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Fair Value Disclosures | 12 Months Ended
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Dec. 31, 2018
Fair Value Disclosures [Abstract] |
Fair Value Disclosure |
13. | FAIR VALUE DISCLOSURES
Fair Value Measurement Fair value is defined as 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 (also referred to as an exit price). In determining fair value, Farmer Mac uses various valuation approaches, including market and income based approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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. Farmer Mac's accounting policies for fair value measurement are discussed in Note 2(o). 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 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 | Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 | 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 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 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. Farmer Mac classifies these fair value measurements as Level 3 because there is limited market activity and therefore little or no price transparency. On a sample basis, Farmer Mac corroborates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by obtaining a secondary valuation from an independent third-party service. 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 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. Certain basis swaps are non-standard interest rate swap structures and are therefore internally modeled using significant assumptions and unobservable inputs, resulting in Level 3 classification. Farmer Mac uses a discounted cash flow valuation technique, using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Nonrecurring Fair Value Measurements and Classification Loans Held for Investment Certain loans in Farmer Mac's held for investment loan portfolio are measured at fair value when they are determined to be impaired. For these impaired loans, the fair value of the loan generally is based on the fair value of the underlying property, which is determined by recent third-party appraisals. Farmer Mac uses net realizable value (fair value less estimated costs to sell) as a reasonable estimate of fair value and classifies the fair values as Level 3 measurements in the tables below. When recent third-party appraisals are not available, Farmer Mac measures loan impairment in the aggregate in consideration of the similar risk characteristics of the assets and historical statistics, and does not include these impaired loans in the tables below. Real Estate Owned Farmer Mac initially records REO properties at net realizable value and subsequently measures them at the lower of carrying value or net realizable value. The fair value of the REO generally is based on third-party appraisals. Farmer Mac classifies the REO fair values as Level 3 measurements. Farmer Mac uses net realizable value as a reasonable estimate of fair value in the tables below. Fair Value Classification and Transfers As of December 31, 2018, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.0 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3). These financial instruments measured as Level 3 represented 32% of total assets and 73% of financial instruments measured at fair value as of December 31, 2018. As of December 31, 2017, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $5.5 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 31% of total assets and 71% of financial instruments measured at fair value as of December 31, 2017. 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 2018, there were no transfers within fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives. During 2017, there was one transfer within the fair value hierarchy from Level 2 to Level 3 for the fair value measurement of a fixed-rate GSE guaranteed mortgage-backed security (interest-only security). The transfer to Level 3 was because unobservable inputs became significant to the overall estimate of the fair value of the security as of March 31, 2017. There were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, USDA Securities, and financial derivatives during 2016. See Note 2(b) and Note 5 for information about the transfer of available-for-sale USDA and Farmer Mac Guaranteed USDA securities to held-to-maturity as of October 1, 2016. The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2018 and 2017, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 13.1
