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Fair Value Disclosures | 3 Months Ended
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Mar. 31, 2019
Fair Value Disclosures [Abstract] |
FAIR VALUE DISCLOUSRE | FAIR VALUE DISCLOSURES As of March 31, 2019, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.5 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 33% of total assets and 72% of financial instruments measured at fair value as of March 31, 2019. 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. 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. 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 first three months of both 2019 and 2018, 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. 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 March 31, 2019 and December 31, 2018, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value: Table 8.1
Assets and Liabilities Measured at Fair Value as of March 31, 2019
| 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 | $ | — |  |  | $ | — |  |  | $ | 18,912 |  |  | $ | 18,912 |
Floating rate asset-backed securities | — |  |  | 27,451 |  |  | — |  |  | 27,451 |
Floating rate Government/GSE guaranteed mortgage-backed securities | — |  |  | 1,376,237 |  |  | — |  |  | 1,376,237 |
Fixed rate GSE guaranteed mortgage-backed securities | — |  |  | 393 |  |  | — |  |  | 393 |
Fixed rate U.S. Treasuries | 1,034,985 |  |  | — |  |  | — |  |  | 1,034,985 |
Total Investment Securities | 1,034,985 |  |  | 1,404,081 |  |  | 18,912 |  |  | 2,457,978 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |
AgVantage | — |  |  | — |  |  | 6,441,624 |  |  | 6,441,624 |
Total Farmer Mac Guaranteed Securities | — |  |  | — |  |  | 6,441,624 |  |  | 6,441,624 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |
Trading | — |  |  | — |  |  | 9,487 |  |  | 9,487 |
Total USDA Securities | — |  |  | — |  |  | 9,487 |  |  | 9,487 |
Financial derivatives | — |  |  | 6,053 |  |  | — |  |  | 6,053 |
Total Assets at fair value | $ | 1,034,985 |  |  | $ | 1,410,134 |  |  | $ | 6,470,023 |  |  | $ | 8,915,142 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Financial derivatives | $ | 94 |  |  | $ | 22,109 |  |  | $ | — |  |  | $ | 22,203 |
Total Liabilities at fair value | $ | 94 |  |  | $ | 22,109 |  |  | $ | — |  |  | $ | 22,203 |
Non-recurring: |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |
Loans held for investment | $ | — |  |  | $ | — |  |  | $ | 339 |  |  | $ | 339 |
REO | — |  |  | — |  |  | 1,253 |  |  | 1,253 |
Total Non-recurring Assets at fair value | $ | — |  |  | $ | — |  |  | $ | 1,592 |  |  | $ | 1,592 |
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 available-for-sale | 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 |
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 three months ended March 31, 2019 and 2018. Table 8.2
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended March 31, 2019
| Beginning Balance |  | Purchases |  | Sales |  | Settlements |  | Realized and Unrealized Gains included in Income |  | Unrealized Gains 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 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 197 |  |  | $ | 18,912 |
Total available-for-sale | 18,715 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 197 |  |  | 18,912 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AgVantage | 5,974,497 |  |  | 776,332 |  |  | — |  |  | (371,733 | ) |  | 59,352 |  |  | 3,176 |  |  | 6,441,624 |
Total available-for-sale | 5,974,497 |  |  | 776,332 |  |  | — |  |  | (371,733 | ) |  | 59,352 |  |  | 3,176 |  |  | 6,441,624 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale | — |  |  | 18,928 |  |  | (18,928 | ) |  | — |  |  | — |  |  | — |  |  | — |
Trading | 9,999 |  |  | — |  |  | — |  |  | (556 | ) |  | 44 |  |  | — |  |  | 9,487 |
Total USDA Securities | 9,999 |  |  | 18,928 |  |  | (18,928 | ) |  | (556 | ) |  | 44 |  |  | — |  |  | 9,487 |
Total Assets at fair value | $ | 6,003,211 |  |  | $ | 795,260 |  |  | $ | (18,928 | ) |  | $ | (372,289 | ) |  | $ | 59,396 |  |  | $ | 3,373 |  |  | $ | 6,470,023 |
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended March 31, 2018
