$
$
2,166,068 $
670,342
86,763
(in thousands)
— $
—
—
— $
22,800
—
2,923,173 $
— $
22,800 $
2,166,068
693,142
86,763
2,945,973
For more information about the credit quality of Farmer Mac's Rural Infrastructure Finance portfolio and
the associated allowance for losses please refer to Notes 8 and 12 of the consolidated financial statements.
Other Considerations Regarding Credit Risk Related to Loans and Guarantees
The credit exposure on USDA Securities, including those underlying Farmer Mac Guaranteed USDA
Securities, is guaranteed by the full faith and credit of the United States. Therefore, Farmer Mac believes
that we have little or no credit risk exposure to the USDA Securities in the Agricultural Finance line of
business because of the USDA guarantee. As of December 31, 2021, Farmer Mac had not experienced any
credit losses on any USDA Securities or Farmer Mac Guaranteed USDA Securities and does not expect to
incur any such losses in the future. Because we do not expect credit losses on this portfolio, Farmer Mac
does not provide an allowance for losses on its portfolio of USDA Securities.
Farmer Mac requires many lenders to make representations and warranties about the conformity of
Agricultural Finance mortgage loans and Rural Infrastructure Finance loans to Farmer Mac's standards,
the accuracy of loan data provided to Farmer Mac, and other requirements related to the loans. Sellers who
make these representations and warranties are responsible to Farmer Mac for breaches of those
representations and warranties. Farmer Mac has the ability to require a seller to cure, replace, or
repurchase a loan sold or transferred to Farmer Mac if any breach of a representation or warranty is
discovered that was material to Farmer Mac's decision to purchase the loan or that directly or indirectly
causes a default or potential loss on a loan sold or transferred by the seller to Farmer Mac. During the
previous three years ended December 31, 2021, there have been no breaches of representations and
warranties by sellers that resulted in Farmer Mac requiring a seller to cure, replace, or repurchase a loan.
In addition to relying on the representations and warranties of sellers, Farmer Mac also underwrites the
Agricultural Finance mortgage loans (other than rural housing and part-time farm mortgage loans) and
Rural Infrastructure Finance loans on which it has direct credit exposure. For rural housing and part-time
farm mortgage loans, Farmer Mac relies on representations and warranties from the seller that those loans
conform to Farmer Mac's specified underwriting criteria. For more information about Farmer Mac's loan
eligibility requirements and underwriting standards, see "Business—Farmer Mac's Lines of Business—
Agricultural Finance—Loan Eligibility," "Business—Farmer Mac's Lines of Business—Agricultural
Finance—Underwriting and Collateral Standards—Farm & Ranch," "Business—Farmer Mac's Lines of
Business—Agricultural Finance—Underwriting and Collateral Standards—Corporate AgFinance," and
"Business—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Underwriting and Collateral
Standards."
Under contracts with Farmer Mac and in consideration for servicing fees, Farmer Mac-approved servicers
service loans in accordance with Farmer Mac's requirements. Servicers are responsible to Farmer Mac for
serious errors in the servicing of those loans. If a servicer materially breaches the terms of its servicing
agreement with Farmer Mac, such as failing to forward payments received or releasing collateral without
96
Farmer Mac's consent, or experiences insolvency or bankruptcy, the servicer is responsible for any
corresponding damages to Farmer Mac and, in most cases, Farmer Mac has the right to terminate the
servicing relationship for a particular loan or the entire portfolio serviced by the servicer. Farmer Mac also
can proceed against the servicer in arbitration or exercise any remedies available to it under law. During
the previous three years ended December 31, 2021, Farmer Mac had not exercised any remedies or taken
any formal action against any servicers. For more information about Farmer Mac's servicing requirements,
see "Business—Farmer Mac's Lines of Business—Agricultural Finance—Loan Servicing" and "Business
—Farmer Mac's Lines of Business—Rural Infrastructure Finance—Lenders and Loan Servicing."
Environmental Considerations
For loans purchased by Farmer Mac in its Agricultural Finance line of business, Farmer Mac has outlined
specific requirements for environmental compliance. Sellers seeking to sell Agricultural Finance mortgage
loans to Farmer Mac must complete an environmental disclosure form and ensure that properties securing
these loans are in full compliance with applicable permitting requirements and have necessary access to
proper waste disposal. Farmer Mac requires sellers to make representations and warranties that it has
physically inspected the property prior to sale to ensure that the borrower has handled any hazardous
materials on the property (including the waters adjacent) only as necessary to operate the property and in
compliance with applicable environmental laws. Farmer Mac also requires sellers to monitor each
borrower's continuing compliance with environmental laws and regulations by performing annual
inspections throughout the life of the loan. Farmer Mac also requires that each mortgage note prohibit the
use, disposal, storage, or release of hazardous substances on the property except for small amounts
appropriate for the maintenance of the property.
For Agricultural Finance mortgage loans secured by irrigated property, Farmer Mac requires the seller to
prepare an analysis for water rights and water sustainability for the borrower's operation for the life of the
loan. This analysis must include pump and well tests for groundwater sources and legally-documented
easements or agreements for off-site water sources. For loans secured by properties where water
availability may be a concern (primarily California), Farmer Mac's underwriting process includes an
assessment of anticipated long-term water availability for the related property and how that impacts the
collateral value and borrower's cash flow position to mitigate that risk. As part of this process, Farmer
Mac may conduct, or require the seller to conduct, an in-depth groundwater availability analysis.
Credit Risk – Counterparty Risk. Farmer Mac is exposed to credit risk arising from its business
relationships with other institutions, which include:
•
•
•
issuers of AgVantage securities;
approved lenders and servicers; and
interest rate swap counterparties.
Farmer Mac approves AgVantage counterparties and manages institutional credit risk related to those
AgVantage counterparties by requiring them to meet Farmer Mac's standards for creditworthiness for the
particular counterparty type and transaction. The required collateralization level is established when the
AgVantage facility is entered into with the counterparty and does not change during the life of the
AgVantage securities issued under the facility without Farmer Mac's consent. In AgVantage transactions,
the corporate obligor is typically required to remove from the pool of pledged collateral loans that become
and remain (within specified parameters) delinquent in the payment of principal or interest and to
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substitute eligible loans that are current in payment or pay down the AgVantage securities to maintain the
minimum required collateralization level.
In the event of a default on an AgVantage security, Farmer Mac would have recourse to the pledged
collateral and have rights to the ongoing borrower payments of principal and interest. As a result, Farmer
Mac has indirect credit exposure to the Agricultural Finance mortgage loans and Rural Utilities loans that
secure AgVantage securities. For AgVantage counterparties that are institutional real estate investors or
financial funds and other similar entities, Farmer Mac also typically requires that the counterparty (1)
maintain a higher collateralization level, through either a higher overcollateralization percentage or lower
loan-to-value ratio thresholds and (2) comply with specified financial covenants for the life of the related
AgVantage security to avoid default. As of December 31, 2021, Farmer Mac had not experienced any
credit losses on any AgVantage securities. For a more detailed description of AgVantage securities, see
"Business—Farmer Mac's Lines of Business—Agricultural Finance—Other Products – Agricultural
Finance—AgVantage Securities" and "Business—Farmer Mac's Lines of Business—Rural Infrastructure
Finance—Other Products – Rural Infrastructure Finance—AgVantage Securities."
The unpaid principal balance of outstanding on-balance sheet AgVantage securities secured by loans
eligible for the Agricultural Finance line of business totaled $5.1 billion as of December 31, 2021 and $5.2
billion as of December 31, 2020. The unpaid principal balance of on-balance sheet AgVantage securities
secured by loans eligible for the Rural Infrastructure Finance line of business totaled $3.0 billion as of
December 31, 2021 and $2.6 billion as of December 31, 2020. The unpaid principal balance of
outstanding off-balance sheet AgVantage securities totaled $2.8 million as of December 31, 2021 and $4.4
million as of December 31, 2020.
The following table provides information about the issuers of AgVantage securities and the required
collateralization levels for those transactions as of December 31, 2021 and December 31, 2020:
Counterparty
Table 33
AgVantage:
CFC
MetLife
Rabo AgriFinance
Other(1)
Total outstanding
As of December 31, 2021
As of December 31, 2020
Balance
Required
Collateralization
Balance
Required
Collateralization
(dollars in thousands)
$
3,036,017
2,050,000
2,550,000
100%
103%
110%
$
2,570,249
2,375,000
2,050,000
100%
103%
110%
492,464
106% to 125%
744,110
106% to 125%
$
8,128,481
$
7,739,359
(1)
Consists of AgVantage securities issued by 13 and 10 different issuers as of December 31, 2021 and December 31, 2020, respectively.
Farmer Mac manages institutional credit risk related to lenders and servicers by requiring those
institutions to meet Farmer Mac's standards for creditworthiness. Farmer Mac monitors the financial
condition of those institutions by evaluating financial statements and credit rating agency reports. For
more information about Farmer Mac's lender eligibility requirements, see "Business—Farmer Mac's Lines
of Business—Agricultural Finance—Lenders" and "Business—Farmer Mac's Lines of Business—Rural
Infrastructure Finance—Lenders and Loan Servicing."
Farmer Mac manages institutional credit risk related to its interest rate swap counterparties through
collateralization provisions contained in each of its swap agreements that vary based on the market value
of its swap portfolio with each counterparty. Farmer Mac and its interest rate swap counterparties are
98
required to fully collateralize their derivatives positions without any minimum threshold for cleared swap
transactions, as well as for non-cleared swap transactions entered into after March 1, 2017. Farmer Mac
transacts interest rate swaps with multiple counterparties to reduce counterparty credit exposure
concentration. Farmer Mac's usage of cleared derivatives has increased over time as has its exposure to
clearinghouses. The usage of cleared swap transactions reduces Farmer Mac's exposure to individual
counterparties with the central clearinghouse acting to settle the change in value of contracts on a daily
basis. Credit risk related to interest rate swap contracts is discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" and
Note 6 to the consolidated financial statements.
Credit Risk – Other Investments. As of December 31, 2021, Farmer Mac had $0.9 billion of cash and cash
equivalents and $3.9 billion of investment securities. The management of the credit risk inherent in these
investments is governed by Farmer Mac's internal policies as well as FCA's Liquidity and Investment
Regulations. In addition to establishing a portfolio of highly liquid investments as an available source of
cash, the goals of Farmer Mac's investment policies are designed to minimize Farmer Mac's exposure to
financial market volatility, preserve capital, and support Farmer Mac's access to the debt markets.
The Liquidity and Investment Regulations and Farmer Mac's internal policies require that investments
held in Farmer Mac's investment portfolio meet the following creditworthiness standards: (1) at a
minimum, at least one obligor of the investment must have a very strong capacity to meet financial
commitments for the life of the investment, even under severely adverse or stressful conditions, and
generally present a very low risk of default; (2) if the obligor whose capacity to meet financial
commitments is being relied upon to meet the standard set forth in subparagraph (1) is located outside of
the United States, the investment must also be fully guaranteed by a U.S. government agency; and (3) the
investment must exhibit low credit risk and other risk characteristics consistent with the purpose or
purposes for which it is held.
The Liquidity and Investment Regulations and Farmer Mac's internal policies also establish concentration
limits, which are intended to limit exposure to any single entity, issuer, or obligor. The Liquidity and
Investment Regulations limit Farmer Mac's total credit exposure to any single entity, issuer, or obligor of
securities to 10% of Farmer Mac's regulatory capital ($121.7 million as of December 31, 2021). However,
Farmer Mac's current policy limits this total credit exposure to 5% of its regulatory capital ($60.8 million
as of December 31, 2021). These exposure limits do not apply to obligations of U.S. government agencies
or GSEs, although Farmer Mac's current policy restricts investing more than 100% of regulatory capital in
the senior non-convertible debt securities of any one GSE.
Although the Liquidity and Investments Regulations do not establish limits on the maximum amount,
expressed as a percentage of Farmer Mac's investment portfolio, that can be invested in each eligible asset
class, Farmer Mac's internal policies set forth asset class limits as part of Farmer Mac's overall risk
management framework.
Interest Rate Risk. Farmer Mac is subject to interest rate risk on all interest-earning assets on its balance
sheet because of timing differences in the cash flows due to maturity, paydown, or repricing of the assets
and debt together with financial derivatives. Cash flow mismatches due to changing interest rates can
reduce the earnings of Farmer Mac if assets prepay sooner than expected and the resulting cash flows must
be reinvested in lower-yielding investments when Farmer Mac's funding costs cannot be correspondingly
reduced. Alternatively, Farmer Mac could realize a decline in income if assets repay more slowly than
99
originally forecasted and the associated maturing debt must be replaced by debt issuances at higher
interest rates.
Interest Rate Risk Management
The goal of interest rate risk management at Farmer Mac is to manage the balance sheet in a manner that
generates stable earnings and value across a variety of interest rate environments. Recognizing that
interest rate sensitivities may change with the passage of time and as interest rates change, Farmer Mac
regularly assesses this exposure and, if necessary, adjusts its portfolio of interest-earning assets, debt, and
financial derivatives.
Farmer Mac's objective is to maintain its exposure to interest rate risk within appropriate limits, as
approved by Farmer Mac's board of directors. Farmer Mac's management-level Asset and Liability
Committee ("ALCO") provides oversight, establishes guidelines, and approves strategies to maintain
interest rate risk within the board-established limits.
Farmer Mac's primary strategy for managing interest rate risk is to fund asset purchases with debt that
together with financial derivatives have similar duration and convexity characteristics and help mitigate
impacts from interest rate changes across the yield curve. As part of this debt issuance strategy, Farmer
Mac seeks to issue debt securities across a variety of maturities that together with financial derivatives
closely align the forecasted debt and financial derivative cash flows with forecasted asset cash flows.
Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a
spectrum of maturities to execute its debt issuance strategy. Callable debt is issued to mitigate prepayment
risk associated with certain interest-earning assets held on balance sheet. In general, as interest rates
decline, prepayments typically increase, and Farmer Mac is able to economically extinguish certain
callable debt issuances. In addition, Farmer Mac enters into financial derivatives, primarily interest rate
swaps, to better match the durations of Farmer Mac's assets and liabilities, thereby reducing overall
sensitivity to changing interest rates.
Taking into consideration the prepayment provisions and the default probabilities associated with its
portfolio of interest-earning assets, Farmer Mac incorporates behavioral prepayment models when
projecting and valuing cash flows associated with these assets. In recognition that borrowers' behaviors in
various interest rate environments may change over time, Farmer Mac periodically evaluates the
effectiveness of these models compared to actual prepayment experience and adjusts and refines the
models as necessary to improve the precision of future prepayment forecasts.
Changes in interest rates may affect the timing of asset prepayments which may, in turn, impact durations
and values of the assets. Declining interest rates generally results in increased prepayments, which
shortens the duration of these assets, while rising interest rates generally results in lower prepayments,
thereby extending the duration of the assets.
Farmer Mac is subject to interest rate risk on loans and securities it has committed to acquire but not yet
purchased (other than delinquent loans purchased through LTSPCs or loans designated for securitization
under a forward purchase agreement). When Farmer Mac commits to purchase these assets, it is exposed
to interest rate risk between the time it commits to purchase the loans and the time it issues debt to fund
the purchase of these loans. Farmer Mac manages the interest rate risk exposure related to these loans by
entering into exchange-traded futures contracts involving U.S. Treasury securities and other financial
100
derivatives. Similarly, when Farmer Mac commits to sell certain assets, the associated interest rate
exposure is primarily managed with exchange-traded futures contracts involving U.S. Treasury securities
and other financial derivatives.
Farmer Mac's $0.9 billion of cash and cash equivalents mature within three months and are generally
funded with debt having similar maturities. As of December 31, 2021, $2.9 billion of the $3.9 billion of
investment securities (74%) were floating rate securities with rates that adjust within one year or fixed rate
securities with original maturities between three months and one year. Farmer Mac's floating rate
investment securities are funded with floating rate debt that closely matches the rate adjustment frequency
of the associated investments. The fixed rate investment securities are generally funded in a manner
consistent with Farmer Mac's overall funding strategy that approximates a duration and convexity match.
Interest Rate Risk Metrics
Farmer Mac regularly evaluates and conducts interest rate shock simulations on its portfolio of financial
assets, debt, and financial derivatives and examines a variety of metrics to quantify and manage its
exposure to interest rate risk. These metrics include sensitivity to interest rate movements on the market
value of equity ("MVE") and forecasted net effective spread ("NES") as well as a duration gap analysis.
MVE represents management's estimate of the present value of all future cash flows from its current
portfolio of on- and off-balance sheet assets, liabilities, and financial derivatives, discounted at current
interest rates and appropriate spreads. However, MVE is not indicative of the market value of Farmer Mac
as a going concern because these market values are theoretical and do not reflect future business activities.
The MVE sensitivity analysis measures the degree to which the market values of Farmer Mac's assets,
liabilities, and financial derivatives are estimated to change for a given change in interest rates.
Farmer Mac's NES simulation represents the difference between projected income over the next twelve
months from the current portfolio of interest-earning assets and interest expense produced by the related
funding, including associated financial derivatives. Farmer Mac's NES simulation may be impacted by
changes in market interest rates resulting from timing differences between maturities and re-pricing
characteristics of funded assets and debt together with the associated financial derivatives. The direction
and magnitude of any such effect depends on the direction and magnitude of the change in interest rates
across the yield curve as well as the composition of Farmer Mac's portfolio. The NES simulation
represents an estimate of the net effective spread income that Farmer Mac's current portfolio is expected to
produce over a twelve-month horizon. As a result, the NES simulation sensitivity statistics provide a
short-term view of Farmer Mac's NES income sensitivity to interest rate shocks.
Duration is a measure of a financial instrument's fair value sensitivity to small changes in interest rates.
Duration gap is calculated using the net estimated durations of Farmer Mac's interest-earning assets, debt,
and financial derivatives. Duration gap quantifies the extent to which estimated fair value sensitivities are
matched for interest-earning assets, debt and financial derivatives. Duration gap provides a relatively
concise measure of the interest rate risk inherent in Farmer Mac's outstanding portfolio.
A positive duration gap denotes that the duration of Farmer Mac's interest-earning assets is greater than
the duration of its debt and financial derivatives. A positive duration gap indicates that with small changes
in interest rate movements the fair value change of Farmer Mac's interest-earning assets is more sensitive
than the fair value change of its debt and financial derivatives. Conversely, a negative duration gap
indicates that with small changes in interest rate movements the fair value change of Farmer Mac's
101
interest-earning assets are less sensitive than the fair value change of its debt and financial derivatives. A
duration gap of zero indicates that with small changes in interest rate movements the fair value change of
Farmer Mac's interest-earning assets is effectively offset by the fair value change of its debt and financial
derivatives.
Each of the interest rate risk metrics is quantified using asset/liability models and derived based on
management's best estimates of factors such as forward interest rates across the yield curve, interest rate
volatility, and timing of asset prepayments and callable debt redemptions. Accordingly, these metrics are
estimates rather than precise measurements. Actual results may differ to the extent there are material
changes to Farmer Mac's financial asset portfolio or changes in funding or hedging strategies undertaken
to mitigate unfavorable sensitivities to interest rate changes.
The following schedule summarizes the results of Farmer Mac's MVE and NES sensitivity analysis as of
December 31, 2021 and December 31, 2020 to an immediate and instantaneous uniform or "parallel" shift
in the yield curve:
Table 34
Interest Rate Scenario(1)
+100 basis points
-100 basis points
Interest Rate Scenario
+100 basis points
-100 basis points
Percentage Change in MVE from Base Case
As of December 31, 2021
3.7 %
(0.1) %
As of December 31, 2020(1)
4.9 %
(0.2) %
Percentage Change in NES from Base Case
As of December 31, 2021
6.6 %
(0.1) %
As of December 31, 2020(1)
3.9 %
— %
(1)
The down 100 basis points shock scenario was replaced in 2020 with a proportional shock relative to 50% of the 3-month Treasury bill rate, with the
approval of the Financial Risk Committee of the Board of Directors. The replacement down shock scenario was negative 2 basis point as of
December 31, 2021 and negative 4 basis points as of December 31, 2020.
As of December 31, 2021, Farmer Mac's duration gap was negative 1.5 months, compared to negative 1.6
months as of December 31, 2020. Farmer Mac updated its duration gap measure to interest-earning assets,
debt, and financial derivatives as of December 31, 2020. Interest rates within the yield curve increased
significantly during 2021 with the 2-year and 10-year U.S. Treasury Note yield-to-maturity increasing by
approximately 61 basis points and 59 basis points, respectively, versus year-end 2020. This rate movement
contributed to extending the duration of Farmer Mac's funded assets compared to its debt and financial
derivatives, thereby narrowing Farmer Mac's duration gap.
Financial Derivatives Transactions
The economic effects of financial derivatives are included in Farmer Mac's MVE, NES, and duration gap
analyses. Farmer Mac enters into the following types of financial derivative transactions principally to
protect against risk from the effects of market price or interest rate movements on the value of interest-
earning assets, future cash flows, and debt issuance, and not for trading or speculative purposes:
•
•
"pay-fixed" interest rate swaps, in which Farmer Mac pays fixed rates of interest to, and receives
floating rates of interest from, counterparties;
"receive-fixed" interest rate swaps, in which Farmer Mac receives fixed rates of interest from, and
pays floating rates of interest to, counterparties;
102
•
•
"basis swaps," in which Farmer Mac pays floating rates of interest based on one index to, and
receives floating rates of interest based on a different index from, counterparties; and
exchange-traded futures contracts involving U.S. Treasury securities.
As of December 31, 2021, Farmer Mac had $17.5 billion combined notional amount of interest rate swaps,
with terms ranging from less than one year to just over thirty years, of which $7.0 billion were pay-fixed
interest rate swaps, $8.8 billion were receive-fixed interest rate swaps, and $1.6 billion were basis swaps.
Farmer Mac enters into interest rate swaps to more closely match the cash flow and duration
characteristics of its interest-earning assets with those of its debt. For example, Farmer Mac transacts pay-
fixed interest rate swaps and issues floating rate debt to effectively create fixed rate funding that
approximately matches the duration of the corresponding fixed rate assets being funded. Farmer Mac
evaluates the overall cost of using interest rate swaps in conjunction with debt issuance as a funding
alternative to duration-matched debt and enters into interest rate swaps to manage interest rate risks across
the balance sheet.
Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available
for sale or liabilities to protect against fair value changes in the assets or liabilities related to a benchmark
interest rate (e.g., LIBOR or Secured Overnight Financing Rate (“SOFR”)). Also, certain financial
derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on
floating rate debt.
As discussed in Note 6 to the consolidated financial statements, all financial derivatives are recorded on
the balance sheet at fair value as derivative assets or as derivative liabilities. Changes in the fair values of
undesignated financial derivatives are reported in "(Losses)/gains on financial derivatives" in the
consolidated statements of operations. For financial derivatives designated in fair value hedge accounting
relationships, changes in the fair values of the hedged items related to the risk being hedged are reported
in "Net interest income" in the consolidated statements of operations. Interest accruals on derivatives
designated in fair value hedge accounting relationships are also recorded in "Net interest income" in the
consolidated statements of operations. For financial derivatives designated in cash flow hedge accounting
relationships, the unrealized gain or loss on the derivative is recorded in other comprehensive income.
Because the hedging instrument is an interest rate swap and the hedged forecasted transactions are future
interest payments on floating rate debt, amounts recorded in accumulated other comprehensive income are
reclassified to "Total interest expense" in conjunction with the recognition of interest expense on the debt.
All of Farmer Mac's interest rate swap transactions are conducted under standard collateralized
agreements that limit Farmer Mac's potential credit exposure to any counterparty. As of both
December 31, 2021 and December 31, 2020, Farmer Mac had no uncollateralized net exposures based on
the mark-to-market value of the portfolio of interest rate swaps
Re-funding and repricing risk
Farmer Mac is subject to re-funding and repricing risk on any floating rate assets that are not funded to
contractual maturity. Re-funding and repricing risk arises from potential changes in funding costs resulting
from a funding strategy whereby Farmer Mac issues floating rate debt across a variety of maturities to
fund floating rate or synthetically floating rate assets that on average may have longer maturities. Changes
in Farmer Mac's funding costs relative to the benchmark market index rate to which the assets are indexed
can cause changes to net interest income when debt matures and is reissued at then current interest rates to
continue funding those assets.
103
In addition, many of Farmer Mac's floating rate assets may prepay before the contractual maturity date.
Farmer Mac is subject to re-funding and repricing risk on a portion of its fixed rate assets as a result of its
use of pay-fixed receive-floating interest rate swaps that effectively convert the required funding needed
from fixed rate to floating rate. These fixed rate assets are then effectively synthetically floating rate assets
that require floating rate funding.
Farmer Mac can meet floating rate funding needs in several ways, including:
•
•
•
•
issuing short-term fixed rate discount notes with maturities that match the reset period of the
assets;
issuing floating rate medium-term notes with maturities and reset frequencies that match the assets
being funded;
issuing non-maturity matched, floating rate medium-term notes with reset frequencies that match
the assets being funded; or
issuing non-maturity matched, fixed rate discount notes or medium-term notes swapped to floating
rate to match the interest rate reset dates of the assets.
To meet certain floating rate funding needs, Farmer Mac frequently issues shorter-term floating-rate
medium-term notes or fixed rate medium-term notes paired with a received-fixed interest rate swap
because these funding alternatives generally provide a lower cost of funding while generating an effective
interest rate match. As funding for these floating rate assets matures, Farmer Mac seeks to refinance the
debt associated with these assets in a similar fashion to achieve an appropriate interest rate risk sensitivity
match in the context of Farmer Mac's overall debt issuance and liquidity management strategies.
However, if the funding cost of Farmer Mac’s discount notes or medium-term notes increased relative to
the benchmark market index of the associated assets during the time between when these floating rate
assets were first funded and when Farmer Mac refinanced the associated debt, Farmer Mac would be
exposed to a commensurate reduction of net effective spread. Conversely, if the funding cost on Farmer
Mac’s discount notes or medium-term notes decreased relative to the benchmark market index during that
time, Farmer Mac would benefit from a commensurate increase to net effective spread.
Farmer Mac's debt issuance strategy targets balancing liquidity risk and re-funding and repricing risk
while maintaining an appropriate liability management profile that is consistent with Farmer Mac's risk
tolerance. Farmer Mac regularly adjusts its funding strategies to mitigate the effects of interest rate
variability and seeks to maintain an effective mixture of funding structures in the context of its overall
liability management and liquidity management strategies.
As of December 31, 2021, Farmer Mac held $5.3 billion of floating rate assets in its lines of business and
its investment portfolio that reset based on floating rate market indices, such as LIBOR or SOFR. As of
the same date, Farmer Mac also had $7.0 billion of interest rate swaps outstanding where Farmer Mac
pays a fixed rate of interest and receives a floating rate of interest, primarily LIBOR or SOFR.
Discontinuation of LIBOR
As described in "Risk Factors—Market Risk" in Part I, Item 1A, Farmer Mac faces risks associated with
the reform, replacement, or discontinuation of the LIBOR benchmark interest rate and the transition to an
alternative benchmark interest rate. Farmer Mac is evaluating the potential effect on our business of the
104
replacement of the LIBOR benchmark interest rate, including the possibility of replacement benchmark
interest rates.
As of December 31, 2021, Farmer Mac held $3.6 billion of floating rate assets in its lines of business and
its investment portfolio, had issued $1.1 billion of floating rate debt, and had entered into $13.7 billion
notional amount of interest rate swaps, each of which reset based on LIBOR. In addition, our Non-
Cumulative Series C Preferred Stock currently pays a fixed rate of interest until July 17, 2024. It becomes
redeemable at our option on July 18, 2024 and thereafter pays interest at a floating rate equal to three-
month LIBOR plus 3.260%.
The market transition away from LIBOR and towards alternative benchmark interest rate indices that may
be developed is expected to be complicated and may require the development of term and credit
adjustments to accommodate for differences between the benchmark interest rate indices. The transition
may also result in different financial performance for existing transactions, require different hedging
strategies, or require renegotiation of existing transactions. As of December 31, 2021, we had $0.6 billion
outstanding in medium-term notes based on SOFR, a potential alternative benchmark interest rate index.