Assets and Liabilities Measured at Fair Value as of December 31, 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
Recurring: |
Assets: |  |  |  |  |  |  |
Investment Securities: |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans | $ | — |  |  | $ | — |  |  | $ | 18,715 |  |  | $ | 18,715 |
Floating rate asset-backed securities | — |  |  | 28,678 |  |  | — |  |  | 28,678 |
Floating rate Government/GSE guaranteed mortgage-backed securities | — |  |  | 1,377,454 |  |  | — |  |  | 1,377,454 |
Fixed rate GSE guaranteed mortgage-backed securities | — |  |  | 403 |  |  | — |  |  | 403 |
Fixed rate U.S. Treasuries | 792,602 |  |  | — |  |  | — |  |  | 792,602 |
Total Investment Securities | 792,602 |  |  | 1,406,535 |  |  | 18,715 |  |  | 2,217,852 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
AgVantage | — |  |  | — |  |  | 5,974,497 |  |  | 5,974,497 |
Total Farmer Mac Guaranteed Securities | — |  |  | — |  |  | 5,974,497 |  |  | 5,974,497 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |
Trading | — |  |  | — |  |  | 9,999 |  |  | 9,999 |
Total USDA Securities | — |  |  | — |  |  | 9,999 |  |  | 9,999 |
Financial derivatives | — |  |  | 7,487 |  |  | — |  |  | 7,487 |
Total Assets at fair value | $ | 792,602 |  |  | $ | 1,414,022 |  |  | $ | 6,003,211 |  |  | $ | 8,209,835 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Financial derivatives | $ | 188 |  |  | $ | 19,445 |  |  | $ | — |  |  | $ | 19,633 |
Total Liabilities at fair value | $ | 188 |  |  | $ | 19,445 |  |  | $ | — |  |  | $ | 19,633 |
Non-recurring: |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |
Loans held for investment | $ | — |  |  | $ | — |  |  | $ | 317 |  |  | $ | 317 |
REO | — |  |  | — |  |  | 128 |  |  | 128 |
Total Non-recurring Assets at fair value | $ | — |  |  | $ | — |  |  | $ | 445 |  |  | $ | 445 |
Assets and Liabilities Measured at Fair Value as of December 31, 2017
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (in thousands)
Recurring: |
Assets: |  |  |  |  |  |  |
Investment Securities: |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans | $ | — |  |  | $ | — |  |  | $ | 18,814 |  |  | $ | 18,814 |
Floating rate asset-backed securities | — |  |  | 34,210 |  |  | — |  |  | 34,210 |
Floating rate Government/GSE guaranteed mortgage-backed securities | — |  |  | 1,290,187 |  |  | — |  |  | 1,290,187 |
Fixed rate GSE guaranteed mortgage-backed securities | — |  |  | 486 |  |  | 4,333 |  |  | 4,819 |
Fixed rate senior agency debt | — |  |  | 99,951 |  |  | — |  |  | 99,951 |
Fixed rate U.S. Treasuries | 767,424 |  |  | — |  |  | — |  |  | 767,424 |
Total available-for-sale | 767,424 |  |  | 1,424,834 |  |  | 23,147 |  |  | 2,215,405 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
AgVantage | — |  |  | — |  |  | 5,471,914 |  |  | 5,471,914 |
Total Farmer Mac Guaranteed Securities | — |  |  | — |  |  | 5,471,914 |  |  | 5,471,914 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |
Trading | — |  |  | — |  |  | 13,515 |  |  | 13,515 |
Total USDA Securities | — |  |  | — |  |  | 13,515 |  |  | 13,515 |
Financial derivatives | — |  |  | 7,093 |  |  | — |  |  | 7,093 |
Total Assets at fair value | $ | 767,424 |  |  | $ | 1,431,927 |  |  | $ | 5,508,576 |  |  | $ | 7,707,927 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Financial derivatives | $ | 36 |  |  | $ | 26,563 |  |  | $ | — |  |  | $ | 26,599 |
Total Liabilities at fair value | $ | 36 |  |  | $ | 26,563 |  |  | $ | — |  |  | $ | 26,599 |
