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Financial Derivatives | 9 Months Ended
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Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
FINANCIAL DERIVATIVES | 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, and not for trading or speculative purposes. For more information about Farmer Mac's financial derivatives, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 21, 2019. 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 September 30, 2019 and December 31, 2018: Table 4.1
| As of September 30, 2019
|  |  | Fair Value |  | Weighted- Average Pay Rate |  | Weighted- Average Receive Rate |  | Weighted- Average Forward Price |  | Weighted- Average Remaining Term (in years)
| Notional Amount |  | Asset |  | (Liability) |  |  |  |
| (dollars in thousands)
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | $ | 4,913,988 |  |  | $ | 2,448 |  |  | $ | (4,942 | ) |  | 2.47% |  | 2.18% |  |  |  | 11.30
Receive fixed non-callable | 1,547,200 |  |  | 266 |  |  | (5,004 | ) |  | 2.17% |  | 2.08% |  |  |  | 1.38
Receive fixed callable | 340,000 |  |  | 891 |  |  | (178 | ) |  | 2.09% |  | 2.58% |  |  |  | 2.33
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | 428,000 |  |  | 1,338 |  |  | (2,989 | ) |  | 2.36% |  | 2.41% |  |  |  | 5.68
No hedge designation: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | 329,745 |  |  | — |  |  | (16,899 | ) |  | 3.59% |  | 2.26% |  |  |  | 5.65
Receive fixed non-callable | 2,785,020 |  |  | — |  |  | — |  |  | 2.10% |  | 2.19% |  |  |  | 1.40
Receive fixed callable | 655,000 |  |  | 180 |  |  | (17 | ) |  | 1.48% |  | 1.64% |  |  |  | 0.76
Basis swaps | 2,770,500 |  |  | 466 |  |  | (543 | ) |  | 2.07% |  | 2.01% |  |  |  | 0.95
Treasury futures | 29,600 |  |  |  |  | (25 | ) |  |  |  |  |  | 130.23 |  |  |
Credit valuation adjustment |  |  | — |  |  | 55 |  |  |  |  |  |  |  |  |
Total financial derivatives | $ | 13,799,053 |  |  | $ | 5,589 |  |  | $ | (30,542 | ) |  |  |  |  |  |  |  |
Collateral (held)/pledged |  |  | (2,655 | ) |  | 167,060 |  |  |  |  |  |  |  |  |
Net amount |  |  | $ | 2,934 |  |  | $ | 136,518 |  |  |  |  |  |  |  |  |
| As of December 31, 2018
|  |  | Fair Value |  | Weighted- Average Pay Rate |  | Weighted- Average Receive Rate |  | Weighted- Average Forward Price |  | Weighted- Average Remaining Term (in years)
| Notional Amount |  | Asset |  | (Liability) |  |  |  |
| (dollars in thousands)
Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | $ | 3,097,084 |  |  | $ | 3,004 |  |  | $ | (4,326 | ) |  | 2.42% |  | 2.58% |  |  |  | 9.75
Receive fixed non-callable | 1,871,200 |  |  | 547 |  |  | (4,484 | ) |  | 2.50% |  | 1.84% |  |  |  | 1.58
Receive fixed callable | 160,000 |  |  | 338 |  |  | (28 | ) |  | 2.35% |  | 3.06% |  |  |  | 2.91
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | 373,000 |  |  | 2,441 |  |  | (99 | ) |  | 2.40% |  | 2.83% |  |  |  | 6.12
No hedge designation: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |
Pay fixed non-callable | 316,664 |  |  | 796 |  |  | (10,399 | ) |  | 3.69% |  | 2.52% |  |  |  | 6.25
Receive fixed non-callable | 2,347,371 |  |  | — |  |  | — |  |  | 2.37% |  | 2.10% |  |  |  | 0.86
Basis swaps | 1,770,026 |  |  | 421 |  |  | (130 | ) |  | 2.45% |  | 2.49% |  |  |  | 1.27
Treasury futures | 20,400 |  |  | — |  |  | (188 | ) |  |  |  |  |  | 121.09 |  |  |
Credit valuation adjustment |  |  | (60 | ) |  | 21 |  |  |  |  |  |  |  |  |
Total financial derivatives | $ | 9,955,745 |  |  | $ | 7,487 |  |  | $ | (19,633 | ) |  |  |  |  |  |  |  |
Collateral (held)/pledged |  |  | (1,778 | ) |  | 47,018 |  |  |  |  |  |  |  |  |
Net amount |  |  | $ | 5,709 |  |  | $ | 27,385 |  |  |  |  |  |  |  |  |
As of September 30, 2019, Farmer Mac expects to reclassify $0.8 million after tax from accumulated other comprehensive income to earnings over the next twelve months. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges after September 30, 2019. During the three and nine months ended September 30, 2019 and 2018, there were no gains or losses from interest rate swaps designated as cash flow hedges reclassified to earnings because it became probable that the original forecasted transaction would not occur. The following table summarizes the net income/(expense) recognized in the consolidated statements of operations related to derivatives for the three and nine months ended September 30, 2019 and 2018: Table 4.2
| For the Three Months Ended September 30, 2019
| Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
| Net Interest Income |  | Non-Interest Income |  | Total
| Interest Income Farmer Mac Guaranteed Securities and USDA Securities |  | Interest Income Loans |  | Total Interest Expense |  | Gains/(losses) on financial derivatives |
| (in thousands)
Total amounts presented in the consolidated statement of operations: | $ | 81,649 |  |  | $ | 56,992 |  |  | $ | (121,384 | ) |  | $ | (7,360 | ) |  | $ | 9,897 |