Liquidity and Capital Resources
Farmer Mac's primary sources of funds to meet its liquidity and funding needs are the proceeds of its debt
issuances, guarantee and commitment fees, net effective spread, loan repayments, and maturities of
AgVantage and investment securities. Farmer Mac regularly accesses the debt capital markets for funding,
and Farmer Mac has maintained access to the debt capital markets at favorable interest rates throughout
2021 and 2020. Farmer Mac funds its purchases of eligible loan assets, USDA Securities, Farmer Mac
Guaranteed Securities, and investment assets and finances its operations primarily by issuing debt
obligations of various maturities in the debt capital markets. As of December 31, 2021, Farmer Mac had
outstanding discount notes of $2.2 billion, medium-term notes that mature within one year of $4.8 billion,
and medium-term notes that mature after one year of $15.8 billion.
Assuming continued access to the debt capital markets, Farmer Mac believes it has sufficient liquidity and
capital resources to support its operations for the next 12 months and for the foreseeable future. Farmer
Mac has a contingency funding plan to manage unanticipated disruptions in its access to the debt capital
markets. Farmer Mac must maintain a minimum of 90 days of liquidity under the Liquidity and
Investment Regulations prescribed for Farmer Mac by FCA. In accordance with the methodology for
calculating available days of liquidity under those regulations, Farmer Mac maintained a monthly average
of 280 days of liquidity throughout 2021 and had 367 days of liquidity as of December 31, 2021.
Farmer Mac maintains cash, cash equivalents (including U.S. Treasury securities and other short-term
money market instruments), and other investment securities that can be drawn upon for liquidity needs.
Farmer Mac's current policies authorize liquidity investments in:
obligations of or fully guaranteed by the United States or a U.S. government agency;
obligations of or fully guaranteed by GSEs;
international and multilateral development bank obligations;
•
•
• municipal securities;
•
• money market instruments;
•
•
diversified investment funds;
asset-backed securities;
105
corporate debt securities; and
•
• mortgage-backed securities.
The following table presents these assets as of December 31, 2021 and December 31, 2020:
Table 35
Cash and cash equivalents
Investment securities:
Guaranteed by U.S. Government and its agencies
Guaranteed by GSEs
Asset-backed securities
Total
As of December 31, 2021
As of December 31, 2020
$
$
(in thousands)
908,785 $
1,033,941
1,579,452
2,282,655
19,254
4,790,146 $
1,935,056
1,944,497
19,171
4,932,665
The objective of the investment portfolio as of December 31, 2021 and December 31, 2020 was to provide
a level of liquidity that mitigates enterprise risk, provides a reliable source of short-term and long-term
liquidity, to prepare for the possibility of future volatility in the debt capital markets, and to support
program asset growth.
Capital Requirements. Farmer Mac is subject to the following statutory capital requirements – minimum,
critical, and risk-based. Farmer Mac must comply with the higher of the minimum capital requirement and
the risk-based capital requirement. As of December 31, 2021, Farmer Mac was in compliance with its
statutory capital requirements and was classified as within "level 1" (the highest compliance level).
In accordance with FCA's rule on capital planning, Farmer Mac's board of directors has adopted a policy
for maintaining a sufficient level of "Tier 1" capital (consisting of retained earnings, paid-in capital,
common stock, and qualifying preferred stock). That policy restricts Tier 1-eligible dividends and any
discretionary bonus payments if Tier 1 capital falls below specified thresholds. As of December 31, 2021
and December 31, 2020, Farmer Mac's Tier 1 capital ratio was 14.7% and 14.1%, respectively. The
increase in our Tier 1 capital ratio was due to that fact that capital growth, which reflects the issuance of
the Series G Preferred Stock, outpaced the growth in risk-weighted assets during 2021. As of
December 31, 2021, Farmer Mac was in compliance with its capital adequacy policy. Farmer Mac does
not expect its compliance on an ongoing basis with FCA's rule on capital planning, including Farmer
Mac's policy on Tier 1 capital, to materially affect Farmer Mac's operations or financial condition.
For more information about the capital requirements applicable to Farmer Mac, its capital adequacy
policy, and FCA's rule on capital planning, see "Business—Government Regulation of Farmer Mac—
Capital Standards." See Note 9 to the consolidated financial statements for more information about Farmer
Mac's capital position.
Discount and Medium-term Notes. The following table presents the amount and timing of Farmer Mac's
known, fixed, and determinable discount and medium-term note obligations by payment date as of
December 31, 2021. The payment amounts represent those amounts due to the investor (including return
of discount and interest on debt) and do not include unamortized premiums or discounts or other similar
carrying value adjustments.
106
Table 36
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
(in thousands)
Discount notes(1)
Medium-term notes(1)
Interest payments on fixed rate medium-term notes(2)
Interest payments on floating rate medium-term notes(3)
$ 2,168,288 $
— $
— $
— $ 2,168,288
4,819,159
6,738,000
4,935,827
4,114,997
20,607,983
180,554
7,008
275,464
10,547
188,425
323,262
7,767
5,676
967,705
30,998
(1)
(2)
(3)
Future events, including additional issuance of discount notes and medium-term notes and refinancing of those notes, could cause actual payments to
differ significantly from these amounts. For more information regarding discount notes and medium-term notes, see Note 7 to the consolidated financial
statements.
Interest payments on callable medium-term notes are calculated based on maturity. Future calls of these notes could cause actual interest payments to
differ significantly from the amounts presented.
Calculated using the effective interest rates as of December 31, 2021. As a result, these amounts do not reflect the effects of changes in the interest rates
effective on future interest rate reset dates.
Farmer Mac enters into financial derivatives contracts under which it either receives cash from
counterparties, or is required to pay cash to them, depending on changes in interest rates. Financial
derivatives are carried on the consolidated balance sheets at fair value, representing the net present value
of expected future cash payments or receipts based on market interest rates as of the balance sheet date
adjusted for the consideration of credit risk of Farmer Mac and its counterparties. The fair values of the
contracts change daily as market interest rates change. Because the financial derivative liabilities recorded
on the consolidated balance sheet as of December 31, 2021 do not represent the amounts that may
ultimately be paid under the financial derivative contracts, those liabilities are not included in the table
presented above. More information about financial derivatives is included in Note 2(f) and Note 6 to the
consolidated financial statements.
Contingent Liabilities. In conducting its loan purchase activities, Farmer Mac enters into mandatory
delivery commitments to purchase agricultural mortgage loans and USDA Securities. In conducting its
LTSPC activities, Farmer Mac commits, subject to the applicable LTSPC agreement, to a future purchase
of one or more loans from identified pools of eligible loans that met Farmer Mac's standards when the
applicable transaction was entered into and Farmer Mac assumed the credit risk on the loans. The
following table presents these significant commitments:
Table 37
LTSPCs
Mandatory commitments to purchase loans and USDA Securities
As of December 31,
2021
2020
(in thousands)
$
3,191,061 $
2,881,856
78,449
125,811
For more information about Farmer Mac's commitments to purchase loans, see Note 12 to the
consolidated financial statements.
Off-Balance Sheet Arrangements
Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or
lending capacity while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed
Securities; and (2) LTSPCs. Both products are available through each of the Agricultural Finance and
Rural Infrastructure Finance lines of business. For securitization trusts where Farmer Mac is the primary
beneficiary, the trust assets and liabilities are included on Farmer Mac's consolidated balance sheet. For
107
securitization trusts where Farmer Mac is not the primary beneficiary and in the event of de-consolidation,
both of these alternatives create off-balance sheet obligations for Farmer Mac. See Note 12 to the
consolidated financial statements for more information about consolidation and Farmer Mac's off-balance
sheet business activities.
As of December 31, 2021 and 2020, outstanding off-balance sheet LTSPCs and Farmer Mac Guaranteed
Securities totaled $3.8 billion and $3.3 billion, respectively. The following table presents the balance of
outstanding LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2021
and 2020:
Table 38
Outstanding Balance of LTSPCs and
Off-Balance Sheet Farmer Mac Guaranteed Securities
Agricultural Finance:
Corporate AgFinance:
Unfunded Loan Commitments
Farm & Ranch:
LTSPCs and unfunded commitments
Farmer Mac Guaranteed Securities
Total Agricultural Finance obligations
Rural Infrastructure:
Rural Utilities:
LTSPCs and Unfunded Loan Commitments
Farmer Mac Guaranteed Securities
Renewable Energy:
Unfunded Loan Commitments
Total Rural Infrastructure obligations
Total off-balance sheet
As of December 31,
2021
2020
(in thousands)
$
47,070 $
10,466
2,587,154
578,358
3,212,582
2,314,965
378,610
2,704,041
556,837
2,755
556,425
4,412
—
—
559,592
560,837
$
3,772,174 $
3,264,878
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk
Management—Credit Risk – Loans and Guarantees" and Notes 2(c), 2(d), 5 and 12 to the consolidated
financial statements for more information about Farmer Mac Guaranteed Securities and Notes 2(m) and 12
to the consolidated financial statements for more information about LTSPCs.
Other Matters
None.
108
Supplemental Information
The following tables present quarterly and annual information about new business volume, repayments,
and outstanding business volume:
Table 39
New Business Volume
Agricultural Finance
Rural Infrastructure Finance
Farm & Ranch
Corporate AgFinance
Rural Utilities
Renewable Energy
Total
(in thousands)
For the quarter ended:
December 31, 2021
$
2,075,540 $
411,838 $
631,338 $
12,594 $
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
For the year ended:
1,791,662
925,950
1,087,897
907,316
1,059,891
1,069,693
768,700
721,248
122,043
159,958
186,393
242,394
212,829
279,021
165,128
311,756
609,745
410,666
171,546
145,416
52,300
358,866
392,668
242,900
4,152
3,441
23,484
44,313
10,000
—
10,000
10,000
3,131,310
2,527,602
1,500,015
1,469,320
1,339,439
1,335,020
1,707,580
1,336,496
1,285,904
December 31, 2021
$
5,881,049 $
880,232 $
1,823,295 $
December 31, 2020
3,805,600
899,372
949,250
43,671 $
64,313
8,628,247
5,718,535
109
Table 40
For the quarter ended:
Scheduled
Unscheduled
December 31, 2021
Scheduled
Unscheduled
September 30, 2021
Scheduled
Unscheduled
June 30, 2021
Scheduled
Unscheduled
March 31, 2021
Scheduled
Unscheduled
December 31, 2020
Scheduled
Unscheduled
September 30, 2020
Scheduled
Unscheduled
June 30, 2020
Scheduled
Unscheduled
March 31, 2020
Scheduled
Unscheduled
December 31, 2019
For the year ended:
Scheduled
Unscheduled
December 31, 2021
Scheduled
Unscheduled
December 31, 2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Repayments of Assets
Agricultural Finance
Rural Infrastructure Finance
Farm & Ranch
Corporate AgFinance
Rural Utilities
Renewable Energy
Total
(in thousands)
928,663 $
318,024
1,246,687 $
725,713 $
374,287
1,100,000 $
380,684 $
409,393
790,077 $
721,090 $
501,651
1,222,741 $
365,732 $
400,809
766,541 $
569,820 $
531,062
1,100,882 $
523,721 $
448,900
972,621 $
320,488 $
326,078
646,566 $
220,004 $
244,303
464,307 $
2,756,150 $
1,603,355
205,778 $
816,802 $
18,526 $
1,969,769
48,042
—
—
366,066
253,820 $
816,802 $
18,526 $
2,335,835
406,285 $
95,443 $
4,043 $
1,231,484
—
201
—
374,488
406,285 $
95,644 $
4,043 $
1,605,972
139,774 $
225,257 $
3,921
1,652
4,704 $
—
750,419
414,966
143,695 $
226,909 $
4,704 $
1,165,385
120,621 $
100,482 $
82,090
2,279
2,671 $
—
944,864
586,020
202,711 $
102,761 $
2,671 $
1,530,884
197,108 $
405,597 $
27,850
1,610
561 $
—
968,998
430,269
224,958 $
407,207 $
561 $
1,399,267
74,038 $
211,152 $
1,489
—
279 $
—
855,289
532,551
75,527 $
211,152 $
279 $
1,387,840
109,543 $
67,708 $
50,737
3,935
240 $
—
701,212
503,572
160,280 $
71,643 $
240 $
1,204,784
94,775 $
165,467 $
8,318
—
103,093 $
165,467 $
94,130 $
489,876 $
17,747
34,063
— $
—
— $
198 $
—
580,730
334,396
915,126
804,208
296,113
111,877 $
523,939 $
198 $
1,100,321
872,458 $
1,237,984 $
29,944 $
4,896,536
134,053
4,132
—
1,741,540
4,359,505 $
1,006,511 $
1,242,116 $
29,944 $
6,638,076
1,779,761 $
1,706,849
3,486,610 $
475,464 $
849,924 $
1,080 $
3,106,229
88,394
5,545
—
1,800,788
563,858 $
855,469 $
1,080 $
4,907,017
110
Table 41
As of:
Outstanding Business Volume
Agricultural Finance
Rural Infrastructure Finance
Farm & Ranch
Corporate AgFinance
Rural Utilities
Renewable Energy
Total
(in thousands)
December 31, 2021
$
16,094,639 $
1,537,834 $
5,895,227 $
15,565,589
14,873,926
14,738,052
14,872,894
14,737,485
14,778,474
14,681,403
14,559,268
1,379,816
1,664,059
1,647,796
1,664,115
1,646,679
1,509,378
1,390,637
1,328,602
6,080,691
5,566,591
5,382,835
5,314,051
5,575,841
5,734,694
5,447,470
5,220,270
86,763 $ 23,614,463
92,695
23,118,791
92,585
22,197,161
93,848
21,862,531
73,035
21,924,095
29,283
21,989,288
19,562
22,042,108
19,802
21,539,312
9,802
21,117,942
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
Table 42
As of:
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
On-Balance Sheet Outstanding Business Volume
Fixed Rate
5- to 10-Year
ARMs & Resets
1-Month to 3-Year
ARMs
Total Held in
Portfolio
(in thousands)
$
13,228,675 $
2,896,014 $
3,695,269 $
19,819,958
12,921,572
11,800,429
11,454,321
11,330,414
10,879,372
10,793,629
10,296,598
10,045,712
2,872,499
2,878,637
2,824,551
2,816,840
2,811,547
2,845,266
2,818,869
2,863,199
3,818,550
4,254,625
4,410,661
4,511,964
5,013,640
5,076,445
4,996,478
4,702,577
19,612,621
18,933,691
18,689,533
18,659,218
18,704,559
18,715,340
18,111,945
17,611,488
111
The following table presents the quarterly net effective spread (a non-GAAP measure) by segment:
Table 43
Net Effective Spread(1)
Agricultural Finance
Rural Infrastructure Finance
Treasury
Farm & Ranch
Corporate
AgFinance
Rural Utilities
Renewable
Energy
Funding
Investments
Net Effective
Spread
Dollars
Yield
Dollars
Yield
Dollars
Yield
Dollars
Yield
Dollars
Yield
Dollars
Yield
Dollars
Yield
(dollars in thousands)
For the quarter ended:
December 31, 2021(2) $ 28,998
0.99 % $ 6,321
1.84 % $ 2,521
0.19 % $ 356
1.53 % $ 15,979
0.28 % $ 158
0.01 % $ 54,333
0.94 %
September 30, 2021
28,914
1.06 % 7,163
1.80 % 2,067
0.16 %
June 30, 2021
29,163
1.06 % 6,676
1.65 % 1,759
0.14 %
March 31, 2021
December 31, 2020(1)
26,461
0.98 % 6,921
1.67 % 1,720
0.14 %
25,596
0.95 % 6,237
1.53 % 1,838
0.15 %
September 30, 2020
23,735
0.89 % 5,786
1.45 % 2,022
0.16 %
June 30, 2020
21,597
0.83 % 4,997
1.36 % 1,701
0.14 %
March 31, 2020
19,230
0.76 % 4,421
1.32 % 1,315
0.11 %
December 31, 2019
20,677
0.83 % 4,049
1.33 % 1,411
0.12 %
236
378
249
123
75
47
58
22
1.09 % 17,386
0.31 %
159
0.01 % 55,925
0.99 %
1.80 % 18,449
0.33 %
126
0.01 % 56,551
1.01 %
1.28 % 18,394
0.33 %
114
0.01 % 53,859
0.97 %
1.20 % 20,585
0.37 %
143
0.01 % 54,522
0.98 %
1.19 % 20,034
0.37 %
150
0.01 % 51,802
0.96 %
0.93 % 19,449
0.37 % (1,322)
(0.13) % 46,469
0.89 %
1.51 % 19,150
0.39 %
1.07 % 19,868
0.41 %
(11)
(36)
— % 44,163
0.89 %
— % 45,991
0.95 %
(1)
(2)
Farmer Mac excludes the Corporate segment in the presentation above because the segment does not have any interest-earning assets.
See Note 14 to the consolidated financial statements for a reconciliation of GAAP net interest income by segment to net effective spread by segment for
the years ended December 31, 2021 and 2020.
112
The following table presents quarterly core earnings (a non-GAAP measure) reconciled to net income
attributable to common stockholders:
Table 44
Revenues:
Core Earnings by Quarter End
December
2021
September
2021
June
2021
March
2021
December
2020
September
2020
June
2020
March
2020
December
2019
(in thousands)
Net effective spread
$ 54,333 $ 55,925 $ 56,551
$ 53,859 $ 54,522 $ 51,802 $ 46,469 $ 44,163
$ 45,991
Guarantee and commitment fees
Gain on sale of mortgage loans
Other
Total revenues
4,637
6,539
241
4,322
4,334
4,240
4,652
4,659
4,943
4,896
5,432
—
687
—
301
—
451
—
512
—
453
—
1,048
—
674
—
100
65,750
60,934
61,186
58,550
59,686
56,914
52,460
49,733
51,523
Credit related expense/(income):
(Release of)/provision for losses
(1,428)
REO operating expenses
Losses/(gains) on sale of REO
Total credit related expense/
(income)
—
—
(1,428)
255
—
—
255
(983)
(31)
2,973
1,200
—
—
—
—
—
22
—
—
(983)
(31)
2,995
1,200
51
—
—
51
3,831
2,851
—
(485)
—
—
3,346
2,851
Operating expenses:
Compensation and employee
benefits
General and administrative
Regulatory fees
11,246
10,027
8,492
812
6,330
750
9,779
6,349
750
11,795
6,336
750
9,497
6,274
750
8,791
5,044
725
8,087
5,295
725
10,127
5,363
725
6,732
5,773
725
Total operating expenses
20,550
17,107
16,878
18,881
16,521
14,560
14,107
16,215
13,230
Net earnings
Income tax expense
Preferred stock dividends
46,628
9,809
6,792
43,572
9,152
6,774
45,291
9,463
5,842
39,700
8,520
5,269
40,170
8,470
5,269
41,154
8,297
38,302
8,016
5,166
3,939
30,172
6,598
3,431
35,442
7,526
3,432
Core earnings
$ 30,027 $ 27,646 $ 29,986
$ 25,911 $ 26,431 $ 27,691 $ 26,347 $ 20,143
$ 24,484
Reconciling items:
(Losses)/gains on undesignated
financial derivatives due to fair
value changes
Gains/(losses) on hedging
activities due to fair value changes
Unrealized (losses)/gains on
trading assets
Net effects of amortization of
premiums/discounts and deferred
gains on assets consolidated at fair
value
Net effects of terminations or net
settlements on financial derivatives
Issuance costs on the retirement of
preferred stock
Income tax effect related to
reconciling items
Net income attributable to
common stockholders
$
(1,213) $
(1,864) $ (3,721) $
1,695 $
(1,758) $
(4,149) $ 8,700 $
(6,484) $
4,469
1,476
(2,093)
(2,097)
(271)
3,827
(5,245)
(2,676)
(5,925)
(220)
(76)
36
(61)
(14)
223
(258)
(20)
106
172
71
23
20
16
(77)
97
35
3
40
(429)
(351)
109
1,165
1,583
233
720
(1,300)
1,339
—
36
—
—
—
—
(1,667)
—
—
—
892
1,208
(544)
(798)
1,957
(1,419)
2,856
(1,218)
$ 29,892 $ 24,289 $ 25,444
$ 27,958 $ 29,431 $ 18,659 $ 31,687 $
9,399
$ 29,066
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Farmer Mac is exposed to market risk from changes in interest rates. Farmer Mac manages this market
risk by entering into various financial transactions, including financial derivatives, and by monitoring and
113
measuring its exposure to changes in interest rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Risk Management—Interest Rate Risk" for more
information about Farmer Mac's exposure to interest rate risk and its strategies to manage that risk. For
information about Farmer Mac's use of financial derivatives and related accounting policies, see Note 6 to
the consolidated financial statements.
Item 8.
Financial Statements
Management's Report on Internal Control over Financial Reporting
The management of Farmer Mac is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Exchange Act Rule 13a-15(f). Internal control over financial
reporting is a process designed under the supervision of Farmer Mac's Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of Farmer Mac's financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Farmer Mac's internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of Farmer Mac; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of Farmer Mac are being
made only in accordance with authorizations of management and directors of Farmer Mac; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of Farmer Mac's assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the supervision and with the participation of Farmer Mac's Chief Executive Officer and Chief
Financial Officer, Farmer Mac's management assessed the effectiveness of Farmer Mac's internal control
over financial reporting as of December 31, 2021. In making this assessment, Farmer Mac's management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013). Based on its evaluation under the COSO
criteria, management concluded that Farmer Mac's internal control over financial reporting as of
December 31, 2021 was effective.
Farmer Mac's independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited
the effectiveness of Farmer Mac's internal control over financial reporting as of December 31, 2021, as
stated in their report appearing below.
114
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of the Federal Agricultural Mortgage Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of the Federal Agricultural Mortgage
Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related
consolidated statements of operations, comprehensive income, equity and cash flows for each of the three
years in the period ended December 31, 2021, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2021 in
conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in
which it accounts for credit losses in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated
financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
115
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing
a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Available-for-sale AgVantage Farmer Mac Guaranteed Securities
As disclosed by management, the Company guarantees and purchases general obligations of lenders and
other financial institutions that are secured by pools of the types of loans eligible for purchase under
Farmer Mac's Agricultural Finance or Rural Infrastructure Finance lines of business, which are referred to
as AgVantage securities. As described in Notes 5 and 13 to the consolidated financial statements, the total
unpaid principal balance of available-for-sale AgVantage securities as of December 31, 2021 was $6.1
billion, and the fair value of the available-for-sale AgVantage securities of December 31, 2021 was $6.3
116
billion. The fair value of AgVantage securities is estimated using a discounted cash flow model. The
significant unobservable input used is the discount rate commensurate with the risks involved.
The principal considerations for our determination that performing procedures relating to the valuation of
available-for-sale AgVantage securities is a critical audit matter are (i) the high degree of audit effort in
performing procedures and evaluating audit evidence related to the discount rate assumption used by
management in the valuation of the available-for-sale AgVantage securities, and (ii) the audit effort
involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to the valuation of available-for-sale AgVantage securities, including
controls over the model, data and assumption. These procedures also included, among others, (i) the
involvement of professionals with specialized skill and knowledge to assist in developing an independent
range of prices for a sample of available-for-sale AgVantage securities, and (ii) comparing management’s
estimate to the independently developed range to evaluate the reasonableness of management’s estimate.
Developing the independent range of prices involved testing the completeness and accuracy of data
provided by management and independently developing the discount rate assumption.
/s/ PricewaterhouseCoopers LLP
Washington, District of Columbia
February 28, 2022
We have served as the Company’s auditor since 2010.
117
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets:
Cash and cash equivalents
Investment securities:
Available-for-sale, at fair value (amortized cost of $3,834,714 and $3,843,666, respectively)
Held-to-maturity, at amortized cost
Other investments
Total Investment Securities
Farmer Mac Guaranteed Securities:
Available-for-sale, at fair value (amortized cost of $6,135,807 and $6,594,992, respectively)
Held-to-maturity, at amortized cost
Total Farmer Mac Guaranteed Securities
USDA Securities:
Trading, at fair value
Held-to-maturity, at amortized cost
Total USDA Securities
Loans:
Loans held for investment, at amortized cost
Loans held for investment in consolidated trusts, at amortized cost
Allowance for losses
Total loans, net of allowance
Financial derivatives, at fair value
Interest receivable (includes $10,418 and $16,401, respectively, related to consolidated trusts)
Guarantee and commitment fees receivable
Deferred tax asset, net
Prepaid expenses and other assets
Total Assets
Liabilities and Equity:
Liabilities:
Notes payable
Debt securities of consolidated trusts held by third parties
Financial derivatives, at fair value
Accrued interest payable (includes $9,619 and $14,370, respectively, related to consolidated trusts)
Guarantee and commitment obligation
Accounts payable and accrued expenses
Reserve for losses
Total Liabilities
Commitments and Contingencies (Note 12)
Equity:
Preferred stock:
Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding
Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding
Series E, par value $25 per share, 3,180,000 shares authorized, issued and outstanding
Series F, par value $25 per share, 4,800,000 shares authorized, issued and outstanding
Series G, par value $25 per share, 5,000,000 shares authorized, issued and outstanding
Common stock:
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding
Class C Non-Voting, $1 par value, no maximum authorization, 9,235,205 shares and 9,205,897
shares outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income/(loss), net of tax
Retained earnings
Total Equity
Total Liabilities and Equity
As of
December 31, 2021
December 31, 2020
(in thousands)
$
908,785
$
1,033,941
3,836,391
44,970
1,229
3,882,590
6,328,559
2,033,239
8,361,798
4,401
2,436,331
2,440,732
8,314,096
948,623
(14,041)
9,248,678
19,139
177,355
45,538
15,558
45,318
25,145,491
22,716,156
981,379
34,248
83,992
43,926
79,427
1,950
23,941,078
73,382
96,659
77,003
116,160
121,327
1,031
500
9,235
$
$
125,993
3,853
579,270
1,204,413
25,145,491
$
3,853,692
45,032
—
3,898,724
6,947,701
1,175,792
8,123,493
6,695
2,473,626
2,480,321
7,261,933
1,287,045
(13,832)
8,535,146
17,468
186,429
37,113
18,321
24,545
24,355,501
21,848,917
1,323,786
29,892
92,738
35,535
28,879
3,277
23,363,024
73,382
96,659
77,003
116,160
—
1,031
500
9,206
122,899
(13,923)
509,560
992,477
24,355,501
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
118
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2021
2020
2019
(in thousands, except per share amounts)
$
18,660 $
42,144 $
Interest income:
Investments and cash equivalents
Farmer Mac Guaranteed Securities and USDA Securities
Loans
Total interest income
Total interest expense
Net interest income
Release of/(provision for) losses
Net interest income after release of/(provision for) losses
Non-interest income/(expense):
Guarantee and commitment fees
(Losses)/gains on financial derivatives
Gain on sale of mortgage loans
(Losses)/gains on trading securities
Gains/(losses) on sale of available-for-sale investment securities
Gains on sale of real estate owned
Release of/(provision for) reserve for losses
Other income
Non-interest income
Operating expenses:
Compensation and employee benefits
General and administrative
Regulatory fees
Real estate owned operating costs, net
Operating expenses
Income before income taxes
Income tax expense
Net income
Preferred stock dividends
Loss on retirement of preferred stock
12,549
(246)
13,666
5,282
163,547
242,582
424,789
204,014
220,775
860
221,635
12,669
(3,348)
6,539
(115)
253
—
1,327
2,069
19,394
42,847
27,507
3,062
—
73,416
167,613
35,353
132,260
227,691
233,699
503,534
312,946
190,588
(7,805)
182,783
—
50
—
463
(250)
3,487
16,053
36,502
21,976
2,925
—
61,403
137,433
28,785
108,648
(24,677)
—
(17,805)
(1,667)
81,522
333,896
229,675
645,093
471,958
173,135
(3,504)
169,631
—
326
(236)
—
3
1,904
20,945
28,762
20,311
2,788
64
51,925
138,651
29,105
109,546
(13,940)
(1,956)
93,650
Net income attributable to common stockholders
$
107,583 $
89,176 $
Earnings per common share:
Basic earnings per common share
Diluted earnings per common share
$
$
10.00 $
9.92 $
8.31 $
8.27 $
8.76
8.69
The accompanying notes are an integral part of these consolidated financial statements.