Non-recurring: |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |
Loans held for investment | $ | — |  |  | $ | — |  |  | $ | 508 |  |  | $ | 508 |
Total Non-recurring Assets at fair value | $ | — |  |  | $ | — |  |  | $ | 508 |  |  | $ | 508 |
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, 2018 and 2017. Table 13.2
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2018
| Beginning Balance |  | Cumulative Effect from Change in Hedge Accounting |  | Purchases |  | Sales |  | Settlements |  | Realized and Unrealized (Losses)/Gains included in Income |  | Unrealized (Losses) included in Other Comprehen-sive Income |  | Ending Balance
| (in thousands)
Recurring: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans | $ | 18,814 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (99 | ) |  | $ | 18,715 |
Fixed rate GSE guaranteed mortgage-backed securities | 4,333 |  |  | — |  |  | — |  |  | — |  |  | (2,137 | ) |  | (2,092 | ) |  | (104 | ) |  | — |
Total available-for-sale | 23,147 |  |  | — |  |  | — |  |  | — |  |  | (2,137 | ) |  | (2,092 | ) |  | (203 | ) |  | 18,715 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AgVantage | 5,471,914 |  |  | 487 |  |  | 2,177,546 |  |  | — |  |  | (1,670,402 | ) |  | 21,459 |  |  | (26,507 | ) |  | 5,974,497 |
Total available-for-sale | 5,471,914 |  |  | 487 |  |  | 2,177,546 |  |  | — |  |  | (1,670,402 | ) |  | 21,459 |  |  | (26,507 | ) |  | 5,974,497 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale | — |  |  | — |  |  | 127,850 |  |  | (127,850 | ) |  | — |  |  | — |  |  | — |  |  | — |
Trading(1) | 13,515 |  |  | — |  |  | — |  |  | — |  |  | (3,597 | ) |  | 81 |  |  | — |  |  | 9,999 |
Total USDA Securities | 13,515 |  |  | — |  |  | 127,850 |  |  | (127,850 | ) |  | (3,597 | ) |  | 81 |  |  | — |  |  | 9,999 |
Total Assets at fair value | $ | 5,508,576 |  |  | $ | 487 |  |  | $ | 2,305,396 |  |  | $ | (127,850 | ) |  | $ | (1,676,136 | ) |  | $ | 19,448 |  |  | $ | (26,710 | ) |  | $ | 6,003,211 |
(1) | Includes unrealized gains of $0.1 million attributable to assets still held as of December 31, 2018 that are recorded in "Gains/(losses) on trading securities."
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2017
| Beginning Balance |  | Transfers in |  | Purchases |  | Sales |  | Settlements |  | Realized and Unrealized (Losses) included in Income |  | Unrealized Gains/(Losses) included in Other Comprehen-sive Income |  | Ending Balance
| (in thousands)
Recurring: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans | $ | 17,730 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,084 |  |  | $ | 18,814 |
Fixed rate GSE guaranteed mortgage-backed securities | $ | — |  |  | $ | 7,041 |  |  | $ | — |  |  | $ | — |  |  | $ | (444 | ) |  | $ | — |  |  | $ | (2,264 | ) |  | $ | 4,333 |
Total available-for-sale | 17,730 |  |  | 7,041 |  |  | — |  |  | — |  |  | (444 | ) |  | — |  |  | (1,180 | ) |  | 23,147 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AgVantage | 4,853,685 |  |  | — |  |  | 1,134,132 |  |  | — |  |  | (526,650 | ) |  | (7,625 | ) |  | 18,372 |  |  | 5,471,914 |
Total available-for-sale | 4,853,685 |  |  | — |  |  | 1,134,132 |  |  | — |  |  | (526,650 | ) |  | (7,625 | ) |  | 18,372 |  |  | 5,471,914 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale | — |  |  | — |  |  | 155,744 |  |  | (155,744 | ) |  | — |  |  | — |  |  | — |  |  | — |
Trading(1) | 20,388 |  |  | — |  |  | — |  |  | — |  |  | (6,849 | ) |  | (24 | ) |  | — |  |  | 13,515 |
Total USDA Securities | 20,388 |  |  | — |  |  | 155,744 |  |  | (155,744 | ) |  | (6,849 | ) |  | (24 | ) |  | — |  |  | 13,515 |
Total Assets at fair value | $ | 4,891,803 |  |  | $ | 7,041 |  |  | $ | 1,289,876 |  |  | $ | (155,744 | ) |  | $ | (533,943 | ) |  | $ | (7,649 | ) |  | $ | 17,192 |  |  | $ | 5,508,576 |
(1) | Includes unrealized gains of $0.1 million attributable to assets still held as of December 31, 2017 that are recorded in "Gains/(losses) on trading securities."
Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2016
| Beginning Balance |  | Purchases |  | Sales |  | Settlements |  | Realized and Unrealized Gains/(Losses) included in Income |  | Unrealized (Losses)/Gains included in Other Comprehen-sive Income |  | Transfers Out |  | Ending Balance
| (in thousands)
Recurring: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans | $ | 44,924 |  |  | $ | — |  |  | $ | (26,806 | ) |  | $ | — |  |  | $ | 6 |  |  | $ | (394 | ) |  | — |  |  | $ | 17,730 |
Total available-for-sale | 44,924 |  |  | — |  |  | (26,806 | ) |  | — |  |  | 6 |  |  | (394 | ) |  | — |  |  | 17,730 |
Trading: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Floating rate asset-backed securities(1) | 491 |  |  | — |  |  | — |  |  | (2,213 | ) |  | 1,722 |  |  | — |  |  | — |  |  | $ | — |
Total Trading | 491 |  |  | — |  |  | — |  |  | (2,213 | ) |  | 1,722 |  |  | — |  |  | — |  |  | — |
Total Investment Securities | 45,415 |  |  | — |  |  | (26,806 | ) |  | (2,213 | ) |  | 1,728 |  |  | (394 | ) |  | — |  |  | 17,730 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AgVantage | 4,121,244 |  |  | 1,430,392 |  |  | — |  |  | (706,446 | ) |  | (20,944 | ) |  | 29,439 |  |  | — |  |  | 4,853,685 |
Farmer Mac Guaranteed USDA Securities(2) | 31,361 |  |  | 4,100 |  |  | — |  |  | (3,240 | ) |  | — |  |  | 603 |  |  | (32,824 | ) |  | — |
Total available-for-sale | 4,152,605 |  |  | 1,434,492 |  |  | — |  |  | (709,686 | ) |  | (20,944 | ) |  | 30,042 |  |  | (32,824 | ) |  | 4,853,685 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale | 1,888,344 |  |  | 391,240 |  |  | (97,954 | ) |  | (237,262 | ) |  | — |  |  | 35,959 |  |  | (1,980,327 | ) |  | — |
Trading(3) | 28,975 |  |  | — |  |  | — |  |  | (8,325 | ) |  | (262 | ) |  | — |  |  | — |  |  | 20,388 |
Total USDA Securities | 1,917,319 |  |  | 391,240 |  |  | (97,954 | ) |  | (245,587 | ) |  | (262 | ) |  | 35,959 |  |  | (1,980,327 | ) |  | 20,388 |
Total Assets at fair value | $ | 6,115,339 |  |  | $ | 1,825,732 |  |  | $ | (124,760 | ) |  | $ | (957,486 | ) |  | $ | (19,478 | ) |  | $ | 65,607 |  |  | $ | (2,013,151 | ) |  | $ | 4,891,803 |
(1) | None of the unrealized gains are attributable to assets still held as of December 31, 2016 and are recorded in "Gains/(losses) on trading securities."
(2) | Includes $32.8 million of Farmer Mac Guaranteed USDA Securities and $2.0 billion of USDA Securities transferred from available-for-sale to held-to-maturity on October 1, 2016.
(3) | Includes unrealized losses of $0.3 million attributable to assets still held as of December 31, 2016 that are recorded in "Gains/(losses) on trading securities."
