Federal Agricultural (AGM) Risk Analysis

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies and methods require management to make estimates and assumptions in preparing our consolidated financial statements. Incorrect estimates and assumptions by management in connection with preparing our 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, 2025, our assets and liabilities recorded at fair value included financial instruments valued at $6.7 billion whose fair value management estimated in the absence of readily observable fair value (in other words, level 3). These financial instruments measured with significant unobservable inputs represented 19.1% of total assets and 49.4% of financial instruments measured at fair value as of December 31, 2025. See MD&A-Critical Accounting Estimates for more information about fair value measurement. If we make incorrect assumptions or estimates that result in understating or overstating reported financial results, it could materially and adversely affect our business, operating results, reported assets and liabilities, financial condition, reputation, or capital levels.

We enter into financial derivatives transactions to hedge interest rate risks inherent in our business and we carry our financial derivatives at fair value in our consolidated financial statements. Although our financial derivatives provide economic hedges of interest rate risk, changes in the fair value 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 our derivatives change based on the position we hold relative to the specific characteristics of the derivative. Our core capital available to meet our statutory minimum capital requirement can be affected by changes in the fair value of financial derivatives, as noted above. Adverse changes in the fair value of our 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 2025 and 2024, we recorded losses of $1.9 million and gains of $3.3 million, respectively, from changes in the fair value of our financial derivatives as a result of movements in interest rates during those years. We recorded gains of $6.8 million and $11.5 million in 2025 and 2024, respectively, related to ineffectiveness in hedge accounting relationships. Changes in interest rates have required, and in the future may require, that we post cash or investment securities to collateralize our 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 our derivatives, we would be required to post cash, cash equivalents, or investment securities, possibly within a short period of time, to satisfy our obligations under our derivatives contracts. As of December 31, 2025, we posted $2.1 million of cash and $250.6 million of investment securities as collateral for our derivatives in net liability positions. If we are required to fully collateralize a significant portion of our derivatives in an adverse interest rate environment, it could have a material adverse effect on our liquidity position or operating results.

We are subject to interest rate risk due to the timing differences in the cash flows of the assets we hold and the liabilities issued to fund those assets. Our 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 our earnings if assets repay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments, particularly if our 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, our earnings could be adversely affected. In addition, rapid changes in interest rates could have a negative effect on our net interest income across quarters. A future period of rapid increase or decline in interest rates may create or exacerbate periods of market volatility that could adversely affect our ability to manage interest rate risk, which could have a material adverse effect on our operating results or financial condition. See MD&A-Risk Management-Interest Rate Risk for more information on our management of interest rate risk. We are also subject to repricing risk, which is the risk that our funding cost relative to a benchmark index (for example, 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 we issue 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 our funding cost relative to the benchmark index, including SOFR, may compress spread income on the assets we hold and seek to re-fund with the higher cost funding. Widespread compression within a short timeframe could adversely affect our operating results or financial condition.

Deterioration in financial or credit market conditions could reduce the fair value of our investment securities, particularly those securities that are less liquid and more subject to market variability. Certain securities we own do not have well-established secondary trading markets, making it more difficult to estimate current fair values for those securities. This requires us to rely on market observations and internal models to estimate the fair values of our investment securities and to determine whether credit losses exist. However, available market data may not reflect the actual sale conditions we may face when selling our investment securities, particularly in adverse financial market conditions. Internal models require us to exercise judgment about estimates and assumptions used in the models. If we use unreliable market data or incorrect estimates or assumptions in our internal models to estimate the fair value of our investment securities, those estimates could adversely affect results of operations during the reporting period. If we decide to sell securities in our 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 our fair value estimates. Failure to estimate the fair value of our investment securities reasonably accurately could adversely affect our business, operating results, financial condition, liquidity or capital levels.

We are required by statute and regulation to maintain certain capital levels. Any inability to meet these capital requirements could result in supervisory measures by FCA, adversely affect our ability to declare dividends on our common and preferred stock, or otherwise materially and adversely affect our business, operating results, or financial condition. As required by an FCA regulation on capital planning, we have 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 our 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 our capital levels in the future, and which may be beyond our control, include: - credit losses;- adverse changes in interest rates or credit spreads;- legislative or regulatory actions that increase our capital requirements; and - changes in GAAP or regulatory capital framework as set forth by our principal regulatory agency, FCA.