119
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2021
2020
2019
(in thousands
Net income
$
132,260 $
108,648 $
109,546
Other comprehensive income/(loss) before taxes:
Net unrealized gains/(losses) on available-for-sale securities
Net changes in held-to-maturity securities
Net unrealized gains/(losses) on cash flow hedges
Other comprehensive income/(loss) before tax
Income tax (expense)/benefit related to other comprehensive income/(loss)
Other comprehensive income/(loss) net of tax
Comprehensive income
8,867
(8,451)
22,084
22,500
(4,724)
17,776
37,291
(12,677)
(21,780)
2,834
(596)
2,238
$
150,036 $
110,886 $
(22,831)
(13,415)
(15,801)
(52,047)
10,930
(41,117)
68,429
The accompanying notes are an integral part of these consolidated financial statements.
120
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Accumulated
Additional
Other
Preferred Stock
Common Stock
Paid-In
Comprehensive Retained
Total
Shares
Amount
Shares
Amount
Capital
Income/(Loss)
Earnings
Equity
(in thousands)
Balance as of January 1, 2019
8,400 $ 204,759
10,669 $ 10,669 $ 118,822 $
24,956 $ 393,351 $ 752,557
Net Income
Other comprehensive loss, net of tax
Cash dividends:
Preferred stock
Common stock (cash dividend of $0.70 per share)
Issuance of Series D Preferred Stock
Redemption of Series B Preferred Stock
Loss on retirement of preferred stock
Issuance of Class C Common Stock
Stock-based compensation cost
Other stock-based award activity
Balance as of December 31, 2019
—
—
—
—
—
—
—
—
4,000
96,659
(3,000)
(73,044)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
43
—
—
—
—
—
—
—
—
—
43
—
—
—
—
—
—
—
—
—
44
2,258
(1,820)
—
109,546
109,546
(41,117)
—
(41,117)
—
—
—
—
—
—
—
—
(13,940)
(13,940)
(29,954)
(29,954)
—
—
96,659
(73,044)
(1,956)
(1,956)
—
—
—
87
2,258
(1,820)
9,400 $ 228,374
10,712 $ 10,712 $ 119,304 $
(16,161) $ 457,047 $ 799,276
Cumulative effect adjustment from adoption of current
expected credit loss standard
—
—
—
—
—
—
(2,099)
(2,099)
Balance as of January 1, 2020
9,400 $ 228,374
10,712 $ 10,712 $ 119,304 $
(16,161) $ 454,948 $ 797,177
Net Income
Other comprehensive income, net of tax
Cash dividends:
Preferred stock
Common stock (cash dividend of $0.80 per share)
Issuance of Series E Preferred Stock
Issuance of Series F Preferred Stock
Redemption of Series A preferred stock
Loss on retirement of preferred stock
Issuance of Class C Common Stock
Repurchase of Class C Common Stock
Stock-based compensation cost
Other stock-based award activity
Balance as of December 31, 2020
Net Income
Other comprehensive income, net of tax
Cash dividends:
Preferred stock
Common stock (cash dividend of $0.88 per share)
Issuance of Series G Preferred Stock
Issuance of Class C Common Stock
Stock-based compensation cost
Other stock-based award activity
Balance as of December 31, 2021
—
—
—
—
—
—
—
—
3,180
77,003
4,800
116,160
(2,400)
(58,333)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29
(4)
—
—
—
—
—
—
—
—
—
—
29
(4)
—
—
—
—
—
—
—
—
—
—
56
—
4,128
(589)
—
108,648
108,648
2,238
—
2,238
—
—
—
—
—
—
—
—
—
—
(17,805)
(17,805)
(34,333)
(34,333)
—
—
—
77,003
116,160
(58,333)
(1,667)
(1,667)
—
(231)
—
—
85
(235)
4,128
(589)
14,980 $ 363,204
10,737 $ 10,737 $ 122,899 $
(13,923) $ 509,560 $ 992,477
—
—
—
—
—
—
—
—
5,000
121,327
—
—
—
—
—
—
—
—
—
—
—
29
—
—
—
—
—
—
—
29
—
—
—
—
—
—
—
116
4,310
(1,332)
—
132,260
132,260
17,776
—
17,776
—
—
—
—
—
—
(24,677)
(24,677)
(37,873)
(37,873)
—
—
—
—
121,327
145
4,310
(1,332)
19,980 $ 484,531
10,766 $ 10,766 $ 125,993 $
3,853 $ 579,270 $ 1,204,413
The accompanying notes are an integral part of these consolidated financial statements.
121
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac
Guaranteed Securities, and USDA Securities
Amortization of debt premiums, discounts, and issuance costs
Net change in fair value of trading securities, hedged assets, and financial derivatives
Gain on sale of real estate owned
Gain on the sale of available-for-sale investment securities
Gain on the sale of mortgage loans
Total (release)/provision for allowance for losses
Excess tax benefits related to stock-based awards
Deferred income taxes
Other
Stock-based compensation expense
Purchases of loans held for sale
Proceeds from the sale of loans held for sale
Proceeds from repayment of loans purchased as held for sale
Net change in:
Interest receivable
Guarantee and commitment fees receivable
Other assets
Accrued interest payable
Custodial deposit liability
Other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities:
Purchases of available-for-sale investment securities
Purchases of other investment securities
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
Purchases of loans held for investment
Purchases of defaulted loans
Proceeds from repayment of available-for-sale investment securities
Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
Proceeds from repayment of loans purchased as held for investment
Proceeds from sale of loans previously classified as held for investment
Proceeds from sale of available-for-sale investment securities
Proceeds from sale of Farmer Mac Guaranteed Securities
Proceeds from sale of real estate owned
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of discount notes
Proceeds from issuance of medium-term notes
Payments to redeem discount notes
Payments to redeem medium-term notes
Payments to third parties on debt securities of consolidated trusts
Proceeds from common stock issuance
Retirement of preferred stock
Proceeds from preferred stock issuance, net of stock issuance costs
Tax payments related to share-based awards
Purchases of common stock
Dividends paid on common and preferred stock
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
For the Years Ended December 31,
2021
2020
(in thousands)
2019
$
132,260 $
108,648 $
109,546
17,314
6,780
203,758
—
(253)
(6,539)
(2,187)
292
(1,960)
—
4,311
—
—
46,968
6,945
(34)
(9,830)
(8,746)
44,955
2,378
436,412
(2,004,911)
(1,229)
(4,380,901)
(3,029,668)
(8,713)
1,740,000
4,027,726
1,889,408
301,393
257,524
113,175
—
(1,096,196)
61,112,365
11,173,147
(60,743,066)
(10,586,370)
(480,272)
117
—
121,327
(1,305)
—
(61,315)
534,628
(125,156)
1,033,941
$
908,785 $
8,343
21,319
(256,466)
(463)
—
—
8,055
(440)
(2,406)
—
4,128
(59,150)
15,000
59,370
11,054
164
(3,348)
(14,221)
—
5,866
(94,547)
(2,852,658)
—
(2,074,701)
(3,167,198)
(6,272)
1,961,895
2,517,957
1,715,663
—
—
165,054
4,169
(1,736,091)
68,548,733
13,509,754
(68,960,492)
(10,414,765)
(504,807)
56
(60,000)
193,163
(560)
(235)
(50,649)
2,260,198
429,560
604,381
1,033,941 $
(10,399)
50,052
(220,080)
—
—
—
3,501
449
789
236
2,258
—
—
54,195
(19,080)
(59)
(2,744)
10,216
—
1,421
(19,699)
(2,166,376)
—
(2,691,104)
(2,234,715)
(469)
1,425,402
2,190,702
758,192
—
12,367
321,414
—
(2,384,587)
64,642,545
10,195,775
(64,079,322)
(7,970,126)
(181,493)
44
(75,000)
96,659
(1,777)
—
(43,894)
2,583,411
179,125
425,256
604,381
122
Cash paid during the period for:
Interest
Income taxes
Non-cash activity:
Loans acquired and securitized as Farmer Mac Guaranteed Securities
Consolidation of Farmer Mac Guaranteed Securities from off-balance sheet to loans held for
investment in consolidated trusts and to debt securities of consolidated trusts held by third parties
Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans
held for investment
Reclassification of loans held for sale to loans held for investment
Reclassification of loans held for investment to loans held for sale
Net assets obtained in securitization
Capitalized interest
(Recovery)/charge-off from the allowance for losses
Loan payoff not yet received
Purchases of securities - traded, not yet settled
198,593
36,300
113,175
113,175
24,690
—
301,551
15,369
1,259
(1,054)
(7,500)
1,980
283,335
30,000
165,054
165,054
47,036
44,150
—
—
1,348
5,759
—
—
365,526
23,100
321,414
263,561
5,479
—
—
—
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
123
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION
The Federal Agricultural Mortgage Corporation ("Farmer Mac") is a stockholder-owned, federally
chartered instrumentality of the United States established under Title VIII of the Farm Credit Act of 1971,
as amended (12 U.S.C. §§ 2279aa et seq.), which is sometimes referred to as Farmer Mac's
charter. Farmer Mac was originally created by the United States Congress to provide a secondary market
for a variety of loans made to borrowers in rural America. This secondary market is designed to increase
the availability of long-term credit at stable interest rates to America's rural communities and to provide
rural borrowers with the benefits of capital markets pricing and product innovation.
Farmer Mac's secondary market activities include:
•
•
•
•
purchasing eligible loans directly from lenders;
providing advances against eligible loans by purchasing obligations secured by those loans;
securitizing assets and guaranteeing the payment of principal and interest on the resulting
securities that represent interests in, or obligations secured by, pools of eligible loans; and
issuing long-term standby purchase commitments ("LTSPCs") for eligible loans.
Farmer Mac conducts its secondary market activities through two lines of business — Agricultural
Finance and Rural Infrastructure Finance. For more information about those lines of business and the
segments within them, see Note 14 - Business Segments.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Farmer Mac conform with accounting principles generally
accepted in the United States of America ("generally accepted accounting principles" or "GAAP"). The
preparation of consolidated financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following are the significant accounting
policies that Farmer Mac follows in preparing and presenting its consolidated financial statements:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during
the year: (1) Farmer Mac Mortgage Securities Corporation, whose principal activities are to facilitate the
purchase and issuance of Farmer Mac Guaranteed Securities; and (2) Farmer Mac II LLC, whose principal
activity is the operation of substantially all of the business related to the USDA Securities included in the
Agricultural Finance line of business. The consolidated financial statements also include the accounts of
VIEs in which Farmer Mac determined itself to be the primary beneficiary.
124
(b) Cash and Cash Equivalents
Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three
months or less to be cash equivalents.
(c) Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities
Securities for which Farmer Mac has the intent and ability to hold to maturity are classified as held-to-
maturity and are carried at amortized cost. Securities for which Farmer Mac does not have the positive
intent and ability to hold to maturity are classified as available-for-sale or trading and are carried at
estimated fair value. Unrealized gains and losses on available-for-sale securities are reported as a
component of accumulated other comprehensive income in stockholders' equity. For securities classified
as trading, unrealized gains and losses are included in earnings. Gains and losses on the sale of available-
for-sale and trading securities are determined using the specific identification cost method.
Farmer Mac determines the fair value of investment securities using quoted market prices, when
available. Farmer Mac determines the fair values of certain investment securities for which quoted market
prices are not available, Farmer Mac Guaranteed Securities, and USDA Securities based on the present
value of the associated expected future cash flows. In estimating the present value of the expected future
cash flows, management is required to make estimates and assumptions. The key estimates and
assumptions include discount rates and collateral repayment rates. Premiums, discounts, and other
deferred costs are amortized to interest income using the effective interest method.
Farmer Mac generally receives compensation when loans with yield maintenance provisions underlying
Farmer Mac Guaranteed Securities prepay. These yield maintenance payments mitigate Farmer Mac's
exposure to reinvestment risk and are calculated such that, when reinvested with the prepaid principal,
they should generate substantially the same cash flows that would have been generated had the loans not
prepaid. Yield maintenance payments are recognized as interest income in the consolidated statements of
operations upon receipt.
Interest Income Recognition on IO-FMGS
Farmer Mac recognizes interest income for its IO-FMGS by applying the effective yield methodology
required by GAAP for financial assets that are either not of high credit quality at the time of acquisition or
can be contractually prepaid or otherwise settled in such a way that Farmer Mac would not recover
substantially all of its recorded investment. The amount of periodic interest income recognized is
determined by applying the IO-FMGS effective interest rate to its amortized cost basis (or “reference
amount”). At the time of acquisition, the effective interest rate is calculated by solving for the single
discount rate that equates the present value of Farmer Mac's best estimate of the amount and timing of the
cash flows expected to be collected from the IO-FMGS to its purchase cost. To prepare its best estimate of
cash flows expected to be collected, Farmer Mac develops a number of assumptions about the future
performance of the pool of mortgage loans that serve as collateral, including assumptions about the timing
and amount of prepayments and credit losses. In each subsequent quarterly reporting period, the amount
and timing of cash flows expected to be collected from the IO-FMGS are re-estimated based upon current
information and events.
125
(d) Loans
Loans for which Farmer Mac has the positive intent and ability to hold for the foreseeable future are
classified as held for investment and reported at their unpaid principal balance, net of unamortized
purchase discounts or premiums. Loans for which Farmer Mac does not have the positive intent and
ability to hold for the foreseeable future are classified as held for sale and reported at the lower of cost or
fair value determined on a pooled basis. Farmer Mac de-recognizes sold loans, and recognizes any
associated gain or loss, when they have been legally isolated from Farmer Mac, the buyer has the right to
pledge or exchange them, and Farmer Mac does not maintain effective control over them. When Farmer
Mac consolidates a trust, it recognizes the loans underlying the trust in the consolidated balance sheets as
"Loans held for investment in consolidated trusts, at amortized cost." See Note 2(o) for more information
on the accounting policy related to consolidation.
Non-accrual Loans
Non-accrual loans are loans for which it is probable that Farmer Mac will be unable to collect all amounts
due according to the contractual terms of the loan agreement and include all loans 90 days or more past
due. When a loan becomes 90 days past due, interest accrual on the loan is discontinued and interest
previously accrued is reversed against interest income in the current period. The interest on such loans is
accounted for on the cash basis until a loan qualifies for return to accrual status. Loans are returned to
accrual status when all the principal and interest payments contractually due are collected and certain
performance criteria are met.
Troubled Debt Restructuring ("TDR")
A modification to the contractual terms of a loan that results in granting a concession to a borrower
experiencing financial difficulties is considered a TDR. Farmer Mac has granted a concession when, as a
result of the restructuring, it does not expect to collect all amounts due in a timely manner, including
interest accrued at the original contract rate. In making its determination of whether a borrower is
experiencing financial difficulties, Farmer Mac considers several factors, including whether (1) the
borrower has declared or is in the process of declaring bankruptcy, (2) there is substantial doubt as to
whether the borrower will continue to be a going concern, and (3) the borrower can obtain funds from
other sources at an effective interest rate at or near a current market interest rate for debt with similar risk
characteristics.
(e) Securitization
Securitization involves the transfer of financial assets to another entity in exchange for cash and/or
beneficial interests in the assets transferred. Farmer Mac or third parties transfer agricultural mortgage
loans, Rural Utilities loans, or USDA securities into trusts that are used as vehicles for the securitization of
the transferred financial assets. The trusts issue Farmer Mac Guaranteed Securities that are beneficial
interests in the assets of the trusts, to either Farmer Mac or third-party investors. Farmer Mac guarantees
the timely payment of principal and interest on the securities issued by the trusts and receives guarantee
fees as compensation for its guarantee. Farmer Mac recognizes guarantee fees on the accrual basis over
the terms of the Farmer Mac Guaranteed Securities, which generally coincide with the terms of the
underlying loans. As such, no guarantee fees are unearned at the end of any reporting period.
126
Farmer Mac is required to perform under its guarantee obligation when the underlying loans for the off-
balance sheet Farmer Mac Guaranteed Securities do not make their scheduled installment payments. When
a loan underlying an Agricultural Finance Guaranteed Security becomes 90 days or more past due, Farmer
Mac may, in its sole discretion, repurchase the loan from the trust and generally does repurchase such
loans, thereby reducing the principal balance of the outstanding Farm & Ranch Guaranteed Security.
When Farmer Mac purchases a delinquent loan underlying a Farmer Mac Guaranteed Security, Farmer
Mac stops accruing the guarantee fee upon loan purchase.
If Farmer Mac repurchases a loan that is collateral for a Farmer Mac Guaranteed Security, Farmer Mac
would have the right to enforce the terms of the loan, and in the event of a default, would have access to
the underlying collateral. Farmer Mac typically recovers its investment in the defaulted loans purchased
either through borrower payments, loan payoffs, payments by third parties, or foreclosure and sale of the
collateral securing the loans.
Farmer Mac has recourse to the USDA for any amounts advanced for the timely payment of principal and
interest on Farmer Mac Guaranteed USDA Securities. That recourse is the USDA guarantee, a full-faith-
and-credit obligation of the United States that becomes enforceable if a lender fails to repurchase the
USDA-guaranteed portion from its owner within 30 days after written demand from the owner when
(a) the borrower under the guaranteed loan is in default not less than 60 days in the payment of any
principal or interest due on the USDA-guaranteed portion, or (b) the lender has failed to remit to the
owner the payment made by the borrower on the USDA-guaranteed portion or any related loan subsidy
within 30 days after the lender's receipt of the payment.
Transfers of Financial Assets
Farmer Mac accounts for transfers of financial assets as sales when it has surrendered control over the
related assets. Whether control has been relinquished requires, among other things, an evaluation of
relevant legal considerations and an assessment of the nature and extent of Farmer Mac's continuing
involvement with the assets transferred. Gains and losses stemming from transfers reported as sales are
included in “Gain on sale of mortgage loans” in the accompanying consolidated statements of operations.
Assets obtained and liabilities incurred in connection with transfers reported as sales are initially
recognized in the consolidated balance sheets at fair value.
In the fourth quarter of 2021, Farmer Mac executed a structured securitization of a $299.4 million pool of
Farm & Ranch loans. The securitization consisted of two classes of securities, Class A and Class B. The
Class A securities are backed by 92.5% of the pool and is guaranteed by Farmer Mac. The Class B
Tranche is backed by the remaining 7.5% of the pool. Credit losses on the entire pool are first allocated to
the Class B securities. As a result of the transaction, Farmer Mac recognized the following:
1. A guarantee asset and liability related to the guarantee fees and the obligation to stand ready to
perform on the guarantee to the Class A security holders.
2. A servicing asset related to Farmer Mac’s role as Master and Central Servicer. Farmer Mac will
earn a related servicing fee.
3. A retained interest-only strip (IO-FMGS) security.
127
The above assets and liabilities were initially recorded on the consolidated balance sheets at fair value.
For more information on fair value measurement see Footnote 13.
The securitization trust used to effect this transaction was a variable interest entity that Farmer Mac does
not consolidate. See Table 2.4 below for more information about these trusts.
Gains or losses arising from securitization are recorded as the difference between the transferred loans’
carrying values and the sum of (a) the initial fair value of the assets or liabilities received and (b) net cash
proceeds. For the year ended December 31, 2021, Farmer Mac recorded $6.5 million in gains attributable
to securitization activity. These gains were reported in “Gain on sale of mortgage loans” in the
consolidated statements of operations.
(f) Financial Derivatives
Farmer Mac enters into financial derivative transactions principally to protect against risk from the effects
of market price or interest rate movements on the value of certain assets, future cash flows or debt
issuance, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts to
adjust the characteristics of its short-term debt to match more closely the cash flow and duration
characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-
term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby
reducing interest rate risk and, often times, deriving an overall lower effective cost of borrowing than
would otherwise be available to Farmer Mac in the conventional debt market.
Accounting for financial derivatives differs depending on whether a derivative is designated in a hedge
accounting relationship. Derivative instruments designated in fair value hedge accounting relationships
mitigate exposure to changes in the fair value of assets or liabilities. Derivative instruments designated in
cash flow hedge accounting relationships mitigate exposure to the variability in expected future cash flows
or other forecasted transactions. In order to qualify for fair value or cash flow hedge accounting treatment,
documentation must indicate the intention to designate the derivative as a hedge of a specific asset, or
liability, or a future cash flow. Effectiveness of the hedge is assessed before the end of the quarter of
inception and monitored over the life of the hedging relationship.
Changes in the fair values of financial derivatives not designated as cash flow or fair value hedges were
reported in "(Losses)/gains on financial derivatives" in the consolidated statements of operations. For
financial derivatives designated in fair value hedge accounting relationships, changes in the fair values of
hedged items related to the risk being hedged are reported in "Net interest income" in the consolidated
statements of operations. Interest accruals on derivatives designated in fair value hedge relationships are
also recorded in "Net interest income" in the consolidated statements of operations. For financial
derivatives designated in cash flow hedge relationships, the unrealized gain or loss on the derivative is
recorded in other comprehensive income. Because the hedging instrument is an interest rate swap and the
hedged forecasted transactions are future interest payments on variable rate debt, amounts recorded in
accumulated other comprehensive income are reclassified to "Total interest expense" in conjunction with
the recognition of interest expense on the debt.
See Notes 6 and 13 for more information on financial derivatives.
128
(g) Notes Payable
Debt issuance costs and premiums and discounts are deferred and amortized to interest expense using the
effective interest method over the contractual life of the related debt.
(h) Allowance for Losses and Reserve for Losses
Current Expected Credit Loss ("CECL")
On January 1, 2020, Farmer Mac adopted Accounting Standards Update 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under CECL, Farmer
Mac's allowance for credit losses represents the difference between the carrying amount of the related
financial instruments and the present value of their expected cash flows discounted at their effective
interest rates, as of the respective balance sheet date. Under CECL, Farmer Mac's reserve for credit losses
represents the difference between the outstanding amount of off-balance sheet credit exposures and the
present value of their expected cash flows discounted at their effective interest rates.
Farmer Mac maintains an allowance for credit losses to cover current expected credit losses as of the
balance sheet date for on-balance sheet investment securities, loans held for investment, and Farmer Mac
Guaranteed Securities (collectively referred to as "allowance for losses"). Additionally, Farmer Mac
maintains a reserve for credit losses to cover current expected credit losses as of the balance sheet date for
off-balance sheet loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities
(collectively referred to as "reserve for losses"). Both the allowance for losses and reserve for losses are
based on historical information and reasonable and supportable forecasts.
Farmer Mac has never experienced a credit loss in its Rural Infrastructure Finance line of business. Upon
the adoption of CECL, Farmer Mac measures its expected credit losses for the expected life of all financial
instruments, including its Rural Infrastructure Finance loans. To estimate expected credit losses on these
loans, Farmer Mac relies upon industry historical credit loss data from ratings agencies and publicly
available information as disclosed in the securities filings of other major lenders who serve the utilities
industry.
The allowance for losses increases through periodic provisions for loan losses that are charged against net
interest income and the reserve for losses increases through provisions for losses that are charged to non-
interest expense. Both the allowance for losses and reserve for losses are decreased by charge-offs for
realized losses, net of recoveries. Releases from the allowance for losses or reserve for losses occur when
the estimate of expected credit losses as of the end of a period is less than the estimate at the beginning of
the period.
The total allowance for losses consists of the allowance for losses and the reserve for losses.
Charge-offs, under CECL
Farmer Mac records a charge-off from the allowance for losses when either a) a loan, or a portion of a
loan, is deemed uncollectible; or b) a loss has been confirmed through the receipt of assets, generally the
underlying collateral, in full satisfaction of the loan. The charge-off equals the excess of the recorded
investment in the loan over the fair value of the collateral less estimated selling costs.
129
Estimation Methodology, under CECL
Farmer Mac bases its methodology for determining its current estimate of expected losses on a statistical
model, which incorporates credit loss history and reasonable and supportable forecasts. Farmer Mac's
estimation methodology includes the following key components:
• An economic model for each portfolio, including Agricultural Finance loans (Corporate AgFinance
and Farm & Ranch), Rural Infrastructure Finance loans (Rural Utilities and Renewable Energy),
and AgVantage Securities;
• A migration matrix for each portfolio that reasonably predicts the movement of each financial asset
among various risk categories over the course of each asset's expected life (the migration matrix
forms the basis for our estimate of the probability of default of each financial asset);
• A loss-given-default ("LGD") model that reasonably predicts the amount of loss that Farmer Mac
would incur upon the default of each financial asset;
• An economic factor forecast that updates the migration matrix model and the LGD model with
current assumptions for the economic indicators that Farmer Mac has determined are most
correlated with or relevant to the performance of each portfolio of assets (including Gross
Domestic Product ("GDP"), credit spreads, unemployment rates, land values, and commodity
prices); and
• A discounted cash flow analysis, which relies upon each of the above model outputs, plus the
contractual terms of each financial asset, and the effective interest rate of each financial asset.
Management evaluates these assumptions by considering many relevant factors, including:
•
•
•
•
•
•
economic conditions;
geographic and agricultural commodity/product concentrations in the portfolio;
the credit profile of the portfolio, including risk ratings and financial metrics;
delinquency trends of the portfolio;
historical charge-off and recovery activities of the portfolio; and
other factors to capture current portfolio trends and characteristics that differ from historical
experience.
Management believes that its methodology produces a reasonable estimate of expected credit losses, as of
the balance sheet date, for the expected life of all of its financial assets.
Allowance for Loss on Available-for-Sale (AFS) Securities, under CECL
To measure current expected credit losses on impaired AFS securities, Farmer Mac first considers those
impaired securities that: 1) Farmer Mac does not intend to sell, and 2) it is not more likely than not that
Farmer Mac will be required to sell before recovering its amortized cost basis. In assessing whether a
credit loss exists, Farmer Mac compares the present value, discounted at the security's effective interest
rate, of cash flows expected to be collected from an impaired AFS debt security to its amortized cost basis.
If the present value of cash flows expected to be collected is less than the amortized cost basis of the
impaired security, a credit loss exists and Farmer Mac records an allowance for loss for that credit loss.
However, the amount of that allowance is limited by the amount that the security’s fair value is less than
its amortized cost basis. Accrued interest receivable is recorded separately on the Consolidated Balance
Sheet, and the allowance for credit losses excludes uncollectible accrued interest receivable.
Collateral Dependent Assets ("CDAs"), under CECL
130
CDAs are loans, loans underlying LTSPCs, or off-balance sheet credit exposures in which the borrower is
either in foreclosure or is experiencing financial difficulty and repayment is expected to be provided
substantially through the sale or operation of the collateral by Farmer Mac. Farmer Mac estimates the
current expected credit loss on CDAs based upon the appraised value of the collateral, the costs to sell it,
and any applicable credit protection such as a guarantee.
Probable Incurred Credit Loss (prior to January 1, 2020)
Prior to January 1, 2020, Farmer Mac maintained an allowance for losses to cover estimated probable
losses incurred as of the balance sheet date on loans held ("allowance for loan losses") and loans
underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities ("reserve for losses") based
on available information. Disaggregation by: commodity type, portfolio, and risk rating; was performed,
where appropriate, in analyzing the need for an allowance for losses.
General Allowance for Loss, for Probable Incurred Credit Losses
Prior to January 1, 2020, Farmer Mac's methodology to determine its allowance for losses incorporated
Farmer Mac's automated loan classification system. That system scored loans based on criteria such as
historical repayment performance, indicators of current financial condition, loan seasoning, loan size and
loan-to-value ratio. The previous allowance methodology captured the migration of loan scores across
concurrent and overlapping 3-year time horizons and calculated loss rates separately within each loan
classification for (1) loans underlying LTSPCs and (2) loans held and loans underlying Farm & Ranch
Guaranteed Securities. The calculated loss rates were applied to the current classification distribution of
unimpaired loans in Farmer Mac's portfolio to estimate inherent losses, under the assumption that the
historical credit losses and trends used to calculate loss rates would continue in the future.
Management evaluated those assumptions through considering many relevant factors, including:
• economic conditions;
• geographic and agricultural commodity/product concentrations in the portfolio;
• the credit profile of the portfolio;
• delinquency trends of the portfolio;
• historical charge-off and recovery activities of the portfolio; and
• other factors to capture current portfolio trends and characteristics that differ from historical
experience.