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, 2018 and 2017. Table 13.3
|  | As of December 31, 2018
Financial Instruments |  | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted-Average)
|  | (in thousands)
Assets: |  |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans |  | $ | 18,715 |  |  | Indicative bids |  | Range of broker quotes |  | 95.0% - 95.0% (95.0%)
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |
AgVantage |  | $ | 5,974,497 |  |  | Discounted cash flow |  | Discount rate |  | 3.0% - 4.4% (3.3%)
USDA Securities |  | $ | 9,999 |  |  | Discounted cash flow |  | Discount rate |  | 3.2% - 5.2% (4.9%)
|  |  |  |  |  | CPR |  | 7% - 17% (16%)
|  | As of December 31, 2017
Financial Instruments |  | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted-Average)
|  | (in thousands)
Assets: |  |  |  |  |  |  |  |
Investment securities: |  |  |  |  |  |  |  |
Floating rate auction-rate certificates backed by Government guaranteed student loans |  | $ | 18,814 |  |  | Indicative bids |  | Range of broker quotes |  | 95.5% - 95.5% (95.5%)
Fixed rate GSE guaranteed mortgage-backed securities |  | $ | 4,333 |  |  | Discounted cash flow |  | Discount rate |  | 2.9%
|  |  |  |  |  | CPR |  | 0%
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |
AgVantage |  | $ | 5,471,914 |  |  | Discounted cash flow |  | Discount rate |  | 2.1% - 3.4% (2.4%)
USDA Securities |  | $ | 13,515 |  |  | Discounted cash flow |  | Discount rate |  | 3.6% - 5.4% (5.0%)
|  |  |  |  |  | CPR |  | 7% - 19% (17%)
The significant unobservable inputs used in the fair value measurements of Farmer Mac Guaranteed Securities and USDA Securities are prepayment rates and discount rates 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 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. Prepayment rates are not presented in the table above for AgVantage securities because they generally do not pay down principal based on amortization schedules but instead typically have fixed maturity dates when the secured general obligations are due. 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, 2018 and 2017: Table 13.4
| As of December 31, 2018 |  | As of December 31, 2017
| Fair Value |  | Carrying Amount |  | Fair Value |  | Carrying Amount
| (in thousands)
Financial assets: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 425,256 |  |  | $ | 425,256 |  |  | $ | 302,022 |  |  | $ | 302,022 |
Investment securities | 2,263,446 |  |  | 2,262,884 |  |  | 2,260,969 |  |  | 2,260,437 |
Farmer Mac Guaranteed Securities | 8,061,903 |  |  | 8,071,115 |  |  | 7,588,806 |  |  | 7,598,188 |
USDA Securities | 2,113,946 |  |  | 2,176,173 |  |  | 2,076,396 |  |  | 2,131,365 |
Loans | 5,512,781 |  |  | 5,515,052 |  |  | 5,279,225 |  |  | 5,266,786 |
Financial derivatives | 7,487 |  |  | 7,487 |  |  | 7,093 |  |  | 7,093 |
Guarantee and commitment fees receivable: |  |  |  |  |  |  |
LTSPCs | 37,461 |  |  | 36,870 |  |  | 33,871 |  |  | 35,718 |
Farmer Mac Guaranteed Securities | 3,424 |  |  | 3,496 |  |  | 4,323 |  |  | 4,177 |
Financial liabilities: |  |  |  |  |  |  |
Notes payable: |  |  |  |  |  |  |
Due within one year | 7,744,388 |  |  | 7,757,050 |  |  | 8,079,309 |  |  | 8,089,826 |
Due after one year | 8,473,558 |  |  | 8,486,647 |  |  | 7,445,545 |  |  | 7,432,790 |
Debt securities of consolidated trusts held by third parties | 1,501,754 |  |  | 1,528,957 |  |  | 1,386,652 |  |  | 1,404,945 |
Financial derivatives | 19,633 |  |  | 19,633 |  |  | 26,599 |  |  | 26,599 |
Guarantee and commitment obligations: |  |  |  |  |  |  |
LTSPCs | 36,471 |  |  | 35,880 |  |  | 32,976 |  |  | 34,824 |
Farmer Mac Guaranteed Securities | 2,731 |  |  | 2,803 |  |  | 3,722 |  |  | 3,576 |
The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. Investment securities primarily are valued based on unadjusted quoted prices in active markets 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 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.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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