Effective and reliable loan servicing is essential for us to successfully operate our business. We service a sizable portion of our Agricultural Finance mortgage loan and USDA Securities portfolios, as well as eligible agricultural mortgage loans that are held by an unrelated third party. We also continue to rely on experienced third-party servicers to service the portion of our Agricultural Finance mortgage loan portfolio that we do not service directly. Although we have established servicing standards and requirements to which these third-party servicers are required by contract to adhere and on which they must report to us, we do 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 we employ or any of our third-party servicers could expose us to operational risk that could adversely affect our business, operating results, or financial condition.

We use interest rate swap contracts and hedging arrangements to manage our interest rate risk. We clear a significant portion of our interest rate swaps through a swap clearinghouse and use the services of a futures commission merchant to post and receive mark-to-market margin amounts. We also transact non-cleared (bilateral) derivative contracts directly with swap counterparties and post and receive collateral to secure the market value of those contracts. A failure of any of these counterparties could cause intra-day disruption for our swap operations if the failure were to prompt a termination of all or part of our swap positions or if we 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 our position before we have time to reposition our swaps. These events could have a negative effect on our operations and liquidity and could expose us to more interest rate risk, which could materially and adversely affect our business, operating results, and financial condition. As of December 31, 2025, the aggregate notional balance of our cleared swaps was $19.4 billion, and the aggregate notional balance of our non-cleared swaps was $6.0 billion.

Our exposure to credit risk may increase due to concentrations in our 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 or in rural utilities or renewable energy industries. Widespread weakening in the financial condition of borrowers within a particular geographic region that produce particular commodities or rely on particular collateral, that engage in processes or production that depend on a fluid supply chain, or that produce or provide a specialized infrastructure service or product could negatively affect our financial condition if sufficient diversity in these areas does not successfully mitigate concentration risk. Our exposure to credit risk may also increase due to concentrated exposure to a particular borrower or counterparty. Our 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 our financial condition. We also have 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, we 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 our loans held on balance sheet, as well as increased capital requirements. As of December 31, 2025, $7.6 billion of the $8.4 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. Our exposure to credit risk may also increase due to concentrated exposure to one or more investment types or counterparties in the investment portfolio we maintain 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. We regularly review concentration limits to ensure that our investments are appropriately diversified and comply with policies approved by our board of directors and with applicable FCA regulations, but we are still exposed to credit risk from issuers of the investment securities we hold, particularly to issuers to whom we may have a higher concentration of exposure relative to the rest of our investment portfolio. For example, as of December 31, 2025, we held at fair value $4.9 billion of investment securities guaranteed by GSEs. A default by multiple issuers of investment securities we hold or by a single issuer of investment securities in which we are more heavily concentrated could have an adverse effect on our business, operating results, and financial condition.

Our credit risk may increase due to a decline in the collateral values securing the loans in our portfolio. Specialized or highly improved collateral, such as storage and processing facilities, permanent plantings, rural utilities, broadband, and renewable energy facilities, increase the risk of undercollateralization in a default scenario because producers requiring specialized 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. If a borrower defaults and we foreclose on a loan secured by property that is specialized or highly improved, we have experienced, and may in the future experience, losses if the value of the property has dropped significantly since origination or if there is a limited pool of potential purchasers willing to purchase the property at the price necessary for us to recoup our investment. Our credit risk may also increase due to a decline in the enterprise value of borrowers whose loans have been underwritten based on the estimated value of the borrower as a going concern. External market factors outside of the borrower's control may cause stress in the related industry, such as decrease in market demand, disruptions in supply chain, geopolitical or regulatory action, or increased market competition. A borrower's management decisions, such as poorly executed acquisitions or growth strategies or inability to adapt to changing market conditions, may also adversely affect that borrower's ability to repay its loan. In these scenarios, the borrower may experience downward pressure on cash flows and liquidity, which not only may contribute to an increased risk of default, but also could decrease the borrower's enterprise value. We have incurred, and may in the future incur, losses if the value of the collateral securing a loan or the enterprise value of a borrower is less than the outstanding principal balance of the loan at the time of foreclosure or sale, liquidation, or other disposition of the business. If losses caused by declines in collateral value or borrower enterprise value occur across a large number of loans, or across loans with large principal balances in the aggregate, this could have a material adverse effect on our financial condition, results of operations, liquidity, or capital levels.