Prior to January 1, 2020, Management believed that its use of that methodology produced a reasonable
estimate of probable losses incurred as of the balance sheet date, for all loans held in the Farm & Ranch
portfolio and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs.
Prior to January 1, 2020, Farmer Mac separately evaluated the Rural Utilities loans it owned to determine
if there were any probable losses inherent in those assets.
Specific Allowance for Impaired Loans
Prior to January 1, 2020, Farmer Mac analyzed individual loans for impairment. Those individual loans
included loans 90 days or more past due, in foreclosure, restructured, in bankruptcy and certain
performing loans that had previously been delinquent or were secured by real estate that produced
agricultural commodities or products then under stress.
131
(i) Earnings Per Common Share
Basic earnings per common share ("EPS") is based on the daily weighted-average number of shares of
common stock outstanding. Diluted earnings per common share is based on the daily weighted-average
number of shares of common stock outstanding adjusted to include all potentially dilutive stock
appreciation rights ("SARs") and unvested restricted stock awards. The following schedule reconciles
basic and diluted EPS for the years ended December 31, 2021, 2020, and 2019:
Table 2.1
Basic EPS
Net income attributable to
common stockholders
Effect of dilutive securities(1)
SARs and restricted stock
Diluted EPS
(1)
For the Years Ended December 31,
2021
Weighted-
Average
Shares
Net
Income
$ per
Share
Net
Income
2020
Weighted-
Average
Shares
$ per
Share
Net
Income
2019
Weighted-
Average
Shares
$ per
Share
(in thousands, except per share amounts)
$ 107,583
10,758 $ 10.00 $ 89,176
10,728 $ 8.31 $ 93,650
10,696 $ 8.76
—
88
(0.08)
—
58
(0.04)
—
82
(0.07)
$ 107,583
10,846 $ 9.92 $ 89,176
10,786 $ 8.27 $ 93,650
10,778 $ 8.69
For the years ended December 31, 2021, 2020, and 2019, SARs and restricted stock of 39,326, 74,336, and 43,374, respectively, were outstanding but not
included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the years ended December 31, 2021,
2020, and 2019, contingent shares of unvested restricted stock of 18,183, 12,680, and 10,349, respectively, were outstanding but not included in the
computation of diluted earnings per share of common stock because performance conditions had not yet been met.
(j) Income Taxes
Deferred federal income tax assets and liabilities are established for temporary differences between
financial and taxable income and are measured using the current enacted statutory tax rate. Income tax
expense is equal to the income taxes payable in the current year plus the net change in the deferred tax
asset or liability balance.
Deferred tax assets are measured at rates in effect when they arise. To the extent rates change, the deferred
tax asset will be adjusted to reflect the new rate. A increase in corporate tax rates would result in an
increase in the value of the deferred tax asset.
Farmer Mac evaluates its tax positions quarterly to identify and recognize any liabilities related to
uncertain tax positions in its federal income tax returns. Farmer Mac uses a two-step approach in which
income tax benefits are recognized if, based on the technical merits of a tax position, it is more likely than
not (a probability of greater than 50%) that the tax position would be sustained upon examination by the
taxing authority, which includes all related appeals and litigation process. The amount of tax benefit
recognized is then measured at the largest amount of tax benefit that is greater than 50% likely to be
realized upon settlement with the taxing authority, considering all information available at the reporting
date. Farmer Mac's policy for recording interest and penalties associated with uncertain tax positions is to
record them as a component of income tax expense. Farmer Mac establishes a valuation allowance for
deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be
realized. In determining its deferred tax asset valuation allowance, Farmer Mac considered its taxable
income of the appropriate character (for example, ordinary income or capital gain) within the carryback
and carryforward periods available under the tax law and the impact of possible tax planning strategies.
132
(k) Stock-Based Compensation
Farmer Mac accounts for its stock-based employee compensation plans using the grant date fair value
method of accounting. Farmer Mac measures the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award determined using the Black-
Scholes option pricing model. The cost is recognized over the period during which an employee is
required to provide service in exchange for the award. For performance-based grants, Farmer Mac
recognizes the grant-date fair value over the vesting period as long as it remains probable that the
performance conditions will be met. If the service or performance conditions are not met, Farmer Mac
reverses previously recognized compensation expense upon forfeiture.
Farmer Mac recognized $4.3 million, $4.1 million, and $2.3 million of compensation expense related to
SARs and non-vested restricted stock awards for 2021, 2020, and 2019, respectively.
(l) Comprehensive Income
Comprehensive income represents all changes in stockholders' equity except those resulting from
investments by or distributions to stockholders, and is comprised of net income and unrealized gains and
losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-
for-sale classification, and cash flow hedges, net of related taxes.
The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of
tax, by component for the years ended December 31, 2021, 2020, and 2019.
Table 2.2
Available-for-
Sale Securities
Held-to-Maturity
Securities
Cash Flow
Hedges
Total
(in thousands)
Balance as of January 1, 2019
$
(25,360) $
43,443 $
6,873 $
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Net comprehensive loss
Balance as of December 31, 2019
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from AOCI
Net comprehensive income/(loss)
Balance as of December 31, 2020
Other comprehensive income before reclassifications
Amounts reclassified from AOCI
Net comprehensive income/(loss)
Balance as of December 31, 2021
(14,976)
(3,061)
(18,037)
—
(10,598)
(10,598)
(11,561)
(921)
(12,482)
$
(43,397) $
32,845 $
(5,609) $
32,739
(3,279)
29,460
—
(10,016)
(10,016)
(21,606)
4,400
(17,206)
24,956
(26,537)
(14,580)
(41,117)
(16,161)
11,133
(8,895)
2,238
$
(13,937) $
22,829 $
(22,815) $
(13,923)
9,114
(2,109)
7,005
—
(6,676)
(6,676)
11,602
5,845
17,447
$
(6,932) $
16,153 $
(5,368) $
20,716
(2,940)
17,776
3,853
133
The following table presents other comprehensive income activity, the impact on net income of amounts
reclassified from each component of AOCI, and the related tax impact for the years ended December 31,
2021, 2020, and 2019:
Table 2.3
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding gains/
(losses) on available-for-sale
securities
Less reclassification
adjustments included in:
Net interest income(1)
(Gains)/losses on sale of
available-for-sale
investment securities(2)
Other income(3)
For the Years Ended December 31,
2021
2020
2019
Before
Tax
Provision
(Benefit)
After
Tax
Before
Tax
Provision
(Benefit)
After
Tax
Before
Tax
Provision
(Benefit)
After
Tax
(in thousands)
$ 11,537 $ 2,423 $ 9,114 $ 41,442 $ 8,703 $ 32,739 $ (18,958) $ (3,982) $ (14,976)
(2,333)
(490)
(1,843)
(3,895)
(818)
(3,077)
(3,834)
(805)
(3,029)
(253)
(84)
(53)
(18)
(200)
(66)
—
(256)
—
(54)
—
236
50
186
(202)
(275)
(57)
(218)
Total
$ 8,867 $ 1,862 $ 7,005 $ 37,291 $ 7,831 $ 29,460 $ (22,831) $ (4,794) $ (18,037)
Held-to-maturity securities:
Less reclassification
adjustments included in:
Net interest income(4)
(8,451)
(1,775)
(6,676)
(12,677)
(2,661)
(10,016) (13,415)
(2,817) (10,598)
Total
$ (8,451) $ (1,775) $ (6,676) $ (12,677) $ (2,661) $ (10,016) $ (13,415) $ (2,817) $ (10,598)
Cash flow hedges
Unrealized gains/(losses) on
cash flow hedges
Less reclassification
adjustments included in:
Net interest income(5)
$ 14,685 $ 3,083 $ 11,602 $ (27,350) $ (5,744) $ (21,606) $ (14,635) $ (3,074) $ (11,561)
7,399
1,554
5,845
5,570
1,170
4,400
(1,166)
(245)
(921)
Total
$ 22,084 $ 4,637 $ 17,447 $ (21,780) $ (4,574) $ (17,206) $ (15,801) $ (3,319) $ (12,482)
Other comprehensive
income/(loss)
$ 22,500 $ 4,724 $ 17,776 $ 2,834 $
596 $ 2,238 $ (52,047) $ (10,930) $ (41,117)
(1)
(2)
(3)
(4)
(5)
Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.
Represents unrealized gains and losses on sales of available-for-sale securities.
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.
Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The
amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount
created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the
remaining life of the security with no impact on future net income.
Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.
(m) Guarantees
Farmer Mac accounts for its LTSPCs as guarantees. LTSPCs and securitization trusts where Farmer Mac
is not the primary beneficiary result in the creation of off-balance sheet obligations for Farmer Mac.
Farmer Mac records, at the inception of an off-balance sheet guarantee or LTSPC, a liability for the fair
value of its obligation to stand ready to perform under the terms of each guarantee or LTSPC and an asset
that is equal to the fair value of the fees that will be received over the life of each guarantee or LTSPC.
The fair values of the guarantee obligation and asset at inception are based on the present value of
134
expected cash flows using management's best estimate of certain key assumptions, which include
prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved.
Because the cash flows of these instruments may be interest rate path dependent, these values and
projected discount rates are derived using a Monte Carlo simulation model. The guarantee obligation and
corresponding asset are later amortized into guarantee and commitment fee income in relation to the
decrease in the unpaid principal balance on the underlying Agricultural Finance real estate mortgage loans
and Rural Infrastructure Finance loans.
See Note 2(h) for Farmer Mac's policy for estimating probable losses for LTSPCs.
(n) Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In determining fair value, Farmer Mac
uses various valuation approaches, including market and income based approaches. When available, the
fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques
that use observable market-based inputs, or unobservable inputs that are corroborated by market
data. Pricing information obtained from third parties is internally validated for reasonableness before use
in the consolidated financial statements.
Fair value measurements related to financial instruments that are reported at fair value in the consolidated
financial statements each period are referred to as recurring fair value measurements. Fair value
measurements related to financial instruments that are not reported at fair value each period but are subject
to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements.
Fair Value Classification and Transfers
The fair value hierarchy ranks the quality and reliability of the information used to determine fair
values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The following three levels are used to
classify fair value measurements:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets or liabilities.
Quoted prices in markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly.
Prices or valuations that require unobservable inputs that are significant to the fair value
measurement.
Farmer Mac performs a detailed analysis of the assets and liabilities carried at fair value to determine the
appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement. Farmer Mac's assessment of the significance of a particular
input to the fair value measurement of an instrument requires judgment and consideration of factors
specific to the instrument. While Farmer Mac believes its valuation methods are appropriate and
consistent with those of other market participants, using different methodologies or assumptions to
135
determine fair value could result in a materially different estimate of fair value for some financial
instruments.
The following is a description of the fair value techniques used for instruments measured at fair value as
well as the general classification of those instruments under the valuation hierarchy described above.
Recurring Fair Value Measurements and Classification
Available-for-Sale and Trading Investment Securities
The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active
markets. Farmer Mac classifies these fair value measurements as "Level 1."
For a significant portion of Farmer Mac's investment portfolio, including most asset-backed securities,
senior agency debt securities, and Government/GSE guaranteed mortgage-backed securities, fair value is
primarily determined using a reputable and nationally recognized third-party pricing service. The prices
obtained are non-binding and generally representative of recent market trades. The fair value of certain
asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations
from brokers or dealers. Farmer Mac corroborates its primary valuation source by obtaining a secondary
price from another independent third-party pricing service. Farmer Mac classifies these fair value
measurements as "Level 2."
For certain investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value
using internally-developed models that employ a discounted cash flow approach. Farmer Mac maximizes
the use of observable market data, including prices of financial instruments with similar maturities and
characteristics, interest rate yield curves, measures of volatility, and prepayment rates. Farmer Mac
generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there
are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price
quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is
limited availability of public market information. Farmer Mac classifies these fair value measurements as
"Level 3."
Available-for-Sale and Trading Farmer Mac Guaranteed Securities and USDA Securities
Farmer Mac estimates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by
discounting the projected cash flows of these instruments at discount rates commensurate with the risks
involved. The fair values are based on the present value of expected cash flows using management's best
estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount
rates commensurate with the risks involved. Farmer Mac classifies these fair value measurements as Level
3 because there is limited market activity and therefore little or no price transparency.
Financial Derivatives
The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical
financial instruments. Farmer Mac classifies these fair value measurements as Level 1.
Farmer Mac's derivative portfolio consists primarily of interest rate swaps and forward sales contracts on
the debt of other GSEs. Farmer Mac estimates the fair value of these financial instruments primarily based
136
upon the counterparty valuations. Farmer Mac internally values its derivative portfolio using a discounted
cash flow valuation technique and obtains a secondary valuation for certain interest rate swaps to
corroborate the counterparty valuations. Farmer Mac also regularly reviews the counterparty valuations as
part of the collateral exchange process. Farmer Mac classifies these fair value measurements as Level 2.
See Note 13 for more information regarding fair value measurement.
(o) Consolidation of Variable Interest Entities
Farmer Mac has a variable interest in various entities that are considered to be VIEs. These interests
include investments in securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed
securities created pursuant to Farmer Mac's securitization transactions and mortgage and asset-backed
trusts that Farmer Mac did not create. The consolidation model uses a qualitative evaluation that requires
consolidation of an entity when the reporting enterprise both: (1) has the power to direct matters which
significantly impact the activities and success of the entity, and (2) has exposure to benefits and/or losses
that could potentially be significant to the entity. The reporting enterprise that meets both these conditions
is deemed the primary beneficiary of the VIE. Upon consolidation of a VIE, Farmer Mac accounts for the
incremental assets and liabilities initially at their carrying amounts.
The VIEs in which Farmer Mac has a variable interest are limited to securitization trusts. The major factor
in determining if Farmer Mac is the primary beneficiary is whether Farmer Mac has the power to direct
the activities of the trust that potentially have the most significant impact on the economic performance of
the trust. Generally, the ability to make decisions regarding default mitigation is evidence of that
power. Farmer Mac determined that it is the primary beneficiary for the securitization trusts related to
most Agricultural Finance securitization transactions because of its rights as guarantor under both
programs to control the default mitigation activities of the trusts. For certain securitization trusts created
when loans subject to LTSPCs were converted to Agricultural Finance Guaranteed Securities, Farmer Mac
determined that it was not the primary beneficiary since the power to make decisions regarding default
mitigation was shared among unrelated parties. For these trusts, the shared power provisions are
substantive with respect to decision-making power and relate to the same activity (i.e., default mitigation).
For similar securitization transactions where the power to make decisions regarding default mitigation was
shared with a related party, Farmer Mac determined that it was the primary beneficiary because the
applicable accounting guidance does not permit parties within a related party group to conclude that the
power is shared. In the event that a related party status changes, consolidation or deconsolidation of these
securitization trusts could occur.
For those trusts that Farmer Mac is the primary beneficiary, the assets and liabilities are presented on the
consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost" and
"Debt securities of consolidated trusts held by third parties," respectively. These assets can only be used to
satisfy the obligations of the related trust.
For those trusts in which Farmer Mac has a variable interest but is not the primary beneficiary, Farmer
Mac's interests are presented as either "Farmer Mac Guaranteed Securities," "USDA Securities," or
"Investment securities" on the consolidated balance sheets. Farmer Mac's involvement in VIEs classified
as Farmer Mac Guaranteed Securities or USDA Securities include securitization trusts under the
Agricultural Finance line of business. In the case of USDA guaranteed trusts, Farmer Mac is not
determined to be the primary beneficiary because it does not have the decision-making power over default
mitigation activities. Based on the USDA's program authority over the servicing and default mitigation
137
activities of the USDA guaranteed portions of loans, Farmer Mac believes that the USDA has the power to
direct the activities that most significantly impact the trust's economic performance. Farmer Mac does not
have exposure to losses that could be significant to the trust and there are no triggers that would result in
Farmer Mac superseding the USDA's authority with regard to directing the activities of the trust. For VIEs
classified as investment securities, which include auction-rate certificates, asset-backed securities, and
government-sponsored enterprise ("GSE") guaranteed mortgage-backed securities, Farmer Mac is
determined not to be the primary beneficiary because of the lack of voting rights or other powers to direct
the activities of the trust.
In fourth quarter 2021, Farmer Mac executed a structured securitization of a $299.4 million pool of Farm
& Ranch loans. For more information about this securitization, see Note 2(e) - Securitization. The
securitization trust used to effect this transaction was a variable interest entity that Farmer Mac has not
consolidated. Farmer Mac determined that it was not the primary beneficiary of the securitization trust
because the subordinate class majority holder has the unilateral right to remove Farmer Mac as Master
Servicer without cause.
The following tables present, by segment, details about the consolidation of VIEs:
Table 2.4
On-Balance Sheet:
Consolidated VIEs:
Consolidation of Variable Interest Entities
As of December 31, 2021
Agricultural
Finance
Treasury
(in thousands)
Total
Loans held for investment in consolidated trusts, at amortized cost
Debt securities of consolidated trusts held by third parties (1)
$
948,623 $
981,379
— $
—
948,623
981,379
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value
Maximum exposure to loss (2)
Investment securities:
Carrying value (3)
Maximum exposure to loss (2) (3)
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (2) (4)
42,298
42,155
—
—
42,298
42,155
—
—
2,258,219
2,246,272
2,258,219
2,246,272
578,358
—
578,358
(1)
(2)
(3)
(4)
Includes borrower remittances of $32.8 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2021.
Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
Includes auction-rate certificates, government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities, and other mission related
investments.
The amount under the Agricultural Finance line of business relates to unconsolidated trusts where it was determined that Farmer Mac was either not the
primary beneficiary due to shared power with an unrelated party or a subordinate class majority holder has the unilateral right to remove Farmer Mac as
Master Servicer without cause.
138
Consolidation of Variable Interest Entities
As of December 31, 2020
Agricultural
Finance
Treasury
(in thousands)
Total
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost
Debt securities of consolidated trusts held by third parties (1)
$
1,287,045 $
— $
1,287,045
1,323,786
—
1,323,786
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (2)
Maximum exposure to loss (3)
Investment securities:
Carrying value (4)
Maximum exposure to loss (3) (4)
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3) (5)
34,537
34,456
—
—
34,537
34,456
—
—
1,918,672
1,909,535
1,918,672
1,909,535
378,610
—
378,610
(1)
(2)
(3)
(4)
(5)
Includes borrower remittances of $36.7 million. The borrower remittances had not been passed through to third-party investors as of December 31, 2020.
Includes $0.1 million of unamortized premiums and discounts and fair value adjustments related to USDA Securities.
Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
The amount under the Agricultural Finance line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary
beneficiary due to shared power with an unrelated party.
(p) Custodial Deposit Liability
During 2021, Farmer Mac acquired the loan servicing rights for a sizeable portion of its Agricultural
Finance loan and USDA Guaranteed Securities portfolios. In connection with this acquisition, Farmer Mac
now collects cash from borrowers in advance of the borrower's contractual payment date. Farmer Mac's
policy is to include the cash in the consolidated balance sheet as "Cash and cash equivalents" with an
offsetting liability to "Accounts payable and accrued expenses" until the payment is contractually due, at
which point the payment is applied to the loan. The net change in the amount of this custodial cash will
also be disclosed in the consolidated statements of cash flows as "Custodial deposit liability."
(q) Business Segments
During fourth quarter 2021, Farmer Mac's Chief Operating Decision Maker ("CODM") – its President and
Chief Executive Officer – began reviewing financial information of seven operating segments, which are
reportable segments. Prior to fourth quarter 2021, the CODM reviewed the financial information of five
reportable segments. The CODM reviews the financial information of the seven segments to make
decisions about allocating resources and to assess the financial performance of those segments. Prior to
fourth quarter 2021, the five segments were: Farm & Ranch, USDA Guarantees, Rural Utilities,
Institutional Credit, and Corporate. Beginning in fourth quarter 2021, the seven reportable segments are:
Farm & Ranch, Corporate AgFinance, Rural Utilities, Renewable Energy, Funding, Investments, and
Corporate. The purpose of the new alignment of the company's segments is for the CODM to review and
analyze financial performance according to the type of customer and market rather than according to the
type of product offerings. Additionally, the financial information for the Funding and Investments
segments allow the CODM to review the results of the company's Treasury activities. All operating
139
expenses are managed at the enterprise level and are reported within the Corporate segment rather than
allocated to any of the other segments.
The operations and financial results of the Farm & Ranch and Corporate AgFinance segments are within
our Agricultural Finance line of business. Beginning in fourth quarter 2021, the Farm & Ranch segment
includes the financial results of the USDA Securities portfolio and Farm & Ranch loans. Also beginning
in the fourth quarter of 2021, the Corporate AgFinance segment includes loans and AgVantage securities
to larger and more complex farming operations, agribusinesses focused on food and fiber processing, and
other supply chain production.
The Rural Utilities and Renewable Energy segments are within our Rural Infrastructure Finance line of
business. Beginning in fourth quarter 2021, the Rural Utilities segment includes loans to rural electric
generation and transmission cooperatives, distribution cooperatives, and telecommunications providers, as
well as AgVantage securities secured by those types of loans. The Renewable Energy segment includes
loans to rural electric solar and wind energy projects.
Prior to fourth quarter 2021, the financial results of all of the company's AgVantage Securities portfolio
were included within the Institutional Credit segment.
The Funding segment includes the financial results of the company's debt issuance, hedging, asset/liability
management, and capital allocation strategies. The company allocates interest expense to each of the other
segments (except Corporate) using a funds transfer pricing process. That process also allocates the
benefits and costs from the company's funding and hedging strategies to the Funding segment.
The Investments segment includes the financial results of the company's investment portfolio, which is
held for liquidity purposes. Interest expense is allocated to the Investments segment using the same funds
transfer pricing process that is used to allocate interest expense to the other segments.
The Corporate segment includes all of the company's operating expenses, including compensation, general
and administrative expenses, and regulatory fees. The Corporate segment also includes items of other
income and preferred stock dividend expense.
Farmer Mac uses the non-GAAP financial measure "core earnings" to measure corporate economic
performance and develop financial plans because, in management's view, core earnings is a useful
alternative measure in understanding Farmer Mac's economic performance, transaction economics, and
business trends. The main difference between core earnings and net income attributable to common
stockholders is that core earnings excludes the effects of fair value fluctuations, which are not expected to
have a cumulative net impact on financial condition or results of operations reported in accordance with
generally accepted accounting principles if the related financial instruments are held to maturity, as is
generally expected. Core earnings also differs from net income attributable to common stockholders 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. This corporate economic performance measure may not be comparable to similarly
labeled measures disclosed by other companies.
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
140
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.
(r) New Accounting Standards
Recently Adopted Accounting Guidance
Standard
Description
ASU 2020-04 and
2021-01, Reference Rate
Reform (Topic 848):
Facilitation of the
Effects of Reference
Rate Reform on
Financial Reporting
The amendments in this Update provide
optional guidance for a limited period of time
to ease the potential burden in accounting for
reference rate reform on financial reporting.
They provide optional expedients and
exceptions for applying GAAP to contracts,
hedging relationships, and other transactions
affected by reference rate reform if certain
criteria are met.
Date of Adoption
January 1, 2020 Farmer Mac adopted optional expedients
Effect on Consolidated Financial
Statements
specific to discounting transition on a
retrospective basis, and as a result of this
election, the discounting transition did not
have a material effect on Farmer Mac's
financial position, results of operations, or
cash flows.
3.
RELATED PARTY TRANSACTIONS
Farmer Mac considers an entity to be a related party if (1) the entity holds at least 5% of a class of Farmer
Mac voting common stock or (2) the institution has an affiliation with a Farmer Mac director and conducts
material business with Farmer Mac. As provided by Farmer Mac's statutory charter, only banks, insurance
companies, and other financial institutions or similar entities may hold Farmer Mac's Class A voting
common stock and only institutions of the Farm Credit System may hold Farmer Mac's Class B voting
common stock. Farmer Mac's statutory charter also provides that Class A stockholders elect 5 members of
Farmer Mac's 15-member board of directors and that Class B stockholders elect 5 members of the board of
directors. Farmer Mac generally requires financial institutions to own a requisite amount of common
stock, based on the size and type of institution, to participate in the Agricultural Finance line of
business. As a result of these requirements, Farmer Mac conducts business with related parties in the
normal course of Farmer Mac's business. All related party transactions were conducted with terms and
conditions comparable to those available to any other participant in Farmer Mac's lines of business not
related to Farmer Mac.
141
Zions Bancorporation, National Association:
Farmer Mac considers Zions Bancorporation, National Association and its affiliates ("Zions") a related
party because Zions owns approximately 31.2% of Farmer Mac's Class A voting common stock. The
following transactions occurred between Farmer Mac and Zions during 2021, 2020, and 2019:
Table 3.1
Unpaid Principal Balance:
Purchases:
Loans
USDA Securities
Sales of Farmer Mac Guaranteed Securities
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$ 214,319 $ 177,143 $ 129,040
9,565
—
10,764
41,247
8,875
163,134
The purchases of loans from Zions under the Agricultural Finance line of business represented
approximately 8.0%, 7.1%, and 9.5% of Agricultural Finance mortgage loan purchases for the years ended
December 31, 2021, 2020, and 2019, respectively, and 5.6%, 6.2% and 7.6%, respectively, of total
Agricultural Finance mortgage loan business volume (excluding AgVantage and USDA Securities). The
purchases of USDA Securities from Zions represented approximately 2.1%, 1.4%, and 2.1% of total
purchases of USDA Securities for the years ended December 31, 2021, 2020, and 2019, respectively.
Outstanding Agricultural Finance mortgage loans purchased, USDA Securities, and AgVantage securities
purchased from Zions represented 3.4% and 4.1%, respectively, of Farmer Mac's outstanding business
volume as of December 31, 2021 and 2020.
Zions retained servicing fees of $11.0 million, $11.8 million, and $12.2 million in 2021, 2020, and 2019,
respectively, for its work as a Farmer Mac servicer.
National Rural Utilities Cooperative Financial Corporation:
Farmer Mac considers the National Rural Utilities Cooperative Financial Corporation ("CFC") a related
party because CFC owns approximately 7.9% of Farmer Mac's Class A voting common stock and because
a member of Farmer Mac's board of directors has an affiliation with CFC. The following transactions
occurred between Farmer Mac and CFC during 2021, 2020, and 2019:
Table 3.2
Farmer Mac Loan Purchases and Guarantees
Unpaid Principal Balance:
Loans
Unfunded Commitments
On-balance sheet AgVantage Securities
Total purchases and guarantees
142
For the Years Ended December 31,
2021
2020
2019
(in thousands)
$
127,117 $ 272,943 $
85,000
321
1,450,000
19,500
250,000
—
575,000
$ 1,577,438 $ 542,443 $
660,000
The transactions with CFC represented 36.9% of Farmer Mac's loan purchase volume under the Rural
Infrastructure Finance line of business for 2021, compared to 36.7% of Rural Infrastructure Finance loan
purchase volume for 2020 and 9.8% for 2019. These transactions represented 37.0%, 19.2%, and 25.5%
of AgVantage securities volume for 2021, 2020, and 2019, respectively, and represented 18.4%, 9.5%, and
12.5% of total purchases, guarantees, LTSPCs, and unfunded commitments for 2021, 2020, and 2019,
respectively. Of Farmer Mac's total outstanding business volume as of December 31, 2021 and 2020,
Rural Utilities loans, loans under LTSPCs, and AgVantage securities issued by CFC represented 19.5%
and 19.2%, respectively.
Farmer Mac had interest receivable of $7.8 million and $5.3 million as of December 31, 2021 and 2020,
respectively, and earned interest income of $50.0 million, $63.1 million, and $97.3 million during 2021,
2020, and 2019, respectively, related to its AgVantage transactions with CFC.
As of both December 31, 2021 and 2020, Farmer Mac had $0.1 million of commitment fees receivable
from CFC and earned commitment fees of $1.2 million, $1.3 million, and $1.7 million, respectively for
2021, 2020, and 2019.
CFC retained servicing fees of $3.3 million, $3.3 million and $3.2 million in 2021, 2020, and 2019,
respectively, for its work as a Farmer Mac central servicer.
CoBank:
Farmer Mac considers CoBank a related party because CoBank owns approximately 32.6% of Farmer
Mac's Class B voting common stock and because a member of Farmer Mac's board of directors had an
affiliation with CoBank through the end of 2019.