| Beginning Balance |  | Cumulative Effect from Change in Hedge Accounting |  | Purchases |  | Sales |  | Settlements |  | Realized and Unrealized (Losses)/Gains 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 | $ | 18,814 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 196 |  |  | $ | 19,010 |
Fixed rate GSE guaranteed mortgage-backed securities | $ | 4,333 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (109 | ) |  | $ | — |  |  | $ | (104 | ) |  | $ | 4,120 |
Total available-for-sale | 23,147 |  |  | — |  |  | — |  |  | — |  |  | (109 | ) |  | — |  |  | 92 |  |  | 23,130 |
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AgVantage | 5,471,914 |  |  | 487 |  |  | 655,447 |  |  | — |  |  | (290,268 | ) |  | (18,948 | ) |  | 20,755 |  |  | 5,839,387 |
Total available-for-sale | 5,471,914 |  |  | 487 |  |  | 655,447 |  |  | — |  |  | (290,268 | ) |  | (18,948 | ) |  | 20,755 |  |  | 5,839,387 |
USDA Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale | — |  |  | — |  |  | 34,293 |  |  | (34,293 | ) |  | — |  |  | — |  |  | — |  |  | — |
Trading(1) | 13,515 |  |  | — |  |  | — |  |  | — |  |  | (1,973 | ) |  | 16 |  |  | — |  |  | 11,558 |
Total USDA Securities | 13,515 |  |  | — |  |  | 34,293 |  |  | (34,293 | ) |  | (1,973 | ) |  | 16 |  |  | — |  |  | 11,558 |
Total Assets at fair value | $ | 5,508,576 |  |  | $ | 487 |  |  | $ | 689,740 |  |  | $ | (34,293 | ) |  | $ | (292,350 | ) |  | $ | (18,932 | ) |  | $ | 20,847 |  |  | $ | 5,874,075 |
(1) | Includes unrealized gains of $0.1 million attributable to assets still held as of March 31, 2018 that are recorded in "Gains 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 March 31, 2019 and December 31, 2018. Table 8.3
|  | As of March 31, 2019
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 |  | $ | 18,912 |  |  | Indicative bids |  | Range of broker quotes |  | 96.0% - 96.0% (96.0%)
Farmer Mac Guaranteed Securities: |  |  |  |  |  |  |  |
AgVantage |  | $ | 6,441,624 |  |  | Discounted cash flow |  | Discount rate |  | 1.7% - 4.2% (3.1%)
USDA Securities |  | $ | 9,487 |  |  | Discounted cash flow |  | Discount rate |  | 3.1% - 5.2% (4.9%)
|  |  |  |  |  | CPR |  | 7% - 19% (17%)
|  | 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%)
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 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. 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 do not pay down principal based on amortization schedules but instead typically have fixed maturity dates when the secured general obligations are due. 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 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 March 31, 2019 and December 31, 2018: Table 8.4
| As of March 31, 2019 |  | As of December 31, 2018
| Fair Value |  | Carrying Amount |  | Fair Value |  | Carrying Amount
| (in thousands)
Financial assets: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 376,122 |  |  | $ | 376,122 |  |  | $ | 425,256 |  |  | $ | 425,256 |
Investment securities | 2,503,936 |  |  | 2,503,010 |  |  | 2,263,446 |  |  | 2,262,884 |
Farmer Mac Guaranteed Securities | 8,483,379 |  |  | 8,482,039 |  |  | 8,061,903 |  |  | 8,071,115 |
USDA Securities | 2,113,391 |  |  | 2,134,799 |  |  | 2,113,946 |  |  | 2,176,173 |
Loans | 6,092,347 |  |  | 6,040,088 |  |  | 5,512,781 |  |  | 5,515,052 |
Financial derivatives | 6,053 |  |  | 6,053 |  |  | 7,487 |  |  | 7,487 |
Guarantee and commitment fees receivable: |  |  |  |  |  |  |
LTSPCs | 36,049 |  |  | 36,660 |  |  | 37,461 |  |  | 36,870 |
Farmer Mac Guaranteed Securities | 3,073 |  |  | 3,253 |  |  | 3,424 |  |  | 3,496 |
Financial liabilities: |  |  |  |  |  |  |
Notes payable: |  |  |  |  |  |  |
Due within one year | 8,564,034 |  |  | 8,571,615 |  |  | 7,744,388 |  |  | 7,757,050 |
Due after one year | 8,726,760 |  |  | 8,679,287 |  |  | 8,473,558 |  |  | 8,486,647 |
Debt securities of consolidated trusts held by third parties | 1,575,585 |  |  | 1,567,195 |  |  | 1,501,754 |  |  | 1,528,957 |
Financial derivatives | 22,203 |  |  | 22,203 |  |  | 19,633 |  |  | 19,633 |
Guarantee and commitment obligations: |  |  |  |  |  |  |
LTSPCs | 35,026 |  |  | 35,637 |  |  | 36,471 |  |  | 35,880 |
Farmer Mac Guaranteed Securities | 2,472 |  |  | 2,651 |  |  | 2,731 |  |  | 2,803 |
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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