Farmer Mac purchased $207.5 million, $416.8 million, and $776.4 million of loans and participations
from CoBank, under the Rural Infrastructure Finance line of business in 2021, 2020, and 2019,
respectively. The transactions with CoBank represented 60.2%, 56.0%, and 89.1% of Farmer Mac's loan
purchase transactions under the Rural Infrastructure Finance line of business for 2021, 2020, and 2019,
respectively.
During 2021, Farmer Mac entered into $72.0 million of unfunded commitments with CoBank, in which
Farmer Mac earns a nominal unused commitment fee. Of Farmer Mac's total outstanding business volume
as of December 31, 2021 and 2020, CoBank's Rural Infrastructure Finance loans and unfunded
commitments represented 5.6% and 5.1%, respectively, of total outstanding volume.
CoBank retained servicing fees of $3.2 million, $2.3 million, and $1.2 million in 2021, 2020, and 2019,
respectively, for its work as a Farmer Mac central servicer.
AgFirst Farm Credit Bank:
Farmer Mac considers AgFirst Farm Credit Bank ("AgFirst") a related party because AgFirst owns
approximately 16.8% of Farmer Mac's Class B voting common stock.
AgFirst entered into $11.0 million, $32.5 million, and $26.7 million of Agricultural Finance LTSPC
transactions in 2021, 2020, and 2019, respectively, and the aggregate balance of Agricultural Finance
LTSPCs outstanding as of December 31, 2021 and 2020 was $363.9 million and $331.2 million,
143
respectively. In each of 2021, 2020, and 2019, Farmer Mac received $1.2 million in commitment fees
from AgFirst, and had $0.1 million of commitment fees receivable as of both December 31, 2021 and
2020.
AgFirst owns certain securities backed by rural housing loans. Farmer Mac guarantees the last ten percent
of losses (based on the original principal balance at the time of pooling) from each loan in the pool
backing those securities. As of December 31, 2021 and 2020, the outstanding balance of those securities
owned by AgFirst was $4.0 million and $5.5 million, respectively. Farmer Mac received guarantee fees of
$19,000, $25,000, and $29,000 in 2021, 2020, and 2019, respectively, on those securities.
Farm Credit Bank of Texas:
Farmer Mac considers Farm Credit Bank of Texas a related party because the bank owns approximately
7.7% of Farmer Mac's Class B voting common stock. Farmer Mac received from Farm Credit Bank of
Texas commitment fees of $1.9 million, $1.2 million, and $1.1 million in 2021, 2020, and 2019,
respectively. The aggregate amount of Agricultural Finance LTSPCs outstanding with Farm Credit Bank
of Texas as of December 31, 2021 and 2020 was $625.6 million and $304.9 million, respectively. In each
of 2021, 2020, and 2019, Farm Credit Bank of Texas retained $0.1 million in servicing fees for its work as
a Farmer Mac central servicer.
Other Related Party Transactions:
Farmer Mac considers Bath State Bank and Farm Credit of Florida related parties because a member of
Farmer Mac's board of directors is affiliated with those entities. Farmer Mac purchased $2.3 million, $9.2
million, and $4.0 million in USDA Securities from Bath State Bank in 2021, 2020, and 2019, respectively.
Farmer Mac purchased $5.0 million in Agricultural Finance mortgage loans from Bath State Bank in
2021. Farmer Mac did not purchase any Agricultural Finance mortgage loans from Bath State Bank in
2020 or 2019.
Farmer Mac purchased $1.1 million and $0.2 million of Agricultural Finance mortgage loans from Farm
Credit of Florida in 2021 and 2020, respectively. Farmer Mac did not purchase any loans from Farm
Credit of Florida in 2019.
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4.
INVESTMENT SECURITIES
The following tables set forth information about Farmer Mac's available-for-sale and held-to-maturity
investment securities as of December 31, 2021 and December 31, 2020:
Table 4.1
Available-for-sale:
Floating rate auction-rate certificates
backed by Government guaranteed student
loans
Floating rate Government/GSE guaranteed
mortgage-backed securities
Fixed rate GSE guaranteed mortgage-
backed securities
Fixed rate U.S. Treasuries
Total available-for-sale
Held-to-maturity:
Amount
Outstanding
Unamortized
Premium/
(Discount)
Amortized
Cost(1)
Allowance
for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
As of December 31, 2021
(in thousands)
$
19,700 $
— $
19,700 $
(52) $
— $
(394) $
19,254
2,168,016
90
2,168,106
451,660
1,180,000
3,819,376
12,525
464,185
2,723
1,182,723
—
—
—
11,821
(1,096)
2,178,831
382
—
(5,730)
(3,254)
458,837
1,179,469
15,338
3,834,714
(52)
12,203
(10,474)
3,836,391
Floating rate Government/GSE
guaranteed mortgage-backed securities(3)
44,970
—
44,970
—
1,612
Total held-to-maturity
$
44,970 $
— $
44,970 $
— $
1,612 $
—
— $
46,582
46,582
(1)
(2)
(3)
Amounts presented exclude $4.3 million of accrued interest receivable on investment securities as of December 31, 2021.
Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of
operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors.
The held-to-maturity investment securities had a weighted average yield of 1.5% as of December 31, 2021.
Amount
Outstanding
Unamortized
Premium/
(Discount)
Amortized
Cost(1)
Allowance
for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
As of December 31, 2020
(in thousands)
Available-for-sale:
Floating rate auction-rate certificates
backed by Government guaranteed student
loans
$
19,700 $
— $
19,700 $
(36) $
— $
(493) $
19,171
Floating rate asset-backed securities
6,232
—
6,232
Floating rate Government/GSE guaranteed
mortgage-backed securities
Fixed rate GSE guaranteed mortgage-
backed securities
Fixed rate U.S. Treasuries
Total available-for-sale
Held-to-maturity:
2,350,963
(44)
2,350,919
279
1,449,408
3,826,582
—
279
17,128
1,466,536
17,084
3,843,666
(36)
—
—
—
—
—
(1)
6,231
12,150
(3,043)
2,360,026
34
1,458
13,642
—
(43)
313
1,467,951
(3,580)
3,853,692
Floating rate Government/GSE
guaranteed mortgage-backed securities(3)
45,032
—
45,032
—
1,201
Total held-to-maturity
$
45,032 $
— $
45,032 $
— $
1,201 $
—
— $
46,233
46,233
(1)
(2)
(3)
Amounts presented exclude $9.0 million of accrued interest receivable on investment securities as of December 31, 2020.
Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the consolidated statement of
operations as a provision for losses. Amount excludes unrealized losses relating to non-credit factors.
The held-to-maturity investment securities had a weighted average yield of 1.5% as of December 31, 2020.
During the year ended December 31, 2021, Farmer Mac received proceeds of $257.5 million, from the
sale of securities from its available-for-sale investment portfolio, resulting in gains of $0.3 million.
Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the year
ended December 31, 2020. During the year ended December 31, 2019, Farmer Mac received proceeds of
145
$12.4 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross
realized losses of $0.2 million.
As of December 31, 2021 and December 31, 2020, unrealized losses on available-for-sale investment
securities were as follows:
Table 4.2
As of December 31, 2021
Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
(dollars in thousands)
Floating rate auction-rate certificates backed by Government
guaranteed student loans
Floating rate Government/GSE guaranteed mortgage-backed securities
Fixed rate Government/GSE guaranteed mortgage-backed securities
Fixed rate U.S. Treasuries
Total
$
— $
— $
19,254 $
459,195
406,805
1,123,439
(619)
(5,730)
(3,070)
37,307
—
51,031
(394)
(477)
—
(184)
$
1,989,439 $
(9,419) $
107,592 $
(1,055)
Number of securities in loss position
69
24
As of December 31, 2020
Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
(dollars in thousands)
— $
—
172,842
364,320
— $
19,171 $
—
(593)
(43)
6,231
324,423
—
(493)
(1)
(2,450)
—
$
537,162 $
(636) $
349,825 $
(2,944)
Floating rate auction-rate certificates backed by Government
guaranteed student loans
$
Floating rate asset-backed securities
Floating rate Government/GSE guaranteed mortgage-backed securities
Fixed rate U.S. Treasuries
Total
Number of securities in loss position
27
62
The unrealized losses presented above are principally due to a general widening of market spreads and
changes in the levels of interest rates from the dates of acquisition to December 31, 2021 and
December 31, 2020, as applicable. The resulting decrease in fair values reflects an increase in the
perceived risk by the financial markets related to those securities. As of both December 31, 2021 and
December 31, 2020, all of the investment securities in an unrealized loss position either were backed by
the full faith and credit of the U.S. government or had credit ratings of at least "AA+."
Securities in unrealized loss positions for 12 months or longer have a fair value as of December 31, 2021
that is, on average, approximately 99.0% of their amortized cost basis. Farmer Mac believes that all of
these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes
in credit spreads.
146
The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by
remaining contractual maturity as of December 31, 2021 are set forth below. Asset-backed and mortgage-
backed securities are included based on their final maturities, although the actual maturities may differ due
to prepayments of the underlying assets.
Table 4.3
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
As of December 31, 2021
Available-for-Sale Securities
Amortized
Cost
Fair Value
(dollars in thousands)
$
646,946 $
812,878
1,712,906
661,984
646,518
810,767
1,710,515
668,591
$
3,834,714 $
3,836,391
Weighted-
Average
Yield
1.23%
0.42%
0.88%
0.64%
0.80%
5.
FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES
The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and
USDA Securities as of December 31, 2021 and December 31, 2020:
Table 5.1
Unpaid
Principal
Balance
Unamortized
Premium/
(Discount)
Amortized
Cost(1)
Allowance
for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
As of December 31, 2021
(in thousands)
Held-to-maturity:
AgVantage
Farmer Mac Guaranteed USDA
Securities
Total Farmer Mac Guaranteed
Securities
USDA Securities
$ 2,003,486 $
— $ 2,003,486 $
(132) $
10,097 $
(12,764) $ 2,000,687
29,859
26
29,885
—
1,162
—
31,047
2,033,345
2,411,649
26
2,033,371
24,682
2,436,331
(132)
—
11,259
95,741
(12,764)
2,031,734
—
2,532,072
Total held-to-maturity
$ 4,444,994 $
24,708 $ 4,469,702 $
(132) $ 107,000 $
(12,764) $ 4,563,806
Available-for-sale:
AgVantage
Farmer Mac Guaranteed
Securities(3)
$ 6,122,240 $
1,270 $ 6,123,510 $
(263) $ 212,908 $
(20,010) $ 6,316,145
—
12,297
12,297
—
117
—
12,414
Total available-for-sale
$ 6,122,240 $
13,567 $ 6,135,807 $
(263) $ 213,025 $
(20,010) $ 6,328,559
Trading:
USDA Securities(4)
$
4,299 $
134 $
4,433 $
— $
1 $
(33) $
4,401
(1)
(2)
(3)
(4)
Amounts presented exclude $29.8 million, $42.1 million, and $0.1 million of accrued interest receivable on available-for-sale, held-to-maturity, and
trading securities, respectively, as of December 31, 2021.
Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as
a provision for losses. Amount excludes unrealized losses relating to non-credit factors.
Fair value includes $12.4 million of an interest-only security with a notional amount of $275.4 million.
The trading USDA securities had a weighted average yield of 5.05% as of December 31, 2021.
147
As of December 31, 2020
Unpaid
Principal
Balance
Unamortized
Premium/
(Discount)
Amortized
Cost(1)
Allowance
for losses(2)
Unrealized
Gains
Unrealized
Losses
Fair Value
(in thousands)
Held-to-maturity:
AgVantage
Farmer Mac Guaranteed USDA
Securities
Total Farmer Mac Guaranteed
Securities
USDA Securities
$ 1,141,430 $
(55) $ 1,141,375 $
(120) $
23,986 $
(61) $ 1,165,180
34,456
81
34,537
—
1,273
—
35,810
1,175,886
2,446,550
26
1,175,912
27,076
2,473,626
(120)
—
25,259
157,748
(61)
1,200,990
(560)
2,630,814
Total held-to-maturity
$ 3,622,436 $
27,102 $ 3,649,538 $
(120) $ 183,007 $
(621) $ 3,831,804
Available-for-sale:
AgVantage
Trading:
USDA Securities(3)
$ 6,593,518 $
1,474 $ 6,594,992 $
(310) $ 368,257 $
(15,238) $ 6,947,701
$
6,413 $
198 $
6,611 $
— $
84 $
— $
6,695
(1)
(2)
(3)
Amounts presented exclude $32.3 million, $44.7 million, and $0.2 million of accrued interest receivable on available-for-sale, held-to-maturity, and
trading securities, respectively, as of December 31, 2020.
Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations as
a provision for losses. Amount excludes unrealized losses relating to non-credit factors.
The trading USDA securities had a weighted average yield of 5.05% as of December 31, 2020.
As of December 31, 2021 and December 31, 2020, unrealized losses on held-to-maturity and available-
for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows:
Table 5.2
Held-to-maturity:
AgVantage
USDA Securities
Total held-to-maturity
Available-for-sale:
AgVantage
As of December 31, 2021
Held-to-Maturity and Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
(in thousands)
1,387,236 $
(12,764) $
—
—
1,387,236 $
(12,764) $
— $
—
— $
—
—
—
1,867,364 $
(17,263) $
90,971 $
(2,747)
$
$
$
148
As of December 31, 2020
Held-to-Maturity and Available-for-Sale Securities
Unrealized loss position for
less than 12 months
Unrealized loss position for
more than 12 months
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
(in thousands)
49,939 $
—
(61) $
—
— $
21,061
49,939 $
(61) $
21,061 $
—
(560)
(560)
133,703 $
(231) $
981,757 $
(15,007)
$
$
$
Held-to-maturity:
AgVantage
USDA Securities
Total held-to-maturity
Available-for-sale:
AgVantage
The unrealized losses presented above are principally due to changes in interest rates from the date of
acquisition to December 31, 2021 and December 31, 2020, as applicable. The unrealized losses on the
held-to-maturity USDA Securities as of both December 31, 2021 and December 31, 2020 reflect their
increased cost basis resulting from their transfer to held-to-maturity as of October 1, 2016.
The credit exposure related to Farmer Mac's USDA Securities in the Agricultural Finance line of business
is covered by the full faith and credit guarantee of the United States of America.
The unrealized losses from AgVantage securities were on 13 and 11 available-for-sale securities as of
December 31, 2021 and December 31, 2020, respectively. There were 10 and 2 held-to-maturity
AgVantage securities with an unrealized loss as of December 31, 2021 and December 31, 2020,
respectively. As of December 31, 2021 and December 31, 2020, 2 and 7 available-for-sale AgVantage
securities, respectively, had been in a loss position for more than 12 months.
During the three years ended December 31, 2021, 2020, and 2019, Farmer Mac had no sales of Farmer
Mac Guaranteed Securities or USDA Securities and, therefore, Farmer Mac realized no gains or losses.
149
The amortized cost, fair value, and weighted-average yield of available-for-sale and held-to-maturity
Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of
December 31, 2021 are set forth below. The balances presented are based on their final maturities,
although the actual maturities may differ due to prepayments of the underlying assets.
Table 5.3
As of December 31, 2021
Available-for-Sale Securities
Amortized
Cost(1)
Fair Value
(dollars in thousands)
$
1,401,396 $
2,142,369
1,008,986
1,583,056
$
6,135,807 $
1,408,170
2,194,055
1,034,586
1,691,748
6,328,559
As of December 31, 2021
Held-to-Maturity Securities
Amortized
Cost(1)
Fair Value
(dollars in thousands)
$
1,146,637 $
1,146,747
904,570
253,388
2,165,107
$
4,469,702 $
902,695
262,906
2,251,458
4,563,806
Weighted-
Average
Yield
1.80 %
2.52 %
2.21 %
2.46 %
2.28 %
Weighted-
Average
Yield
0.65 %
2.09 %
2.76 %
3.15 %
2.26 %
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
(1)
Amounts presented exclude $29.8 million of accrued interest receivable.
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
(1)
6.
Amounts presented exclude $42.1 million of accrued interest receivable.
FINANCIAL DERIVATIVES
Farmer Mac enters into financial derivative transactions to protect against risk from the effects of market
price, or interest rate movements, on the value of certain assets, future cash flows, or debt issuance, and
not for trading or speculative purposes. Certain financial derivatives are designated as fair value hedges of
fixed rate assets, classified as available-for-sale, to protect against fair value changes in the assets related
to changes in a benchmark interest rate (e.g., LIBOR or SOFR). Certain other financial derivatives are
designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate
debt. Certain financial derivatives are not designated in hedge accounting relationships.
Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet
permanently funded, primarily through the use of forward sale contracts on the debt of other GSEs and
futures contracts involving U.S. Treasury securities. Farmer Mac uses forward sale contracts on GSE
securities to reduce its interest rate exposure to changes in both U.S. Treasury rates and spreads on Farmer
Mac debt. Farmer Mac aims to achieve a duration-matched hedge ratio between the hedged item and the
hedge instrument. Gains or losses generated by these hedge transactions are expected to offset changes in
funding costs. All financial derivatives are recorded on the balance sheet at fair value as a freestanding
asset or liability.
150
The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis
without giving consideration to master netting arrangements as of December 31, 2021 and December 31,
2020:
Table 6.1
Fair value hedges:
Interest rate swaps:
As of December 31, 2021
Fair Value
Notional
Amount
Asset
(Liability)
Weighted-
Average
Pay Rate
Weighted-
Average
Receive
Rate
Weighted-
Average
Forward
Price
Weighted-
Average
Remaining
Term
(in years)
(dollars in thousands)
Pay fixed non-callable
$ 6,238,438 $ 11,554 $
(583)
2.06%
Receive fixed non-callable
Receive fixed callable
5,884,529
1,571,577
15
103
(8,383)
(17,612)
0.17%
0.01%
0.13%
0.88%
0.80%
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable
570,000
6,905
(2,763)
1.93%
0.49%
No hedge designation:
Interest rate swaps:
Pay fixed non-callable
Receive fixed non-callable
Basis swaps
Treasury futures
Credit valuation adjustment
229,062
1,377,250
1,608,911
67,600
—
—
489
73
—
(4,641)
—
(280)
3.22%
0.13%
0.17%
0.16%
0.43%
0.20%
—
14
130.58
11.64
2.27
4.17
5.72
4.95
0.97
3.31
Total financial derivatives
$ 17,547,367 $ 19,139 $ (34,248)
Collateral (held)/pledged
Net amount
—
194,519
$ 19,139 $ 160,271
151
As of December 31, 2020
Fair Value
Notional
Amount
Asset
(Liability)
Weighted-
Average
Pay Rate
Weighted-
Average
Receive
Rate
Weighted-
Average
Forward
Price
Weighted-
Average
Remaining
Term
(in years)
(dollars in thousands)
Fair value hedges:
Interest rate swaps:
Pay fixed non-callable
$ 5,463,303 $ 10,157 $
(2,585)
Receive fixed non-callable
2,611,029
2
(8,755)
Receive fixed callable
343,500
3,108
(4)
2.26%
0.32%
0.16%
0.21%
1.61%
1.78%
Cash flow hedges:
Interest rate swaps:
Pay fixed non-callable
472,000
2,584
(8,771)
2.04%
0.57%
No hedge designation:
Interest rate swaps:
Pay fixed non-callable
Receive fixed non-callable
Receive fixed callable
Basis swaps
Treasury futures
Credit valuation adjustment
339,090
2,359,220
200,000
—
—
1
3,628,911
1,617
30,500
—
(1)
(9,675)
—
(12)
(43)
(82)
35
2.38%
0.16%
0.13%
0.18%
0.19%
0.87%
0.15%
0.23%
137.81
Total financial derivatives
$ 15,447,553 $ 17,468 $ (29,892)
Collateral (held)/pledged
Net amount
(1,345)
212,263
$ 16,123 $ 182,371
11.95
2.10
3.16
6.04
4.23
1.07
0.72
2.03
As of December 31, 2021, Farmer Mac expects to reclassify $4.6 million after-tax from accumulated
other comprehensive income to earnings over the next twelve months related to cash flow hedges. This
amount could differ from amounts actually recognized due to changes in interest rates, hedge de-
designations, and the addition of other hedges after December 31, 2021. During the years ended
December 31, 2021 and 2020, there were no gains or losses from interest rate swaps designated as cash
flow hedges reclassified to earnings because it was probable that the originally forecasted transactions
would occur.
152
The following tables summarize the net income/(expense) recognized in the consolidated statements of
operations related to derivatives for the years ended December 31, 2021, 2020, and 2019:
Table 6.2
Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
For the Year Ended December 31, 2021
Net Interest Income
Non-Interest
Income
Interest Income
Farmer Mac
Guaranteed
Securities and
USDA
Securities
Interest Income
Investments and
Cash Equivalents
Interest
Income
Loans
Total
Interest
Expense
Losses on
financial
derivatives
Total
(in thousands)
$
18,660 $
163,547 $ 242,582 $ (204,014) $
(3,348) $ 217,427
(1,002)
(85,302)
(27,167)
42,591
1,792
119,896
46,842
(51,484)
—
—
—
(1,118)
—
—
—
(70,880)
117,046
(1,118)
790 $
34,594 $
19,675 $
(10,011) $
— $
45,048
1,688 $
177,077 $
97,459 $
(98,332) $
— $ 177,892
(1,218)
(176,304)
(97,502)
95,617
—
(179,407)
470 $
773 $
(43) $
(2,715) $
— $
(1,515)
$
$
$
Total amounts presented in the
consolidated statement of operations
Income/(expense) related to interest
settlements on fair value hedging
relationships:
Recognized on derivatives
Recognized on hedged items
Discount amortization recognized on
hedged items
Income/(expense) related to interest
settlements on fair value hedging
relationships
Gains/(losses) on fair value hedging
relationships:
Recognized on derivatives
Recognized on hedged items
Gains/(losses) on fair value hedging
relationships
Expense related to interest settlements
on cash flow hedging relationships:
Interest settlements reclassified from
AOCI into net income on derivatives
$
Recognized on hedged items
Discount amortization recognized on
hedged items
Expense recognized on cash flow
hedges
Losses on financial derivatives not
designated in hedging relationships:
Losses on interest rate swaps
Interest expense on interest rate swaps
Treasury futures
Losses on financial derivatives not
designated in hedge relationships
$
$
$
— $
— $
— $
(7,399) $
— $
(7,399)
—
—
—
—
—
—
(2,657)
(37)
—
—
(2,657)
(37)
— $
— $
— $
(10,093) $
— $
(10,093)
— $
— $
— $
— $
(5,816) $
(5,816)
—
—
—
—
—
—
—
—
3,259
(791)
3,259
(791)
— $
— $
— $
— $
(3,348) $
(3,348)
153
For The Year Ended December 31, 2020
Net Income/(Expense) Recognized in Consolidated Statement of Operations on
Derivatives
Net Interest Income
Non-Interest
Income
Interest Income
Farmer Mac
Guaranteed
Securities and
USDA Securities
Interest
Income
Loans
Total
Interest
Expense
Losses on
financial
derivatives
Total
(in thousands)
Total amounts presented in the consolidated statement of
operations:
$
Income/(expense) related to interest settlements on fair
value hedging relationships:
227,691 $ 233,699 $ (312,946) $
(246) $ 148,198
Recognized on derivatives
Recognized on hedged items
(60,056)
(19,135)
26,386
126,170
40,793
(51,230)
Discount amortization recognized on hedged items
—
—
(745)
—
—
—
(52,805)
115,733
(745)
66,114 $
21,658 $
(25,589) $
— $
62,183
Income/(expense) related to interest settlements on
fair value hedging relationships
(Losses)/gains on fair value hedging relationships:
Recognized on derivatives
Recognized on hedged items
$
$
(Losses)/gains on fair value hedging relationships
$
(3,657) $
(3,139) $
(2,388) $
(206,281) $
(76,565) $
43,332 $
202,624
73,426
(45,720)
— $ (239,514)
—
230,330
— $
(9,184)
Expense related to interest settlements on cash flow
hedging relationships:
Interest settlements reclassified from AOCI into net
income on derivatives
Recognized on hedged items
Discount amortization recognized on hedged items
Expense recognized on cash flow hedges
(Losses)/gains on financial derivatives not designated
in hedge relationships:
Losses on interest rate swaps
Interest expense on interest rate swaps
Treasury futures
(Losses)/gains on financial derivatives not
designated in hedge relationships
$
$
$
$
— $
— $
(5,570) $
— $
(5,570)
—
—
—
—
(4,553)
(13)
—
—
(4,553)
(13)
— $
— $
(10,136) $
— $
(10,136)
— $
— $
— $
(4,204) $
(4,204)
—
—
—
—
—
—
5,808
5,808
(1,850)
(1,850)
— $
— $
— $
(246) $
(246)
154
For The Year Ended December 31, 2019
Net Income/(Expense) Recognized in Consolidated Statement of Operations on
Derivatives
Net Interest Income
Non-Interest
Income
Interest Income
Farmer Mac
Guaranteed
Securities and
USDA Securities
Interest
Income
Loans
Total
Interest
Expense
Gains/(losses)
on financial
derivatives
Total
(in thousands)
Total amounts presented in the consolidated statement of
operations
$
Income/(expense) related to interest settlements on fair
value hedging relationships:
333,896 $ 229,675 $ (471,958) $
5,282 $
96,895
Recognized on derivatives
Recognized on hedged items
(2,177)
(2,053)
(6,227)
118,609
26,352
(45,309)
Discount amortization recognized on hedged items
—
—
(631)
—
—
—
(10,457)
99,652
(631)
Income/(expense) related to interest settlements on fair
value hedging relationships
$
116,432 $
24,299 $
(52,167) $
— $
88,564
(Losses)/gains on fair value hedging relationships:
Recognized on derivatives
Recognized on hedged items
(Losses)/gains on fair value hedging relationships
Expense related to interest settlements on cash flow
hedging relationships:
Interest settlements reclassified from AOCI into net
income on derivatives
Recognized on hedged items
Discount amortization recognized on hedged items
Expense recognized on cash flow hedges
Gains on financial derivatives not designated in
hedging relationships:
Gains on interest rate swaps
Interest expense on interest rate swaps
Treasury futures
Gains on financial derivatives not designated in
hedge relationships
$
$
$
$
$
$
(184,478) $
(50,141) $
18,401 $
181,144
43,194
(16,027)
(3,334) $
(6,947) $
2,374 $
— $ (216,218)
—
208,311
— $
(7,907)
— $
— $
1,166 $
— $
1,166
—
—
—
—
(10,569)
(4)
—
—
(10,569)
(4)
— $
— $
(9,407) $
— $
(9,407)
— $
— $
— $
10,321 $
10,321
—
—
—
—
—
—
(4,213)
(4,213)
(826)
(826)
— $
— $
— $
5,282 $
5,282
155
The following table shows the carrying amount and associated cumulative basis adjustment related to the
application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in
fair value hedging relationships as of December 31, 2021 and December 31, 2020:
Table 6.3
Hedged Items in Fair Value Relationship
Carrying Amount of Hedged Assets/
(Liabilities)
Cumulative Amount of Fair Value Hedging
Adjustments included in the Carrying
Amount of the Hedged Assets/(Liabilities)
December 31, 2021 December 31, 2020
December 31, 2021
December 31, 2020
(in thousands)
Investment securities, Available-for-Sale, at
fair value
$
Farmer Mac Guaranteed Securities, Available-
for-Sale, at fair value(1)
Loans held for investment, at amortized cost(2)
Notes Payable(3)
458,653 $
— $
(1,218) $
—
4,276,002
1,668,142
4,244,027
1,692,609
(7,083,535)
(3,006,140)
206,520
13,832
42,377
382,825
111,333
(53,240)
(1)
(2)
(3)
Includes $1.3 million and $1.6 million of hedging adjustments on discontinued hedging relationships as of December 31, 2021 and December 31, 2020,
respectively.
Includes $1.2 million and $1.4 million of hedging adjustments on a discontinued hedging relationship as of December 31, 2021 and December 31, 2020,
respectively.
Carrying amount represents amortized cost.
The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of
December 31, 2021 and December 31, 2020:
Table 6.4
Assets:
Derivatives
Interest rate swap
Liabilities:
Derivatives
Interest rate swap
December 31, 2021
Gross Amount
Recognized(1)
Counterparty
Netting
Net Amount Presented in the
Consolidated Balance Sheet
(in thousands)
$
$
91,130 $
91,130 $
—
404,063 $
386,249 $
17,814
(1)
Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.
Assets:
Derivatives
Interest rate swaps
Liabilities:
Derivatives
Interest rate swaps
December 31, 2020
Gross Amount
Recognized(1)
Counterparty
Netting
Net Amount Presented in the
Consolidated Balance Sheet
(in thousands)
$
$
112,287 $
111,761 $
526
620,236 $
595,867 $
24,369
(1)
Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.
156
As of December 31, 2021, Farmer Mac held no cash or investment securities as collateral for its
derivatives in net asset positions, compared to $1.3 million of cash and no investment securities as
collateral for its derivatives in net asset positions as of December 31, 2020.
Farmer Mac posted $16.6 million cash and $177.9 million of investment securities as of December 31,
2021 and posted $11.2 million cash and $201.1 million investment securities as of December 31,
2020. Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash
equivalents and an increase in the balance of prepaid expenses and other assets. Any investment securities
posted as collateral are included in the investment securities balances on the consolidated balance
sheets. If Farmer Mac had breached certain provisions of the derivative contracts as of December 31, 2021
or December 31, 2020, it could have been required to settle its obligations under the agreements, but
would not have been required to post additional collateral. As of December 31, 2021 and December 31,
2020, there were no financial derivatives in a net payable position where Farmer Mac was required to
pledge collateral which the counterparty had the right to sell or repledge.
Of Farmer Mac's $17.5 billion notional amount of interest rate swaps outstanding as of December 31,
2021, $14.9 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange
("CME"). Of Farmer Mac's $15.4 billion notional amount of interest rate swaps outstanding as of
December 31, 2020, $12.8 billion were cleared through the CME. During 2021 and throughout 2020,
Farmer Mac continued the use of non-cleared basis swaps to prepare for the transition away from the use
of LIBOR as a reference rate.
7.
NOTES PAYABLE
Farmer Mac's borrowings consist of discount notes and medium-term notes, both of which are unsecured
general obligations of Farmer Mac. Discount notes generally have original maturities of 1.0 year or less,
whereas medium-term notes generally have maturities of 0.5 years to 25.0 years.
157
The following tables set forth information related to Farmer Mac's borrowings as of December 31, 2021
and December 31, 2020:
Table 7.1
Due within one year:
Discount notes
Medium-term notes
Current portion of medium-term notes
Total due within one year
Due after one year:
Medium-term notes due in:
Two years
Three years
Four years
Five years
Thereafter
Total due after one year
Total principal net of discounts
Hedging adjustments
Total
Due within one year:
Discount notes
Medium-term notes
Current portion of medium-term notes
Total due within one year
Due after one year:
Medium-term notes due in:
Two years
Three years
Four years
Five years
Thereafter
Total due after one year
Total principal net of discounts
Hedging adjustments
Total
December 31, 2021
Outstanding as of December 31
Average Outstanding During the Year
Amount
Weighted-
Average Rate
Amount
Weighted-
Average Rate
(dollars in thousands)
0.08 %
0.12 %
$
2,167,979
0.05 % $
1,822,714
837,580
3,981,240
$
6,986,799
$
4,179,985
2,554,906
2,119,805
2,810,894
4,106,144
15,771,734
22,758,533
(42,377)
22,716,156
$
$
$
0.09 %
1,956,870
0.75 %
0.45 %
0.81 %
0.87 %
0.85 %
1.07 %
1.69 %
1.10 %
0.90 %
December 31, 2020
Outstanding as of December 31
Average Outstanding During the Year
Amount
Weighted-
Average Rate
Amount
Weighted-
Average Rate
(dollars in thousands)
0.63 %
0.60 %
$
1,797,175
0.11 % $
2,343,702
0.19 %
1,593,253
0.90 %
0.59 %
1.00 %
1.24 %
1.67 %
1.03 %
1.92 %
1.37 %
0.98 %
2,645,146
6,304,061
$
10,746,382
$
3,004,203
2,809,551
927,119
1,342,250
2,966,172
11,049,295
21,795,677
53,240
21,848,917
$
$
$
158
The maximum amount of Farmer Mac's discount notes outstanding at any month end during each of the
years ended December 31, 2021 and 2020 was $2.4 billion and $2.6 billion, respectively.
Callable medium-term notes give Farmer Mac the option to redeem the debt at par value on a specified
call date or at any time on or after a specified call date. The following table summarizes by maturity date
the amounts and costs for Farmer Mac debt callable in 2022 as of December 31, 2021:
Table 7.2
Maturity:
2023
2024
2025
2026
Thereafter
Total
Debt Callable in 2022 as of December 31, 2021, by Maturity
Amount
Weighted-Average Rate
(dollars in thousands)
$
$
243,795
318,346
372,048
1,060,594
1,368,758
3,363,541
0.42 %
0.40 %
0.92 %
1.08 %
1.67 %
1.19 %
The following schedule summarizes the earliest interest rate reset date, or debt maturities, of total
borrowings outstanding as of December 31, 2021, including callable and non-callable medium-term notes,
assuming callable notes are redeemed at the initial call date:
Table 7.3
Debt with interest rate resets, or debt maturities in:
2022
2023
2024
2025
2026
Thereafter
Total principal net of discounts
Earliest Interest Rate Reset Date, or Debt Maturities,
of Borrowings Outstanding
Amount
Weighted-Average Rate
(dollars in thousands)
$
$
8,795,560
3,588,630
2,489,936
1,859,428
2,632,015
3,392,964
22,758,533
0.43 %
0.91 %
0.89 %
0.92 %
1.10 %
1.96 %
0.90 %
During the years ended December 31, 2021 and 2020, Farmer Mac called $2.0 billion and $3.1 billion of
callable medium-term notes, respectively.
Authority to Borrow from the U.S. Treasury
Farmer Mac's statutory charter authorizes it, upon satisfying certain conditions, to borrow up to $1.5
billion from the U.S. Treasury through the issuance of debt obligations to the U.S. Treasury. Any funds
borrowed from the U.S. Treasury may be used solely to fulfill Farmer Mac's guarantee obligations. Any
debt obligations issued by Farmer Mac under this authority would bear interest at a rate determined by the
U.S. Treasury, taking into consideration the average rate on outstanding marketable obligations of the
United States as of the last day of the last calendar month ending before the date of the purchase of the
159
obligations from Farmer Mac. The charter requires Farmer Mac to repurchase any of its debt obligations
held by the U.S. Treasury within a reasonable time. As of December 31, 2021, Farmer Mac had not used
this borrowing authority.
Gains on Repurchase of Outstanding Debt
During the year ended December 31, 2021, Farmer Mac repurchased $23.0 million of outstanding debt at
a gain of $14,000; no outstanding debt repurchases were made in the years ended December 31, 2020 and
2019.
8.
LOANS
Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are
recorded at the unpaid principal balance, net of unamortized premium or discount and other cost basis
adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled
basis. As of both December 31, 2021 and December 31, 2020, Farmer Mac had no loans held for sale.
Farmer Mac did not record any lower of cost or fair value adjustments during the year ended
December 31, 2021 related to its loans held for sale.
The following table includes loans held for investment and displays the composition of the loan balances
as of December 31, 2021 and December 31, 2020:
Table 8.1
As of December 31, 2021
As of December 31, 2020
Unsecuritized
In
Consolidated
Trusts
Total
Unsecuritized
(in thousands)
In
Consolidated
Trusts
Total
Agricultural Finance mortgage loans
$ 5,898,370 $
948,623 $ 6,846,993 $ 4,889,393 $ 1,287,045 $ 6,176,438
Rural Infrastructure Finance loans
Total unpaid principal balance(1)
2,389,136
8,287,506
—
2,389,136
2,260,412
—
2,260,412
948,623
9,236,129
7,149,805
1,287,045
8,436,850
Unamortized premiums, discounts, fair
value hedge basis adjustment, and other
cost basis adjustments
Total loans
Allowance for losses
26,590
—
26,590
112,128
—
112,128
8,314,096
948,623
9,262,719
7,261,933
1,287,045
8,548,978
(13,477)
(564)
(14,041)
(12,943)
(889)
(13,832)
Total loans, net of allowance
$ 8,300,619 $
948,059 $ 9,248,678 $ 7,248,990 $ 1,286,156 $ 8,535,146
(1)
Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business.
160
Allowance for Losses
The following table is a summary, by asset type, of the allowance for losses as of December 31, 2021 and
December 31, 2020:
Table 8.2
Loans:
Agricultural Finance mortgage loans
Rural Infrastructure Finance loans
Total
December 31, 2021
December 31, 2020
Allowance for Losses Allowance for Losses
(in thousands)
3,442 $
10,599
14,041 $
3,745
10,087
13,832
$
$
The following is a summary of the changes in the allowance for losses for each year in the three-year
period ended December 31, 2021:
Table 8.3
Balance as of December 31, 2018(1)
Provision for losses
Charge-offs
Balance as of December 31, 2019(1)
Cumulative effect adjustment from adoption of current expected credit loss standard
Adjusted Beginning Balance
Provision for losses
Charge-offs
Balance as of December 31, 2020(2)(3)(4)
(Release of)/provision for losses
Recovery
Charge-offs
Balance as of December 31, 2021(3)(4)
Agricultural Finance
mortgage loans
Rural Infrastructure
Finance loans
Allowance for Losses
Allowance for Losses
(in thousands)
$
$
$
$
$
7,017 $
3,504
(67)
10,454 $
(3,909)
6,545 $
2,959
(5,759)
3,745 $
(1,357)
1,054
—
—
—
—
—
5,378
5,378
4,709
—
10,087
512
—
—
3,442 $
10,599
(1)
(2)
(3)
(4)
Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020, Farmer Mac maintained an allowance for loan
losses to cover estimated probable incurred losses on loans held.
Allowance for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," effective January 1, 2020.
As of both December 31, 2021 and 2020, allowance for losses for Agricultural Finance mortgage loans includes no allowance, for collateral dependent
assets secured by agricultural real estate.
As of both December 31, 2021 and 2020, allowance for losses for Rural Infrastructure Finance loans includes no allowance for collateral dependent
assets.
The provision to the allowance for Rural Infrastructure Finance loan losses of $0.5 million recorded
during the year ended 2021 was primarily attributable to the impact of the Texas Arctic Freeze, partially
offset by the impact of improving economic factor forecasts. The $1.4 million release from the allowance
for the Agricultural Finance mortgage loan portfolio during the year ended 2021 was primarily attributable
to a recovery on the payoff of the agricultural storage and processing loan secured by a specialized poultry
facility that had been partially charged off in 2020 and improving economic factor forecasts.
161
The provision to the allowance for Rural Infrastructure Finance loan losses of $4.7 million recorded
during the year ended December 31, 2020 was primarily attributable to the impact of net new loan volume
in the portfolio and the impact of economic factor forecasts, especially continued expected higher
unemployment, as a result of the COVID-19 pandemic and the resulting economic volatility. The
provision to the allowance for Agricultural Finance mortgage loans of $3.0 million recorded during the
year ended December 31, 2020 was primarily related to an agricultural storage and processing loan
secured by a specialized poultry facility that Farmer Mac has deemed to be a CDA. The provision was
more than offset by charge-offs from the allowance of $5.8 million, primarily related to the specialized
poultry loan because a portion of the loan was deemed to be uncollectible.
The provision to the allowance for loan losses recorded during 2019 was primarily attributable to a
specific reserve on a single specialized poultry loan, a decrease in overall credit quality, and net portfolio
growth. The allowance for losses in the Agricultural Finance mortgage loan portfolio, as a percentage of
outstanding loan volume, increased slightly from the previous year. The total provision for losses
increased by $3.2 million, during 2019 as compared to 2018, primarily due to the specific reserve on the
agricultural storage and processing loan secured by a specialized poultry facility loan mentioned above
and a decrease in overall credit quality combined with net
portfolio growth.
The following table presents the unpaid principal balances by delinquency status of Farmer Mac's loans
and non-performing assets as of December 31, 2021 and December 31, 2020:
Table 8.4
Loans(1):
Agricultural Finance mortgage
loans
Rural Infrastructure Finance
loans
As of December 31, 2021
Accruing
Current
30-59 Days
60-89 Days
90 Days and
Greater(2)
(in thousands)
Total Past
Due
Nonaccrual
loans(3)(4)
Total Loans
$ 6,715,070 $
4,548 $
568 $
— $
5,116 $
126,807 $ 6,846,993
2,389,136
—
—
—
—
—
2,389,136
$ 9,104,206 $
4,548 $
568 $
— $
5,116 $
126,807 $ 9,236,129
Total
(1)
(2)
(3)
(4)
Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due.
Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under
either their original loan terms or a court-approved bankruptcy plan.
Includes $31.0 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2021, Farmer Mac received
$5.0 million, in interest on nonaccrual loans.
162
As of December 31, 2020
Accruing
Current
30-59 Days
60-89 Days
90 Days and
Greater(2)
(in thousands)
Total Past
Due
Nonaccrual
loans(3)(4)
Total Loans
$ 6,055,154 $
4,582 $
632 $
1,072 $
6,286 $
114,998 $ 6,176,438
2,260,412
—
—
—
—
—
2,260,412
$ 8,315,566 $
4,582 $
632 $
1,072 $
6,286 $
114,998 $ 8,436,850
Loans(1):
Agricultural Finance mortgage
loans
Rural Infrastructure Finance
loans
Total
(1)
(2)
(3)
(4)
Amounts represent unpaid principal balance of risk rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Includes loans in consolidated trusts with beneficial interests owned by third parties that are 90 days or more past due.
Includes loans that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under
either their original loan terms or a court-approved bankruptcy plan.
Includes $44.2 million of nonaccrual loans for which there was no associated allowance. During the year ended December 31, 2020, Farmer Mac received
$4.4 million in interest on nonaccrual loans.
Credit Quality Indicators
The following tables present credit quality indicators related to Farm & Ranch loans and Rural
Infrastructure loans held as of December 31, 2021 and December 31, 2020, by year of origination:
Table 8.5
Agricultural Finance mortgage
loans (1):
Internally Assigned Risk
Rating:
Acceptable
Special mention(2)
Substandard(3)
As of December 31, 2021
Year of Origination:
2021
2020
2019
2018
2017
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
$ 2,138,060 $ 1,541,509 $ 540,139 $ 324,917 $ 303,852 $ 1,004,709 $ 545,370 $ 6,398,556
84,795
1,654
50,057
4,997
51,200
26,237
48,078
27,109
9,132
38,703
14,646
75,780
4,771
11,278
262,679
185,758
Total
$ 2,224,509 $ 1,596,563 $ 617,576 $ 400,104 $ 351,687 $ 1,095,135 $ 561,419 $ 6,846,993
For the Year Ended:
Current period charge-offs
Current period recoveries
Current period Agricultural
Finance recoveries
$
$
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
(1,054)
—
—
(1,054)
— $
— $
— $
— $
(1,054) $
— $
— $
(1,054)
(1)
(2)
(3)
Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
163
As of December 31, 2021
Year of Origination:
2021
2020
2019
2018
2017
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
$ 242,570 $ 612,366 $ 774,941 $
8,100 $ 86,878 $ 628,903 $
12,578 $ 2,366,336
—
—
—
22,800
—
—
—
—
—
—
—
—
—
—
—
22,800
$ 242,570 $ 635,166 $ 774,941 $
8,100 $ 86,878 $ 628,903 $
12,578 $ 2,389,136
Rural Infrastructure Finance
loans(1):
Internally Assigned Risk
Rating:
Acceptable
Special mention(2)
Substandard(3)
Total
For the Year Ended
Current period charge-offs
$
— $
— $
— $
— $
— $
— $
— $
Current period recoveries
—
—
—
—
—
—
—
Current period Rural
Infrastructure net charge-offs $
— $
— $
— $
— $
— $
— $
— $
—
—
—
(1)
(2)
(3)
Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
As of December 31, 2020
Year of Origination:
2020
2019
2018
2017
2016
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
Agricultural Finance mortgage
loans (1):
Internally Assigned Risk
Rating:
Acceptable
Special mention(2)
Substandard(3)
$ 1,947,618 $ 774,315 $ 484,345 $ 500,768 $ 465,277 $ 1,068,693 $ 535,742 $ 5,776,758
70,171
3,400
79,744
5,821
18,317
21,879
8,530
52,709
13,111
37,173
21,328
50,582
7,656
9,259
218,857
180,823
Total
$ 2,021,189 $ 859,880 $ 524,541 $ 562,007 $ 515,561 $ 1,140,603 $ 552,657 $ 6,176,438
For the Year Ended:
Current period charge-offs
Current period recoveries
Current period Agricultural
Finance net charge-offs
$
$
— $
— $
— $
5,365 $
— $
394 $
— $
5,759
—
—
—
—
—
—
—
—
— $
— $
— $
5,365 $
— $
394 $
— $
5,759
(1)
(2)
(3)
Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
164
As of December 31, 2020
Year of Origination:
2020
2019
2018
2017
2016
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
$ 667,489 $ 809,921 $
8,260 $ 89,842 $ 31,275 $ 641,145 $
12,480 $ 2,260,412
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 667,489 $ 809,921 $
8,260 $ 89,842 $ 31,275 $ 641,145 $
12,480 $ 2,260,412
Rural Infrastructure Finance
loans(1):
Internally Assigned Risk
Rating:
Acceptable
Special mention(2)
Substandard(3)
Total
For the Year Ended:
Current period charge-offs
$
— $
— $
— $
— $
— $
— $
— $
Current period recoveries
—
—
—
—
—
—
—
Current period Rural
Infrastructure net charge-offs $
— $
— $
— $
— $
— $
— $
— $
—
—
—
(1)
(2)
(3)
Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of
past due loans.
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
9.
EQUITY
Common Stock
Farmer Mac has three classes of common stock outstanding:
• Class A voting common stock, which may be held only by banks, insurance companies, and
other financial institutions or similar entities that are not institutions of the Farm Credit
System. By federal statute, no holder of Class A voting common stock may directly or
indirectly be a beneficial owner of more than 33% of the outstanding shares of Class A voting
common stock.
• Class B voting common stock, which may be held only by institutions of the Farm Credit
System. There are no restrictions on the maximum holdings of Class B voting common stock.
• Class C non-voting common stock, which has no ownership restrictions.
During 2021, 2020, and 2019, Farmer Mac paid a quarterly dividend of $0.88, $0.80, and $0.70 per share
on all classes of its common stock. Farmer Mac's ability to declare and pay dividends on its common
stock could be restricted if it fails to comply with applicable capital requirements.
Farmer Mac's board of directors approved a share repurchase program during third quarter 2015
authorizing Farmer Mac to repurchase up to $25.0 million of its outstanding Class C non-voting common
stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to
repurchase up to $10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During
165
first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common
stock at a cost of approximately $0.2 million. Shortly after these repurchases were completed, Farmer Mac
indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of
market volatility and uncertainty caused by the COVID-19 pandemic. In March 2021, Farmer Mac's board
of directors reinstated the share repurchase program on its previous terms (with a remaining authorization
of up to $9.8 million in stock repurchases) and extended the expiration date of the program to March 2023.
Farmer Mac did not repurchase any shares of its Class C non-voting common stock during 2021. As of
December 31, 2021, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting
common stock at a cost of approximately $19.8 million under the share repurchase program since 2015.
Preferred Stock
In May 2021, Farmer Mac issued 5.0 million shares of 4.875% non-cumulative perpetual Series G
preferred stock, par value $25.00 per share. Farmer Mac incurred direct costs of $3.7 million related to
the issuance of the Series G preferred stock. The dividend rate on the Series G preferred stock will remain
at a non-cumulative, fixed rate of 4.875% per year, when, as, and if a dividend is declared by the Board of
Directors of Farmer Mac, for so long as the Series G preferred stock remains outstanding. The Series G
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, 2026.
The following table presents the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock, the Series F Preferred Stock, and the Series G Preferred Stock (collectively referred to as
the "Outstanding Preferred Stock") as of December 31, 2021:
Table 9.1
Name
Issuance Date
Issuance Cost
Shares Issued
Annual Dividend
Rate(3)
Liquidation Value
Redemption
Date(4)
Series C(1)
Series D(2)
Series E
Series F
Series G
June 20, 2014
May 13, 2019
May 20, 2020
August 20, 2020
May 27, 2021
$
$
$
$
$
1,618,583
3,000,000
3,340,456
4,000,000
2,496,750
3,180,000
3,839,902
4,800,000
3,661,677
5,000,000
6.000 % $
5.700 % $
5.750 % $
5.250 % $
4.875 % $
25.00
July 18, 2024
25.00
July 17, 2024
25.00
July 17, 2025
25.00 October 17, 2025
25.00
July 17, 2026
(1)
(2)
(3)
(4)
The Series C Preferred Stock pays an annual dividend rate of 6.00% from the date of issuance to and including the quarterly payment date occurring on
July 17, 2024, and thereafter, at a floating rate equal to three-month LIBOR plus 3.26%.
Farmer Mac has the option to redeem the preferred stock on any quarterly dividend payment date on and after July 17, 2024.
Dividends on all series of Outstanding Preferred Stock are non-cumulative, which means that if Farmer Mac's board of directors has not declared a
dividend before the applicable dividend payment date for any dividend period, such dividend will not be paid or cumulate, and Farmer Mac will have no
obligation to pay dividends for such dividend period, whether or not dividends on any series of Outstanding Preferred Stock are declared for any future
dividend period.
Farmer Mac has the right but not the obligation to redeem.
The following tables present the quarterly dividends paid by Farmer Mac on its outstanding preferred
during 2021, 2020, and 2019:
166
Table 9.2
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock,
Series C
$
0.3750 $
0.3750 $
0.3750 $
0.3750
1st Quarter
2nd Quarter(1)
3rd Quarter
4th Quarter
2021
5.700% Non-Cumulative Preferred Stock, Series D
5.750% Non-Cumulative Preferred Stock, Series E
5.250% Non-Cumulative Preferred Stock, Series F
4.875% Non-Cumulative Preferred Stock, Series G
(1)
0.3563
0.3594
0.3281
—
0.3563
0.3594
0.3281
0.1693
0.3563
0.3594
0.3281
0.3047
0.3563
0.3594
0.3281
0.3047
For second quarter 2021, dividend payment includes $0.1693 per share on the Series G Preferred Stock for the period from but not including May 27,
2021 (issuance date) to and including July 17, 2021.
1st Quarter
2nd Quarter(1)
3rd Quarter(2)(3)
4th Quarter
2020
5.875% Non-Cumulative Preferred Stock, Series A
$
0.3672 $
0.3672 $
0.2530 $
—
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock,
Series C
5.700% Non-Cumulative Preferred Stock, Series D
5.750% Non-Cumulative Preferred Stock, Series E
5.250% Non-Cumulative Preferred Stock, Series F
0.3750
0.3563
—
—
0.3750
0.3563
0.2276
—
0.3750
0.3563
0.3594
0.2078
0.3750
0.3563
0.3594
0.3281
(1)
(2)
(3)
For second quarter 2020, dividend payment includes $0.2276 per share on the Series E Preferred Stock for the period from but not including May 20,
2020 (issuance date) to and including July 17, 2020.
For third quarter 2020 dividend payment includes $0.2530 per share on the Series A Preferred Stock for the period from but not including July 17, 2020 to
and including the September 19, 2020 redemption date.
For third quarter 2020, dividend payment includes $0.2078 per share on the Series F Preferred Stock for the period from but not including August 20,
2020 (issuance date) to and including October 17, 2020.
1st Quarter
2nd Quarter(1)(2)
3rd Quarter
4th Quarter
2019
5.875% Non-Cumulative Preferred Stock, Series A
$
0.3672 $
0.3672 $
0.3672 $
0.3672
6.875% Non-Cumulative Preferred Stock, Series B
0.4297
0.2626
—
—
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock,
Series C
5.700% Non-Cumulative Preferred Stock, Series D
0.3750
—
0.3750
0.2533
0.3750
0.3563
0.3750
0.3563
(1)
(2)
For second quarter 2019, dividend payment includes $0.2626 per share on the Series B Preferred Stock for the period from but not including April 17,
2019 to and including the June 12, 2019 redemption date.
For second quarter 2019, dividend payment includes $0.2533 per share on the Series D Preferred Stock for the period from but not including May 13,
2019 (issuance date) to and including July 17, 2019.
Equity-Based Incentive Compensation Plans
Farmer Mac's Amended and Restated 2008 Omnibus Incentive Compensation Plan authorizes the grant of
restricted stock and SARs, among other alternative forms of equity-based compensation, to Farmer Mac's
directors, officers, and employees. SARs awarded to officers and employees vest annually in
thirds. Farmer Mac has not granted SARs to directors since 2008. If not exercised or cancelled earlier due
to the termination of employment, SARs granted to officers or employees expire after 10 years from the
grant date. For all SARs granted, the exercise price is equal to the closing price of Farmer Mac's Class C
non-voting common stock on the date of grant. SARs granted during 2021 have an exercise price of
$88.68 per share, SARs granted during 2020 have an exercise price ranging from $72.26 to $75.16 per
167
share, and SARs granted during 2019 have an exercise price of $82.76 per share. During 2021, 2020, and
2019, restricted stock awards were granted to employees, officers, and directors with vesting periods of
one to three years.
The following tables summarize SARs and non-vested restricted stock activity for the years ended
December 31, 2021, 2020, and 2019:
Table 9.3
For the Years Ended December 31,
2021
2020
2019
Weighted-
Average
Exercise
Price
SARs
Outstanding, beginning of year
116,417 $
Granted
Exercised
Canceled
Outstanding, end of year
Exercisable at end of year
28,575
(14,583)
—
130,409
72,106
57.16
88.68
38.99
—
66.10
52.85
Weighted-
Average
Exercise
Price
46.47
74.80
26.93
86.15
57.16
42.08
SARs
98,836 $
34,881
(15,912)
(1,388)
116,417
66,602
Weighted-
Average
Exercise
Price
38.38
82.76
35.61
79.45
46.47
34.07
SARs
124,960 $
24,582
(40,851)
(9,855)
98,836
72,696
For the Years Ended December 31,
2021
2020
2019
Non-vested
Restricted
Stock
Weighted-
Average
Grant Date
Fair Value
Non-vested
Restricted
Stock
Weighted-
Average
Grant Date
Fair Value
Non-vested
Restricted
Stock
Weighted-
Average
Grant Date
Fair Value
Outstanding, beginning of year
83,956 $
Granted
Canceled
Vested and issued
Outstanding, end of year
53,358
(1,184)
(32,239)
103,891
71.76
88.92
79.82
77.98
78.55
62,597 $
53,471
(4,042)
(28,070)
83,956
75.81
66.02
69.66
70.13
71.76
80,153 $
41,735
(17,054)
(42,237)
62,597
60.98
80.51
74.97
52.65
75.81
The cancellations of SARs and non-vested restricted stock during 2021, 2020, and 2019 were due to
unvested awards terminating in accordance with the provisions of the applicable equity compensation
plans or award agreements upon directors' or employees' departures from Farmer Mac.
Cash is not received from exercises of SARs or the vesting and issuance of restricted stock. During 2021,
2020, and 2019 the reduction of income taxes payable as a result of the deduction for the exercise of SARs
and the vesting or accelerated tax elections of restricted stock was $0.9 million, $0.5 million, and $1.0
million, respectively.
During 2021, 2020, and 2019, Farmer Mac recorded a net decrease to additional paid-in capital of $1.3
million, $0.6 million, and $1.8 million, respectively, related to stock-based compensation awards.
168
As of December 31, 2021, Farmer Mac had no stock options outstanding. The following tables summarize
information regarding SARs and non-vested restricted stock outstanding as of December 31, 2021:
Table 9.4
SARs:
Range of
Exercise Prices
$10.00 - $24.99
25.00 - 39.99
40.00 - 54.99
55.00 - 69.99
70.00 - 84.99
85.00 - 99.99
Outstanding
Exercisable
Vested or Expected to Vest
Weighted-
Average
Remaining
Contractual Life
0.2 years
2.7 years
0.0 years
5.3 years
7.9 years
8.7 years
SARs
3,000
37,037
—
3,381
52,458
34,533
130,409
Weighted-
Average
Remaining
Contractual Life
0.2 years
2.7 years
0.0 years
5.3 years
7.7 years
6.3 years
SARs
3,000
37,037
—
3,381
22,730
5,958
72,106
Weighted-
Average
Remaining
Contractual Life
0.2 years
2.7 years
0.0 years
5.3 years
7.9 years
8.7 years
SARs
3,000
37,037
—
3,381
52,458
34,533
130,409
Non-vested Restricted Stock:
Weighted-
Average
Grant-Date
Fair Value
$50.00 - $64.99
65.00 - 79.99
80.00 - 94.99
95.00-109.99
Outstanding
Expected to Vest
Non-vested
Restricted
Stock
Weighted-Average
Remaining
Contractual
Life
Non-vested
Restricted
Stock
Weighted-Average
Remaining
Contractual
Life
18,580
25,314
58,872
1,125
103,891
1.3 years
0.9 years
1.7 years
1.5 years
18,580
25,314
58,872
1,125
103,891
1.3 years
0.9 years
1.7 years
1.5 years
As of December 31, 2021 and 2020, the intrinsic value of SARs, and non-vested restricted stock
outstanding, exercisable, and vested or expected to vest was $20.4 million and $8.5 million,
respectively. During 2021, 2020, and 2019, the total intrinsic value of SARs exercised was $0.9 million,
$0.7 million, and $1.9 million, respectively. As of December 31, 2021, there was $3.3 million of total
unrecognized compensation cost related to non-vested SARs and restricted stock awards. This cost is
expected to be recognized over a weighted-average period of 1.8 years.
The weighted-average grant date fair values of SARs and restricted stock awards granted in 2021, 2020,
and 2019 were $65.48, $45.91, and $58.27 per share, respectively. Under the fair value-based method of
accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $4.3
million, $4.1 million, and $2.3 million during 2021, 2020, and 2019, respectively.
169
The fair value of SARs was estimated using the Black-Scholes option pricing model based on the
following assumptions:
Table 9.5
Risk-free interest rate
Expected years until exercise
Expected stock volatility
Dividend yield
For the Year Ended December 31,
2021
0.9%
6 years
39.1%
4.0%
2020
0.9%
6 years
34.3%
4.2%
2019
2.5%
6 years
33.8%
3.4%
The risk-free interest rates used in the model were based on the U.S. Treasury yield curve in effect at the
grant date. Farmer Mac used historical data to estimate the timing of option exercises and stock option
cancellation rates used in the model. Expected volatilities were based on historical volatility of Farmer
Mac's Class C non-voting common stock. The dividend yields were based on the expected dividends as a
percentage of the value of Farmer Mac's Class C non-voting common stock on the grant date.
Because restricted stock awards will be issued upon vesting regardless of the stock price, expected stock
volatility is not considered in determining grant date fair value. Restricted stock awards also accrue
dividends which are paid at vesting. The weighted-average grant date fair value of the restricted stock
awarded in 2021, 2020, and 2019 was $88.92, $66.02, and $80.51 per share, respectively, which is based
on the closing price of the stock on the date granted.
Capital Requirements
Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based
capital requirement. As of both December 31, 2021 and December 31, 2020, the minimum capital
requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay
dividends could be restricted if it fails to comply with applicable capital requirements.
As of December 31, 2021, Farmer Mac's minimum capital requirement was $713.8 million and its core
capital level was $1.2 billion, which was $486.8 million above the minimum capital requirement as of that
date. As of December 31, 2020, Farmer Mac's minimum capital requirement was $680.9 million and its
core capital level was $1.0 billion, which was $325.5 million above the minimum capital requirement as
of that date.
In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, and as part of
Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1
capital (consisting of retained earnings, paid-in-capital, common stock, and qualifying preferred stock)
and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event
that this capital falls below specified thresholds.
170
10.
INCOME TAXES
Farmer Mac is subject to federal corporate income taxes but is exempt from state and local corporate
income taxes. The components of the federal corporate income tax expense for the years ended
December 31, 2021, 2020, and 2019 were as follows:
Table 10.1
Current income tax expense
Deferred income tax expense
Income tax expense
For the Year Ended December 31,
2021
2020
2019
(in thousands)
$
$
37,314 $
30,634 $
(1,961)
(1,849)
35,353 $
28,785 $
28,316
789
29,105
A reconciliation of income tax at the statutory federal corporate income tax rate to the income tax expense
for the years ended December 31, 2021, 2020, and 2019 is as follows:
Table 10.2
Tax expense at statutory rate
Excess tax benefits related to stock-based awards
Valuation allowance
Other
Income tax expense
Statutory tax rate
For the Year Ended December 31,
2021
2020
2019
(dollars in thousands)
$
35,198
$
28,861
$
29,117
(300)
—
455
(9)
—
(67)
(449)
49
388
$
35,353
$
28,785
$
29,105
21.0 %
21.0 %
21.0 %
171
The components of the deferred tax assets and liabilities as of December 31, 2021 and 2020 were as
follows:
Table 10.3
Deferred tax assets:
Basis differences related to financial derivatives
Allowance for losses
Unrealized losses on cash flow hedges
Compensation and Benefits
Stock-based compensation
Capital loss carryforwards
Valuation allowance
Other
Total deferred tax assets
Deferred tax liability:
Basis differences related to hedged items
Unrealized gains on available-for-sale securities
Other
Total deferred tax liability
Net deferred tax asset
As of December 31,
2021
2020
(in thousands)
$
63,982 $
100,099
3,452
1,427
1,281
1,462
32
(32)
394
3,690
6,065
1,020
1,027
86
(86)
341
71,998
112,242
53,945
2,451
44
56,440
$
15,558 $
91,460
2,364
97
93,921
18,321
After the evaluation of both positive and negative objective evidence regarding the likelihood that its
deferred tax assets will be realized, Farmer Mac established a valuation allowance of $32,000 and $86,000
as of December 31, 2021 and 2020, respectively, which was attributable to capital loss carryforwards on
investment securities. Farmer Mac did not establish a valuation allowance for the remainder of its deferred
tax assets because it believes it is more likely than not that those deferred tax assets will be realized. As of
December 31, 2021, no capital loss carryforwards expired. As of December 31, 2021, the amount of
capital loss carryforwards was $0.2 million. These capital loss carryforwards will expire beginning in
2024.
As of December 31, 2021 and 2020, Farmer Mac did not identify any uncertain tax positions.
Farmer Mac did not have any unrecognized tax benefits for the years ended December 31, 2021, 2020, and
2019.
Tax years 2018 through 2021 remain subject to examination.
11.
EMPLOYEE BENEFITS
Farmer Mac makes contributions to a defined contribution retirement plan for all of its employees.
Farmer Mac contributed 13.2% of the lesser of an employee's gross salary and the maximum
compensation permitted under the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA") ($290,000 for 2021, $285,000 for 2020, and $280,000 for 2019), plus 5.7% of the difference
between: (1) the lesser of the gross salary and the amount established under EGTRRA and (2) the Social
Security Taxable Wage Base. Employees are fully vested after having been employed for approximately 3
172
years. Expenses for this plan for the years ended December 31, 2021, 2020, and 2019 were $2.7 million,
$2.2 million, and $1.9 million, respectively.
Farmer Mac established a Nonqualified Deferred Compensation Plan ("NQDC Plan") for its executive
officers effective May 1, 2017. Under the NQDC Plan, Farmer Mac credits the account of each participant
each calendar year with an amount equal to 18.9% of the difference between: (1) the amount established
under EGTRRA and (2) a participant’s gross annual base salary, which for purposes of calculating
employer credits under the NQDC Plan is capped at $700,000 for Farmer Mac’s Chief Executive Officer
and $500,000 for all other participants. This fixed contribution percentage is the same formula used for
determining employer contributions to Farmer Mac’s defined contribution retirement plan based on an
employee’s gross annual base salary that is above the amount established under EGTRRA for that year.
Expenses for the NQDC Plan were $0.2 million, $0.2 million, and $0.1 million for the years ended
December 31, 2021, 2020, and 2019, respectively.
12.
GUARANTEES AND COMMITMENTS
Farmer Mac offers two credit enhancement alternatives to direct loan purchases that allow approved
lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending
capacity: (1) Farmer Mac Guaranteed Securities and (2) LTSPCs, both of which are available through
each of the Agricultural Finance and Rural Infrastructure Finance lines of business.
The contractual terms of Farmer Mac's off-balance sheet guarantees and LTSPCs range from less than 1
year to 30 years. However, the actual term of each guarantee or LTSPC may be significantly less than the
contractual term based on the prepayment characteristics of the related loans. Farmer Mac's maximum
potential exposure under these off-balance sheet guarantees and LTSPCs is the unpaid principal balance of
the underlying loans. Guarantees issued or modified on or after January 1, 2003 are recorded in the
consolidated balance sheets. Farmer Mac's maximum potential exposure was $3.8 billion and $3.3 billion
as of December 31, 2021 and 2020, respectively. Farmer Mac's maximum potential exposure for
guarantees issued before January 1, 2003, which are not recorded on the consolidated balance sheets, was
$7.8 million and $10.8 million as of December 31, 2021 and 2020, respectively. The maximum exposure
from these guarantees and LTSPCs is not representative of the actual loss Farmer Mac is likely to incur,
based on historical loss experience. In the event Farmer Mac was required to make payments under its
guarantees or LTSPCs, Farmer Mac would have the right to enforce the terms of the loans, and in the
event of default, would have access to the underlying collateral. For information on Farmer Mac's
methodology for determining the reserve for losses for its financial guarantees, see Note 2(h). The
following table presents changes in Farmer Mac's guarantee and commitment obligations in the
consolidated balance sheets for the years ended December 31, 2021, 2020, and 2019:
Table 12.1
For the Years Ended December 31,
2021
2020
2019
(in thousands)
35,535 $
36,700 $
15,648
(7,257)
5,210
(6,375)
43,926 $
35,535 $
$
$
38,683
4,398
(6,381)
36,700
Beginning balance, January 1
Additions to the guarantee and commitment obligation(1)
Amortization of the guarantee and commitment obligation
Ending balance, December 31
(1)
Represents the fair value of the guarantee and commitment obligation at inception.
173
Off-Balance Sheet Farmer Mac Guaranteed Securities
The following table presents the maximum principal amount of potential undiscounted future payments
that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities
as of December 31, 2021 and December 31, 2020, not including offsets provided by any recourse
provisions, recoveries from third parties, or collateral for the underlying loans:
Table 12.2
Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities
Agricultural Finance
Farmer Mac Guaranteed Securities
Rural Infrastructure Finance
Farmer Mac Guaranteed Securities
Total off-balance sheet Farmer Mac Guaranteed Securities
As of December 31, 2021
As of December 31, 2020
(in thousands)
$
$
578,358 $
378,610
2,755
581,113 $
4,412
383,022
Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the
securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are
sold to investors. The following table summarizes the significant cash flows received from and paid to
trusts used for Farmer Mac securitizations:
Table 12.3
For the Years Ended December 31,
2021
2020
(in thousands)
2019
Proceeds from new securitizations
$
404,568 $
165,054 $
Guarantee fees received
Servicing fees received
Interest-only Farmer Mac Guaranteed Securities income
1,029
199
47
1,365
—
—
321,414
1,413
—
—
Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and
commitment obligation" on the consolidated balance sheets. The following table presents the liability and
the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac
Guaranteed Securities:
Table 12.4
Guarantee and commitment obligation
Weighted average remaining maturity:
Farmer Mac Guaranteed Securities
AgVantage Securities
As of December 31, 2021 As of December 31, 2020
(dollars in thousands)
$
7,355 $
1,625
21.7 years
3.0 years
9.5 years
4.0 years
174
Long-Term Standby Purchase Commitments
Farmer Mac has recorded a liability for its obligation to stand ready under the commitment in the
guarantee and commitment obligation on the consolidated balance sheets. The following table presents the
liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could
be requested to make under all LTSPCs, not including offsets provided by any recourse provisions,
recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average
remaining maturity of all loans underlying LTSPCs as of December 31, 2021 and 2020:
Table 12.5
Guarantee and commitment obligation(1)
Maximum principal amount
Weighted-average remaining maturity
(1) Relates to LTSPCs issued or modified on or after January 1, 2003.
Commitments
As of December 31, 2021 As of December 31, 2020
(dollars in thousands)
$
36,571 $
3,191,061
15.5 years
33,909
2,881,856
15.3 years
Farmer Mac enters into mandatory and optional delivery commitments to purchase loans. Most loan
purchase commitments entered into by Farmer Mac are mandatory commitments, in which Farmer Mac
charges a fee to extend or cancel the commitment. As of December 31, 2021 and 2020, commitments to
purchase Farm & Ranch loans and USDA Guarantees totaled $78.4 million and $125.8 million,
respectively, all of which were mandatory commitments. As of December 31, 2021, there were no
commitments to purchase Rural Utilities loans. Any optional loan purchase commitments are sold forward
under optional commitments to deliver Farmer Mac Guaranteed Securities that may be canceled by
Farmer Mac without penalty.
Reserve for Losses
The following table is a summary, by asset type, of the reserve for losses as of December 31, 2021 and
December 31, 2020:
Table 12.6
Agricultural Finance:
LTSPCs and Farmer Mac Guaranteed Securities
Rural Infrastructure Finance
LTSPCs
Total
December 31, 2021
December 31, 2020
Reserve for Losses
Reserve for Losses
(in thousands)
1,068 $
882
1,950 $
2,097
1,180
3,277
$
$
175
The following is a summary of the changes in the reserve for losses for each year in the three-year period
ended December 31, 2021:
Table 12.7
Agricultural Finance
Rural Infrastructure
Finance
Reserve for Losses
Reserve for Losses
Balance as of December 31, 2018(1)
Release of losses
Balance as of December 31, 2019(1)
$
$
Cumulative effect adjustment from adoption of current expected credit loss standard
Adjusted Beginning Balance
Provision for losses
Balance as of December 31, 2020(2)
Release of losses
Balance as of December 31, 2021(2)
$
$
$
(in thousands)
2,167 $
(3)
2,164 $
(148)
2,016 $
81
2,097 $
(1,029)
1,068 $
—
—
—
1,011
1,011
169
1,180
(298)
882
(1)
(2)
Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover
estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Agricultural Finance Farmer Mac Guaranteed Securities.
Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.
The release from the reserve for losses in both the Agricultural Finance and Rural Infrastructure Finance
LTSPC and Farmer Mac Guaranteed portfolios recorded during the year ended December 31, 2021 was
primarily due to improving economic factor forecasts and ratings upgrades.
The provision to the reserve for losses recorded during the year ended December 31, 2020 was primarily
due to credit downgrades in the LTSPC portfolio.
176
The following table presents the unpaid principal balances by delinquency status of Agricultural Finance
and Rural Utilities loans underlying LTSPCs and Farmer Mac Guaranteed Securities as of December 31,
2021 and December 31, 2020:
Table 12.8
Agricultural Finance:
As of December 31, 2021
Current
30-59 Days
60-89 Days
90 Days and
Greater(1)
Total Past
Due
Total Loans
(in thousands)
LTSPCs and Farmer Mac Guaranteed Securities $ 2,953,091 $
8,068 $
— $
3,597 $
11,665 $ 2,964,756
Rural Infrastructure:
LTSPCs
$
556,837 $
— $
— $
— $
— $
556,837
(1)
Includes loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or
in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.
As of December 31, 2020
Current
30-59 Days
60-89 Days
90 Days and
Greater(1)
Total Past
Due
Total Loans
(in thousands)
Agricultural Finance:
LTSPCs and Farmer Mac Guaranteed Securities $ 2,389,777 $
2,189 $
1,344 $
11,433 $
14,966 $ 2,404,743
Rural Infrastructure:
LTSPCs
$
556,425 $
— $
— $
— $
— $
556,425
(1)
Includes loans underlying off-balance sheet Agricultural Finance Guaranteed Securities and LTSPCs that are 90 days of more past due, in foreclosure, or
in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.
Credit Quality Indicators
The following tables present credit quality indicators related to Agricultural Finance and Rural Utilities
loans underlying LTSPCs and Farmer Mac Guaranteed Securities as of December 31, 2021 and
December 31, 2020, by year of origination:
177
Table 12.9
Agricultural Finance LTSPCs
and Farmer Mac Guaranteed
Securities:
Internally Assigned Risk
Rating:
Acceptable
Special mention(1)
Substandard(2)
As of December 31, 2021
Year of Origination:
2021
2020
2019
2018
2017
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
$ 376,027 $ 537,521 $ 244,365 $ 188,452 $ 235,865 $ 1,013,937 $ 252,039 $ 2,848,206
—
—
5,270
1,307
—
724
6,808
5,038
3,154
12,793
38,042
37,326
2,354
3,734
55,628
60,922
Total
$ 376,027 $ 544,098 $ 245,089 $ 200,298 $ 251,812 $ 1,089,305 $ 258,127 $ 2,964,756
For the Year Ended:
Current period charge-offs
Current period recoveries
Current period Agricultural
Finance net charge-offs
$
$
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
— $
—
—
—
(1)
(2)
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
As of December 31, 2021
Year of Origination:
2021
2020
2
0
2019
2018
2017
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
Rural Infrastructure Finance
LTSPCs:
Internally Assigned Risk
Rating:
Acceptable
Special mention(1)
Substandard(2)
Total
For the Year Ended:
Current period charge-offs
$
$
$
— $
— $
— $
— $
— $ 499,594 $
57,243 $ 556,837
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
— $ 499,594 $
57,243 $ 556,837
— $
— $
— $
— $
— $
— $
— $
Current period recoveries
—
—
—
—
—
—
—
Current period Rural
Infrastructure net charge-offs $
— $
— $
— $
— $
— $
— $
— $
(1)
(2)
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
178
—
—
—
As of December 31, 2020
Year of Origination:
2020
2019
2018
2017
2016
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
Agricultural Finance LTSPCs
and Farmer Mac Guaranteed
Securities:
Internally Assigned Risk
Rating:
Acceptable
Special mention(1)
Substandard(2)
$ 178,213 $ 213,620 $ 183,948 $ 237,042 $ 207,296 $ 969,860 $ 211,620 $ 2,201,599
3,920
264
1,742
10,250
1,502
12,611
5,603
14,578
19,644
7,841
50,004
60,602
10,058
92,473
4,525
110,671
Total
$ 182,397 $ 225,612 $ 198,061 $ 257,223 $ 234,781 $ 1,080,466 $ 226,203 $ 2,404,743
For the Year Ended:
Current period charge-offs
Current period recoveries
Current period Agricultural
Finance net charge-offs
$
$
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
— $
—
—
—
(1)
(2)
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
As of December 31, 2020
Year of Origination:
2020
2019
2018
2017
2016
Prior
(in thousands)
Revolving
Loans -
Amortized
Cost Basis
Total
Rural Infrastructure Finance
LTSPCs:
Internally Assigned Risk
Rating:
Acceptable
Special mention(1)
Substandard(2)
Total
For the Year Ended:
Current period charge-offs
$
$
$
— $
— $
— $
— $
— $ 549,405 $
7,020 $ 556,425
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
— $ 549,405 $
7,020 $ 556,425
— $
— $
— $
— $
— $
— $
— $
Current period recoveries
—
—
—
—
—
—
—
Current period Rural
Infrastructure net charge-offs $
— $
— $
— $
— $
— $
— $
— $
(1)
(2)
Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately
secured.
Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not
corrected.
179
—
—
—
13.
FAIR VALUE DISCLOSURES
Fair Value Classification and Transfers
The following tables present information about Farmer Mac's assets and liabilities measured at fair value
on a recurring basis as of December 31, 2021 and December 31, 2020, respectively, and indicate the fair
value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:
Table 13.1
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Assets and Liabilities Measured at Fair Value as of December 31, 2021
Level 1
Level 2
Level 3(1)
Total
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student
loans
Floating rate Government/GSE guaranteed mortgage-backed securities
Fixed rate GSE guaranteed mortgage-backed securities
Fixed rate U.S. Treasuries
$
— $
— $
19,254 $
19,254
—
—
2,178,831
458,837
1,179,469
—
—
—
—
2,178,831
458,837
1,179,469
3,836,391
Total Available-for-sale Investment Securities
1,179,469
2,637,668
19,254
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage
Farmer Mac Guaranteed Securities
Total Farmer Mac Guaranteed Securities
USDA Securities:
Trading
Total USDA Securities
Financial derivatives
Guarantee Asset
Total Assets at fair value
Liabilities:
Financial derivatives
Total Liabilities at fair value
Non-recurring:
Assets
Mortgage Servicing Rights
Total non-recurring assets at fair value
—
—
—
—
—
73
—
—
—
—
—
—
19,066
—
6,316,145
6,316,145
12,414
12,414
6,328,559
6,328,559
4,401
4,401
—
6,237
4,401
4,401
19,139
6,237
$ 1,179,542 $ 2,656,734 $ 6,358,451 $ 10,194,727
$
$
$
$
— $
— $
34,248 $
34,248 $
— $
— $
34,248
34,248
— $
— $
— $
— $
2,681 $
2,681 $
2,681
2,681
(1) Level 3 assets represent 25% of total assets and 62% of financial instruments measured at fair value.
180
Assets and Liabilities Measured at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3(1)
Total
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student
loans
$
— $
— $
19,171 $
Floating rate asset-backed securities
Floating rate Government/GSE guaranteed mortgage-backed securities
Fixed rate GSE guaranteed mortgage-backed securities
Fixed rate U.S. Treasuries
—
—
—
1,467,951
6,231
2,360,026
313
—
—
—
—
—
Total Available-for-sale Investment Securities
1,467,951
2,366,570
19,171
19,171
6,231
2,360,026
313
1,467,951
3,853,692
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage
Total Farmer Mac Guaranteed Securities
USDA Securities:
Trading
Total USDA Securities
Financial derivatives
Total Assets at fair value
Liabilities:
Financial derivatives
Total Liabilities at fair value
—
—
—
—
—
—
—
—
—
17,468
6,947,701
6,947,701
6,947,701
6,947,701
6,695
6,695
—
6,695
6,695
17,468
$ 1,467,951 $ 2,384,038 $ 6,973,567 $
10,825,556
$
$
82 $
82 $
29,810 $
29,810 $
— $
— $
29,892
29,892
(1) Level 3 assets represent 29% of total assets and 65% of financial instruments measured at fair value.
There were no material assets or liabilities measured at fair value on a non-recurring basis as of
December 31, 2021 or December 31, 2020.
Transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of
the assets and liabilities as of the beginning of the reporting period. During the years ended December 31,
2021 and 2020, there were no transfers within the fair value hierarchy.
181
The following tables present additional information about assets and liabilities measured at fair value on a
recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value.
Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the
beginning of the reporting period. There were no liabilities measured at fair value using significant
unobservable inputs during the years ended December 31, 2021 and 2020.
Table 13.2
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2021
Beginning
Balance
Purchases
Sales
Settlements
Allowance
for Losses
(in thousands)
Realized and
unrealized
losses
included
in Income
Unrealized
gains
included in
Other
Comprehensive
Income
Ending
Balance
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate
certificates backed by
Government guaranteed
student loans
$
19,171 $
— $ — $
— $
(16) $
Total available-for-sale
19,171
—
—
—
(16)
— $
—
99 $
19,254
99
19,254
Farmer Mac Guaranteed
Securities:
Available-for-sale:
AgVantage
Farmer Mac Guaranteed
Securities
USDA Securities:
Trading
Total USDA Securities
Guarantee and commitment
obligations:
Guarantee Asset
Total Guarantee and
commitment obligations
Total Assets at fair
value
6,947,701
1,143,115
—
(1,614,598)
Total available-for-sale
6,947,701
1,155,675
—
12,560
—
—
—
—
—
—
(263)
(1,614,861)
(2,178)
(2,178)
—
—
47
—
47
—
—
—
(176,064)
15,944
6,316,145
—
117
12,414
(176,064)
16,061
6,328,559
(116)
(116)
—
—
—
—
—
—
4,401
4,401
6,237
6,237
6,695
6,695
—
—
—
—
6,237
6,237
$ 6,973,567 $ 1,161,912 $ — $ (1,617,039) $
31 $
(176,180) $
16,160 $ 6,358,451
182
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2020
Beginning
Balance
Purchases
Sales
Settlements
Allowance
for Losses
(in thousands)
Realized and
unrealized
gains
included
in Income
Unrealized
gains
included in
Other
Comprehensive
Income
Ending
Balance
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate
certificates backed by
Government guaranteed
student loans
$
18,912 $
— $ — $
— $
(36) $
Total available-for-sale
18,912
—
—
—
(36)
— $
—
295 $
19,171
295
19,171
Farmer Mac Guaranteed
Securities:
Available-for-sale:
AgVantage
7,143,025
974,237
Total available-for-sale
7,143,025
974,237
USDA Securities:
Trading
Total USDA Securities
8,913
8,913
—
—
—
—
—
—
(1,397,861)
(1,397,861)
(2,269)
(2,269)
(309)
(309)
—
202,706
202,706
25,903
6,947,701
25,903
6,947,701
51
51
—
—
6,695
6,695
Total Assets at fair value $ 7,170,850 $ 974,237 $ — $ (1,400,130) $
(345) $
202,757 $
26,198 $ 6,973,567
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2019
Beginning
Balance
Purchases
Sales
Settlements
Realized and
unrealized
gains included
in Income
Unrealized
gains/(losses)
included in
Other
Comprehensive
Income
Ending
Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates
backed by Government guaranteed
student loans
$
18,715 $
— $
— $
Total available-for-sale
18,715
—
—
— $
—
— $
—
197 $
18,912
197
18,912
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage
5,974,497
2,033,713
Total available-for-sale
5,974,497
2,033,713
—
—
(1,020,294)
(1,020,294)
181,144
181,144
(26,035)
7,143,025
(26,035)
7,143,025
USDA Securities:
Available-for-sale
Trading
Total USDA Securities
—
9,999
9,999
57,853
(57,853)
—
—
57,853
(57,853)
—
(1,412)
(1,412)
—
326
326
—
—
—
—
8,913
8,913
Total Assets at fair value
$ 6,003,211 $ 2,091,566 $ (57,853) $ (1,021,706) $
181,470 $
(25,838) $ 7,170,850
183
The following tables present additional information about the significant unobservable inputs, such as
discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in
Level 3 of the fair value hierarchy as of December 31, 2021 and December 31, 2020:
Table 13.3
Financial Instruments
Fair Value
Valuation Technique
Unobservable Input
Range
(Weighted-Average)
(in thousands)
As of December 31, 2021
Assets:
Investment securities:
Floating rate auction-rate certificates backed
by Government guaranteed student loans
Farmer Mac Guaranteed Securities:
$
19,254
Indicative bids
Range of broker quotes 98.0% - 98.0% (98.0%)
AgVantage
$ 6,316,145 Discounted cash flow Discount rate
Farmer Mac Guaranteed Securities
$
12,414 Discounted cash flow Discount rate
0.9% - 2.1% (1.7%)
2.3% - 2.8% (2.6%)
CPR
8%
USDA Securities
$
4,401 Discounted cash flow Discount rate
1.4% - 3.1% (2.8%)
CPR
25% - 42% (39%)
Guarantee Asset
$
6,237 Discounted cash flow Discount rate
5.4% - 5.8% (5.6%)
Financial Instruments
Fair Value Valuation Technique
Unobservable Input
Range
(Weighted-Average)
(in thousands)
CPR
7% - 12% (8%)
As of December 31, 2020
Assets:
Investment securities:
Floating rate auction-rate certificates backed
by Government guaranteed student loans
Farmer Mac Guaranteed Securities:
AgVantage
$
19,171
Indicative bids
Range of broker quotes 97.5% - 97.5% (97.5%)
$ 6,947,701 Discounted cash flow Discount rate
0.8% - 2.3% (1.3%)
USDA Securities
$
6,695 Discounted cash flow Discount rate
CPR
0.9% - 1.9% (1.4%)
25% - 49% (44%)
The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac
Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant
increases (decreases) in this input in isolation may result in materially lower (higher) fair value
measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average
discount rates to increase. Conversely, in a declining interest rate environment, Farmer Mac would expect
average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage
securities because they generally have fixed maturity dates when the secured general obligations are due
and do not prepay.
The significant unobservable inputs used in the fair value measurements of USDA Securities are the
prepayment rate and discount rate commensurate with the risks involved. Typically, significant increases
(decreases) in any of these inputs in isolation may result in materially lower (higher) fair value
measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average
184
discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment
rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount
rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates.
Disclosures on Fair Value of Financial Instruments
The following table sets forth the estimated fair values and carrying values for financial assets, liabilities,
and guarantees and commitments as of December 31, 2021 and December 31, 2020:
Table 13.4
Financial assets:
Cash and cash equivalents
Investment securities
Farmer Mac Guaranteed Securities
USDA Securities
Loans
Financial derivatives
Guarantee and commitment fees receivable
Financial liabilities:
Notes payable
As of December 31, 2021
As of December 31, 2020
Fair Value
Carrying
Amount
Fair Value
Carrying
Amount
(in thousands)
$
908,785
$
908,785 $ 1,033,941
$ 1,033,941
3,884,202
3,882,590
3,899,925
3,898,724
8,360,293
8,361,798
8,148,691
8,123,493
2,536,473
2,440,732
2,637,509
2,480,321
9,814,642
9,248,678
9,167,525
8,535,146
19,139
42,533
19,139
45,538
17,468
34,115
17,468
37,113
22,716,791
22,716,156
22,130,263
21,848,917
Debt securities of consolidated trusts held by third parties
1,005,306
981,379
1,390,330
1,323,786
Financial derivatives
Guarantee and commitment obligations
34,248
40,920
34,248
43,926
29,892
32,537
29,892
35,535
The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value
and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on
unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer
Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service.
The prices obtained are non-binding and generally representative of recent market trades and are classified
as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including loans held for
investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and
USDA Securities by discounting the projected cash flows of these instruments at projected interest rates.
The fair values are based on the present value of expected cash flows using management's best estimate of
certain key assumptions, which include prepayment speeds, forward yield curves and discount rates
commensurate with the risks involved. These fair value measurements do not take into consideration the
fair value of the underlying property and are classified as Level 3. Financial derivatives primarily are
valued using unadjusted counterparty valuations and are classified as Level 2. The fair value of the
guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the
present value of expected future cash flows of the underlying mortgage assets using management's best
estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and
discount rates commensurate with the risks involved and are classified as Level 3. Notes payable are
valued by discounting the expected cash flows of these instruments using a yield curve derived from
market prices observed for similar agency securities and are also classified as Level 3. Because the cash
flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and
185
projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation
model. Different market assumptions and estimation methodologies could significantly affect estimated
fair value amounts.
14.
BUSINESS SEGMENT REPORTING
The following table presents the alignment of the Farmer Mac's seven segments:
Agricultural Finance
Rural Infrastructure
Finance
Treasury
Farm &
Ranch
Corporate
AgFinance
Rural
Utilities
Renewable
Energy
Funding
Investments
Corporate
The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a
consolidated basis. Accordingly, the core earnings for Farmer Mac's segments would differ from any
stand-alone financial statements of Farmer Mac's subsidiaries. These differences would be due to various
factors, including the exclusion of unrealized gains and losses related to fair value changes of trading
assets and financial derivatives, as well as the allocation of certain expenses such as operating expenses,
dividends and interest expense related to the issuance of capital and the issuance of indebtedness managed
at the corporate level.
The following tables present core earnings for Farmer Mac's segments and a reconciliation to consolidated
net income for the years ended December 31, 2021, 2020 and 2019. The amounts for the years ended
December 31, 2020 and 2019 have been revised to conform to the current year's segment alignment.
186
Table 14.1
Core Earnings by Business Segment
For the Year Ended December 31, 2021
Agricultural Finance
Rural Infrastructure
Treasury
Farm &
Ranch
Corporate
AgFinance
Rural
Utilities
Renewable
Energy
Funding
Investments
Corporate
Reconciling
Adjustments
Consolidated
Net Income
(in thousands)
Net interest income
$ 118,289 $ 27,081 $
8,224 $
1,219 $
65,405 $
557 $
— $
—
$
220,775
Less: reconciling
adjustments(1)(2)(3)
(4,753)
—
Net effective spread
113,536
27,081
Guarantee and
commitment fees
Gain on sale of
mortgage loans
Other income/
(expense)(3)
16,178
6,539
1,966
48
—
—
(157)
8,067
1,287
—
5
—
1,219
4,803
70,208
20
—
—
—
—
—
Total revenues
138,219
27,129
9,359
1,239
70,208
—
557
—
—
—
557
(15)
—
—
—
—
—
—
107
107
—
—
(4,864)
12,669
—
6,539
(291)
(291)
(2,821)
(7,578)
(1,141)
238,842
860
1,327
(73,416)
(72,089)
Release of/(provision
for) losses
Release of reserve for
losses
Operating expenses
Total non-interest
expense
Core earnings before
income taxes
Income tax (expense)/
benefit
Core earnings before
preferred stock
dividends
Preferred stock
dividends
Segment core
earnings/(losses)
Total Assets
Total on- and off-
balance sheet program
assets at principal
balance
1,574
(210)
(291)
(198)
1,034
—
1,034
—
—
—
293
—
293
—
—
—
—
—
—
—
—
—
(73,416)
—
(73,416)
—
—
—
—
140,827
26,919
9,361
1,041
70,208
542
(73,707)
(7,578) (4)
167,613
(29,574)
(5,653)
(1,965)
(219)
(14,744)
(114)
15,325
1,591
(35,353)
111,253
21,266
7,396
822
55,464
428
(58,382)
(5,987) (4)
132,260
—
—
—
—
—
—
(24,677)
—
(24,677)
$ 111,253 $ 21,266 $
7,396 $
822 $
55,464 $
428 $ (83,059) $
(5,987) (4) $
107,583
$ 13,112,193 $ 1,507,848 $ 5,344,707 $ 87,553 $
— $ 5,037,636 $ 55,554 $
—
25,145,491
$ 16,094,640 $ 1,537,834 $ 5,895,226 $ 86,763 $
— $
— $
— $
—
23,614,463
(1)
(2)
(3)
(4)
Includes the amortization of premiums and discounts on assets 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 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 "(Losses)/gains on financial
derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core
earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common
stockholders.
187
Core Earnings by Business Segment
For the Year Ended December 31, 2020
Agricultural Finance
Rural Infrastructure
Treasury
Farm &
Ranch
Corporate
AgFinance
Rural
Utilities
Renewable
Energy
Funding
Investments
Corporate
Reconciling
Adjustments
Consolidated
Net Income
(in thousands)
Net interest income
$ 96,355 $ 21,441 $
7,083 $
303 $
66,446 $
(1,040) $
— $
—
$
190,588
Less: reconciling
adjustments(1)(2)(3)
(6,197)
—
(207)
Net effective spread
90,158
21,441
6,876
Guarantee and
commitment fees
Other income/
(expense)(3)
17,800
3,652
5
—
Total revenues
111,610
21,446
1,345
32
8,253
—
303
—
—
303
12,772
79,218
—
(1,040)
—
—
—
—
79,218
(1,040)
—
—
—
(6,368)
(6,368)
—
—
(6,601)
12,549
(534)
(534)
604
(12,365)
(Provision for)/release
of losses
(2,941)
36
—
—
—
(4,763)
(110)
(170)
—
(170)
—
—
—
—
—
—
—
(27)
—
—
—
—
(61,403)
—
(61,403)
—
—
—
—
(80)
—
(80)
3,754
206,891
(7,805)
(250)
(61,403)
(61,653)
108,589
21,482
3,320
193
79,218
(1,067)
(61,937)
(12,365) (4)
137,433
(22,802)
(4,511)
(697)
(41)
(16,636)
224
13,082
2,596
(28,785)
85,787
16,971
2,623
152
62,582
(843)
(48,855)
(9,769) (4)
108,648
—
—
—
—
—
—
—
—
—
—
—
(17,805)
—
(17,805)
—
—
(1,667)
(1,667)
$ 85,787 $ 16,971 $
2,623 $
152 $
62,582 $
(843) $ (66,660) $
(11,436) (4)
$
89,176
Provision for reserve for
losses
Operating expenses
Total non-interest
expense
Core earnings before
income taxes
Income tax (expense)/
benefit
Core earnings before
preferred stock
dividends
Preferred stock
dividends
Loss on retirement of
preferred stock
Segment core
earnings/(losses)
Total Assets
$ 12,373,781 $ 1,663,581 $ 4,760,585 $ 73,493 $
— $ 5,441,426 $ 42,635 $
—
$ 24,355,501
Total on- and off-
balance sheet program
assets at principal
balance
$ 14,872,894 $ 1,664,115 $ 5,314,051 $ 73,035 $
— $
— $
— $
—
$ 21,924,095
(1)
(2)
(3)
(4)
Includes the amortization of premiums and discounts on assets 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 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 "(Losses)/gains on financial
derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core
earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common
stockholders.
188
Core Earnings by Business Segment
For the Year Ended December 31, 2019
Agricultural Finance
Rural Infrastructure
Treasury
Farm &
Ranch
Corporate
AgFinance
Rural
Utilities
Renewable
Energy
Funding
Investments
Corporate
Reconciling
Adjustments
Consolidated
Net Income
Net interest income
$ 83,226 $ 13,757 $
5,242 $
Less: reconciling
adjustments(1)(2)(3)
Net effective spread
Guarantee and
commitment fees
Other income/
(expense)(3)
Total revenues
(7,095)
76,131
—
13,757
19,551
1,571
97,253
—
—
13,757
Provision for losses
(3,165)
(339)
3
—
3
—
—
—
94,091
13,418
6,887
(176)
5,066
1,784
37
6,887
—
—
—
—
(in thousands)
70,500 $
388 $
— $
—
$
173,135
2,744
73,244
—
—
73,244
—
—
—
—
—
388
—
—
388
—
—
—
—
—
—
—
167
167
—
—
(51,925)
(51,925)
4,527
4,527
—
—
(7,669)
13,666
5,501
2,359
—
—
—
—
7,276
194,077
(3,504)
3
(51,925)
(51,922)
73,244
388
(51,758)
2,359
(4)
138,651
22
—
22
—
—
22
—
—
—
—
22
(19,759)
(2,818)
(1,446)
(5)
(15,381)
(82)
10,881
(495)
(29,105)
74,332
10,600
5,441
—
—
—
—
—
—
17
—
— $
57,863
306
(40,877)
1,864
(4)
109,546
—
—
—
—
(13,940)
—
(13,940)
—
(1,956)
(1,956)
$ 74,332 $ 10,600 $
5,441 $
17 $
57,863 $
306 $ (54,817) $
(92) (4)
$
93,650
Release of reserve for
losses
Operating expenses
Total non-interest
expense
Core earnings before
income taxes
Income tax (expense)/
benefit
Core earnings
before preferred
stock dividends
Preferred stock
dividends
Loss on retirement of
preferred stock
Segment core
earnings/(losses)
Total Assets
$ 11,889,538 $ 1,338,114 $ 4,625,125 $
9,802 $
— $ 3,809,891 $ 36,904 $
—
$ 21,709,374
Total on- and off-
balance sheet program
assets at principal
balance
$ 14,559,268 $ 1,328,602 $ 5,220,270 $
9,802 $
— $
— $
— $
—
$ 21,117,942
(1)
(2)
(3)
(4)
Includes the amortization of premiums and discounts on assets 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 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 "(Losses)/gains on financial
derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core
earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common
stockholders.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9.
None.
Item 9A.
Controls and Procedures
Management's Evaluation of Disclosure Controls and Procedures. Farmer Mac maintains disclosure
controls and procedures designed to ensure that information required to be disclosed in its periodic filings
189
under the Securities Exchange Act of 1934 (“Exchange Act”), including this Annual Report on Form 10-
K, is recorded, processed, summarized, and reported on a timely basis. These disclosure controls and
procedures include controls and procedures designed to ensure that information required to be disclosed
under the Exchange Act is accumulated and communicated to Farmer Mac's management on a timely
basis to allow decisions about required disclosure. Management, including Farmer Mac's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Farmer
Mac's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the
Exchange Act) as of December 31, 2021.
Farmer Mac carried out the evaluation of the effectiveness of its disclosure controls and procedures,
required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15, under the supervision and with the
participation of management, including the Chief Executive Officer and Chief Financial Officer. Based
upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Farmer
Mac's disclosure controls and procedures were effective as of December 31, 2021.
Management's Report on Internal Control Over Financial Reporting. See "Financial Statements—
Management's Report on Internal Control Over Financial Reporting" in Item 8 of this Annual Report on
Form 10-K.
Attestation Report of Independent Registered Public Accounting Firm. See "Financial Statements—
Report of Independent Registered Public Accounting Firm" in Item 8 of this Annual Report on Form 10-
K.
Changes in Internal Control Over Financial Reporting. There were no changes in Farmer Mac's internal
control over financial reporting during the three months ended December 31, 2021 that have materially
affected, or are reasonably likely to materially affect, Farmer Mac's internal control over financial
reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
190
Item 10.
Directors, Executive Officers, and Corporate Governance
PART III
The information required by this Item is incorporated by reference to Farmer Mac's definitive proxy
statement to be filed on or about April 14, 2022.
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference to Farmer Mac's definitive proxy
statement to be filed on or about April 14, 2022.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required by this Item is incorporated by reference to Farmer Mac's definitive proxy
statement to be filed on or about April 14, 2022.
Item 13.
Certain Relationships and Related Transactions and Director Independence
The information required by this Item is incorporated by reference to Farmer Mac's definitive proxy
statement to be filed on or about April 14, 2022.
Item 14.
Principal Accountant Fees and Services
PART IV
The information required by this Item is incorporated by reference to Farmer Mac's definitive proxy
statement to be filed on or about April 14, 2022.
Item 15.
Exhibits and Financial Statement Schedules
a.
(1)
Financial Statements.
Refer to Item 8 above.
(2)
Financial Statement Schedules.
There are no schedules because they are not applicable, not required, or the information required to be set
forth therein is included in the consolidated financial statements or in notes thereto.
b.
Exhibits
*
*
*
3.1
3.2
4.1
—
—
—
Title VIII of the Farm Credit Act of 1971, as most recently amended on June 18, 2020 (Previously filed as
Exhibit 3.1 to Form 10-Q filed August 10, 2020).
Amended and Restated By-Laws of the Registrant (Previously filed as Exhibit 3.1 to Form 8-K filed May 12,
2020).
Specimen Certificate for Farmer Mac Class A Voting Common Stock (Previously filed as Exhibit 4.1 to
Form 10-Q filed May 15, 2003).
191
*
*
*
*
*
*
*
*
*
*
*
*
*
†*
†*
†*
†*
†*
†*
†*
†*
†*
†*
4.2
4.3
4.4
4.4.1
4.5
4.5.1
4.6
4.6.1
4.7
4.7.1
4.8
4.8.1
4.9
10.1
10.1.1
10.1.2
10.1.3
10.1.4
10.1.5
10.1.6
10.1.7
10.1.8
10.1.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
†*
10.1.10
—
†*
10.1.11
—
†*
10.1.12
—
†*
†*
10.1.13
10.1.14
—
—
Specimen Certificate for Farmer Mac Class B Voting Common Stock (Previously filed as Exhibit 4.2 to
Form 10-Q filed May 15, 2003).
Specimen Certificate for Farmer Mac Class C Non-Voting Common Stock (Previously filed as Exhibit 4.3 to
Form 10-Q filed May 15, 2003).
Specimen Certificate for 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C
(Previously filed as Exhibit 4.6 to Form 10-Q filed August 11, 2014).
Certificate of Designation of Terms and Conditions of 6.000% Fixed-to-Floating Rate Non-Cumulative
Preferred Stock, Series C (Previously filed as Exhibit 4.1 to Form 8-A filed June 20, 2014).
Specimen Certificate for 5.700% Non-Cumulative Preferred Stock, Series D (Previously filed as Exhibit 4.7 to
Form 10-Q filed August 1, 2019).
Certificate of Designation of Terms and Conditions of 5.700% Non-Cumulative Preferred Stock, Series D
(Previously filed as Exhibit 4.1 to Form 8-A filed May 13, 2019).
Specimen Certificate for 5.750% Non-Cumulative Preferred Stock, Series E (Previously filed as Exhibit 4.7 to
Form 10-Q filed August 10, 2020).
Certificate of Designation of Terms and Conditions of 5.750% Non-Cumulative Preferred Stock, Series E
(Previously filed as Exhibit 4.1 to Form 8-A filed May 20, 2020).
Specimen Certificate for 5.250% Non-Cumulative Preferred Stock, Series F (Previously filed as Exhibit 4.8 to
Form 10-Q filed November 9, 2020).
Certificate of Designation of Terms and Conditions of 5.250% Non-Cumulative Preferred Stock, Series F
(Previously filed as Exhibit 4.1 to Form 8-A filed August 20, 2020).
Specimen Certificate for 4.875% Non-Cumulative Preferred Stock, Series G (Previously filed as Exhibit 4.8 to
Form 10-Q filed August 5, 2021).
Certificate of Designation of Terms and Conditions of 4.875% Non-Cumulative Preferred Stock, Series G
(Previously filed as Exhibit 4.1 to Form 8-A filed May 27, 2021).
Description of the Registrant's securities that are registered under Section 12 of the Securities Exchange Act of
1934 (Previously filed as Exhibit 4.9 to Form 10-Q filed August 5, 2021).
Form of Time-Based Restricted Stock Units Award Agreement for grants made to executive officers on or after
March 2, 2021. (Previously filed as Exhibit 10.1 to Form 8-K filed March 8, 2021)
Form of Time-Based Restricted Stock Units Award Agreement for grants made to directors on or after March
2, 2021 (Previously filed as Exhibit 10.2 to Form 8-K filed March 8, 2021)
Amended and Restated 2008 Omnibus Incentive Plan (Previously filed as Exhibit 10.2 to Form 10-Q filed
August 9, 2018).
Form of SARs Award Agreement under the 2008 Omnibus Incentive Plan for grants made prior to April 1,
2012 (Previously filed as Exhibit 10 to Form 8-K filed June 11, 2008).
Form of SARs Award Agreement under the 2008 Omnibus Incentive Plan for grants made from April 1, 2012
to March 31, 2013 (Previously filed as Exhibit 10.1 to Form 8-K filed April 6, 2012).
Form of SARs Award Agreement under the 2008 Omnibus Incentive Plan for grants made from April 1, 2013
to March 31, 2015 (Previously filed as Exhibit 10.1 to Form 8-K filed April 5, 2013).
Form of SARs Award Agreement under the 2008 Omnibus Incentive Plan for grants made on or after April 1,
2015 (Previously filed as Exhibit 10.1 to Form 8-K filed on April 3, 2015).
Form of Restricted Stock Agreement (Officers) under the 2008 Omnibus Incentive Plan for grants made prior
to April 1, 2012 (Previously filed as Exhibit 10.1 to Form 8-K filed June 10, 2009).
Form of Restricted Stock Agreement (Officers) under the 2008 Omnibus Incentive Plan for grants made from
April 1, 2012 to March 31, 2013 (Previously filed as Exhibit 10.2 to Form 8-K filed April 6, 2012).
Form of Performance-Based Restricted Stock Award Agreement (Officers) under the 2008 Omnibus Incentive
Plan for grants made from April 1, 2013 to March 31, 2015 (Previously filed as Exhibit 10.2 to Form 8-K filed
April 5, 2013).
Form of Performance-Based Restricted Stock Award Agreement (Officers) under the 2008 Omnibus Incentive
Plan for grants made from April 1, 2015 to March 10, 2020 (Previously filed as Exhibit 10.2 to Form 8-K filed
April 3, 2015).
Form of Performance-Based Restricted Stock Agreement (Officers) under the 2008 Omnibus Form of
Performance-Based Restricted Stock Agreement (Officers) under the 2008 Omnibus Incentive Plan for grants
made on or after March 3, 2020 (Previously filed as Exhibit 10.1 to Form 8-K filed March 10, 2020).
Form of Time-Based Restricted Stock Award Agreement (Officers) under the 2008 Omnibus Incentive Plan for
grants made from April 1, 2013 to March 31, 2015 (Previously filed as Exhibit 10.2 to Form 8-K filed April 5,
2013).
Form of Time-Based Restricted Stock Award Agreement (Officers) under the 2008 Omnibus Incentive Plan for
grants made on or after April 1, 2015 (Previously filed as Exhibit 10.3 to Form 8-K filed on April 3, 2015).
Form of Restricted Stock Agreement (Directors) under the 2008 Omnibus Incentive Plan (Previously filed as
Exhibit 10.3 to Form 8-K filed April 6, 2012).
192
†*
†*
†*
†*
†*
†**
*#
10.2
10.3
10.4
10.5
10.6
10.7
10.8
*#
10.8.1
*#
10.8.2
10.9
10.9.1
10.9.2
10.9.3
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
*
*
*
*
*
*
*
*
*
*
*
*
*
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Federal Agricultural Mortgage Corporation Amended and Restated Executive Officer Severance Plan
(effective January 16, 2020) (Previously filed as Exhibit 10.1 to Form 8-K filed January 23, 2020).
Form of Participation Agreement to the Federal Agricultural Mortgage Corporation Amended and Restated
Executive Officer Severance Plan (effective January 16, 2020) (Previously filed as Exhibit 10.2 to Form 8-K
filed January 23, 2020).
Nonqualified Deferred Compensation Plan (effective May 1, 2017) (Previously filed as Exhibit 10.2 to Form
10-Q filed May 10, 2017)
Adoption Agreement of the Nonqualified Deferred Compensation Plan (effective May 1, 2017) (Previously
filed as Exhibit 10.3 to Form 10-Q filed May 10, 2017)
Form of Indemnification Agreement for Directors (Previously filed as Exhibit 10.1 to Form 8-K filed April 9,
2008).
Description of compensation agreement between the Registrant and its directors, effective January 1, 2022.
Amended and Restated Master Central Servicing Agreement between Zions First National Bank and the
Registrant, dated as of May 1, 2004 (Previously filed as Exhibit 10.11.2 to Form 10-Q filed August 9, 2004).
Amendment No. 1 to Amended and Restated Master Central Servicing Agreement between Zions First
National Bank and the Registrant, dated as of June 1, 2009 (Previously filed as Exhibit 10.11.1 to Form 10-Q
filed August 10, 2009).
Amendment No. 2 to Amended and Restated Master Central Servicing Agreement between Zions First
National Bank and the Registrant, dated as of August 25, 2010 (Previously filed as Exhibit 10.11.2 to Form 10-
Q filed November 9, 2010).
Amended and Restated Note Purchase Agreement between Farmer Mac Mortgage Securities Corporation,
National Rural Utilities Cooperative Finance Corporation, and the Registrant, dated as of March 24, 2011
(Previously filed as Exhibit 10.22 to Form 10-Q filed May 10, 2011).
Amended and Restated First Supplemental Note Purchase Agreement between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant, dated as
of January 8, 2015 (Previously filed as Exhibit 10.1 to Form 8-K filed January 13, 2015).
Second Amended and Restated First Supplemental Note Purchase Agreement between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant, dated as
of February 26, 2018 (Previously filed as Exhibit 10.1 to Form 10-Q filed May 10, 2018).
Third Amended and Restated First Supplemental Note Purchase Agreement between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant, dated as
of May 20, 2021 (Previously filed as Exhibit 10.1 to Form 8-K filed May 20, 2021).
Amended and Restated Master Sale and Servicing Agreement between National Rural Utilities Cooperative
Finance Corporation and the Registrant, dated as of August 12, 2011 (Previously filed as Exhibit 10.26 to Form
10-Q filed November 9, 2011).
Amendment No. 1 to Amended and Restated Master Sale and Servicing Agreement between National Rural
Utilities Cooperative Finance Corporation and the Registrant, dated as of November 28, 2016 (Previously filed
as Exhibit 10.17 to Form 10-K filed March 9, 2017)
Second Amended, Restated and Consolidated Pledge Agreement between Farmer Mac Mortgage Securities
Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank National Association, and
the Registrant, dated as of July 31, 2015 (Previously filed as Exhibit 10.3 to Form 10-Q filed November 9,
2015).
Long Term Standby Commitment to Purchase between National Rural Utilities Cooperative Finance
Corporation and the Registrant, dated as of August 31, 2015 (Previously filed as Exhibit 10.4 to Form 10-Q
filed November 9, 2015).
Amendment No. 1 to Long Term Standby Commitment to Purchase between National Rural Utilities
Cooperative Finance Corporation and the Registrant, dated as of May 31, 2016 (Previously filed as Exhibit
10.1 to Form 10-Q filed August 9, 2016).
Loan Participation Servicing Agreement between National Rural Utilities Cooperative Finance Corporation,
National Cooperative Services Corporation, and the Registrant, dated as of September 26, 2019 (Previously
filed as Exhibit 10 to Form 8-K filed October 9, 2019).
Master Non-Recourse Loan Participation Agreement between CoBank, ACB, CoBank, FCB, and the
Registrant, dated as of February 13, 2019 (Previously filed as Exhibit 10.1 to Form 8-K filed February 20,
2019).
Loan Participation and Servicing Agreement between CoBank, ACB and the Registrant, dated as of February
13, 2019 (Previously filed as Exhibit 10.2 to Form 8-K filed February 20, 2019).
Master Non-Recourse Loan Participation Agreement between National Rural Utilities Cooperative Finance
Corporation and the Registrant, dated as of February 3, 2020 (Previously filed as Exhibit 10.1 to Form 8-K
filed February 7, 2020).
10.19
—
Loan Participation and Servicing Agreement between National Rural Utilities Cooperative Finance
Corporation and the Registrant, dated as of February 3, 2020 (Previously filed as Exhibit 10.2 to Form 8-K
filed February 7, 2020).
193
*
**
21
31.1
**
31.2
**
32
—
—
—
—
List of the Registrant's subsidiaries (Previously filed as Exhibit 21 to Form 10-K filed March 8, 2018).
Certification of Registrant's principal executive officer relating to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 2021, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Registrant's principal financial officer relating to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2021, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Registrant's principal executive officer and principal financial officer relating to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2021, pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
**
**
**
**
**
**
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Inline XBRL Taxonomy Extension Schema
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*
**
#
†
Incorporated by reference to the indicated prior filing.
Filed with this report.
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
Management contract or compensatory plan.
Item 16.
Form 10-K Summary
None.
194
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
/s/ Bradford T. Nordholm
By: Bradford T. Nordholm
President and Chief Executive Officer
(Principal Executive Officer)
February 28, 2022
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name
Title
Date
/s/ LaJuana S. Wilcher
Chair of the Board and Director
February 28, 2022
LaJuana S. Wilcher
/s/ Bradford T. Nordholm
Bradford T. Nordholm
President and Chief Executive Officer
(Principal Executive Officer)
February 28, 2022
/s/ Aparna Ramesh
Aparna Ramesh
Executive Vice President – Chief Financial
Officer
(Principal Financial Officer)
February 28, 2022
/s/ Gregory N. Ramsey
Gregory N. Ramsey
Vice President – Controller
(Principal Accounting Officer)
February 28, 2022
195
Name
Title
Date
/s/ Dennis L. Brack
Dennis L. Brack
/s/ Richard H. Davidson
Richard H. Davidson
/s/ Everett M. Dobrinski
Everett M. Dobrinski
/s/ James R. Engebretsen
James R. Engebretsen
/s/ Sara L. Faivre
Sara L. Faivre
/s/ Amy H. Gales
Amy H. Gales
/s/ Mitchell A. Johnson
Mitchell A. Johnson
/s/ Eric T. McKissack
Eric T. McKissack
/s/ Lowell L. Junkins
Lowell L. Junkins
/s/ Robert G. Sexton
Robert G. Sexton
/s/ Charles A. Stones
Charles A. Stones
/s/ Roy H. Tiarks
Roy H. Tiarks
/s/ Todd P. Ware
Todd P. Ware
/s/ Myles J. Watts
Myles J. Watts
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
Director
February 28, 2022
196
1999 K Street, N.W., Fourth Floor
Washington, DC 20006
Phone: 202.872.7700
or 800.879.3276
www.farmermac.com