Income/(expense) related to interest settlements on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | (1,051 | ) |  | (584 | ) |  | (961 | ) |  | — |  |  | (2,596 | )
Recognized on hedged items | 31,435 |  |  | 7,321 |  |  | (10,778 | ) |  | — |  |  | 27,978 |
Discount amortization recognized on hedged items | — |  |  | — |  |  | (146 | ) |  | — |  |  | (146 | )
Income/(expense) related to interest settlements on fair value hedging relationships | $ | 30,384 |  |  | $ | 6,737 |  |  | $ | (11,885 | ) |  | $ | — |  |  | $ | 25,236 |
(Losses)/gains on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | $ | (87,495 | ) |  | $ | (35,597 | ) |  | $ | 1,979 |  |  | $ | — |  |  | $ | (121,113 | )
Recognized on hedged items | 84,164 |  |  | 33,493 |  |  | (1,034 | ) |  | — |  |  | 116,623 |
(Losses)/gains on fair value hedging relationships | $ | (3,331 | ) |  | $ | (2,104 | ) |  | $ | 945 |  |  | $ | — |  |  | $ | (4,490 | )
Expense related to interest settlements on cash flow hedging relationships: |  |  |  |  |  |  |  |  |
Interest settlements reclassified from AOCI into net income on derivatives | $ | — |  |  | $ | — |  |  | $ | 317 |  |  | $ | — |  |  | $ | 317 |
Recognized on hedged items | — |  |  | — |  |  | (2,726 | ) |  | — |  |  | (2,726 | )
Discount amortization recognized on hedged items | — |  |  | — |  |  | (1 | ) |  | — |  |  | (1 | )
Expense recognized on cash flow hedges | $ | — |  |  | $ | — |  |  | $ | (2,410 | ) |  | $ | — |  |  | $ | (2,410 | )
Losses on financial derivatives not designated in hedge relationships: |  |  |  |  |  |  |  |  |
Losses on interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (7,402 | ) |  | $ | (7,402 | )
Interest income on interest rate swaps | — |  |  | — |  |  | — |  |  | 127 |  |  | 127 |
Treasury futures | — |  |  | — |  |  | — |  |  | (85 | ) |  | (85 | )
Losses on financial derivatives not designated in hedge relationships | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (7,360 | ) |  | $ | (7,360 | )
| For the Three Months Ended September 30, 2018
| Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
| Net Interest Income |  | Non-Interest Income |  | Total
| Interest Income Farmer Mac Guaranteed Securities and USDA Securities |  | Interest Income Loans |  | Total Interest Expense |  | Gains/(losses) on financial derivatives |
| (in thousands)
Total amounts presented in the consolidated statement of operations | $ | 76,870 |  |  | $ | 50,622 |  |  | $ | (97,557 | ) |  | $ | 628 |  |  | $ | 30,563 |
Income/(expense) related to interest settlements on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | 1,272 |  |  | (98 | ) |  | (2,702 | ) |  | — |  |  | (1,528 | )
Recognized on hedged items | 16,769 |  |  | 1,660 |  |  | (9,821 | ) |  | — |  |  | 8,608 |
Discount amortization recognized on hedged items | — |  |  | — |  |  | (177 | ) |  | — |  |  | (177 | )
Income/(expense) related to interest settlements on fair value hedging relationships | $ | 18,041 |  |  | $ | 1,562 |  |  | $ | (12,700 | ) |  | $ | — |  |  | $ | 6,903 |
Gains/(losses) on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | $ | 13,420 |  |  | $ | 3,909 |  |  | $ | (1,188 | ) |  | $ | — |  |  | $ | 16,141 |
Recognized on hedged items | (13,432 | ) |  | (4,062 | ) |  | 2,404 |  |  | — |  |  | (15,090 | )
Gains/(losses) on fair value hedging relationships | $ | (12 | ) |  | $ | (153 | ) |  | $ | 1,216 |  |  | $ | — |  |  | $ | 1,051 |
Expense related to interest settlements on cash flow hedging relationships: |  |  |  |  |  |  |  |  |
Interest settlements reclassified from AOCI into net income on derivatives | $ | — |  |  | $ | — |  |  | $ | 189 |  |  | $ | — |  |  | $ | 189 |
Recognized on hedged items | — |  |  | — |  |  | (2,501 | ) |  | — |  |  | (2,501 | )
Discount amortization recognized on hedged items | — |  |  | — |  |  | (2 | ) |  | — |  |  | (2 | )
Expense recognized on cash flow hedges | $ | — |  |  | $ | — |  |  | $ | (2,314 | ) |  | $ | — |  |  | $ | (2,314 | )
Gains on financial derivatives not designated in hedging relationships: |  |  |  |  |  |  |  |  |
Gains on interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3,267 |  |  | $ | 3,267 |
Interest expense on interest rate swaps | — |  |  | — |  |  | — |  |  | (3,048 | ) |  | (3,048 | )
Treasury futures | — |  |  | — |  |  | — |  |  | 409 |  |  | 409 |
Gains on financial derivatives not designated in hedge relationships | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 628 |  |  | $ | 628 |
| For the Nine Months Ended September 30, 2019
| Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
| Net Interest Income |  | Non-Interest Income |  | Total
| Interest Income Farmer Mac Guaranteed Securities and USDA Securities |  | Interest Income Loans |  | Total Interest Expense |  | Gains/(losses) on financial derivatives |
| (in thousands)
Total amounts presented in the consolidated statement of operations | $ | 252,629 |  |  | $ | 167,792 |  |  | $ | (358,374 | ) |  | $ | 1,193 |  |  | $ | 63,240 |
Income/(expense) related to interest settlements on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | 1,665 |  |  | (808 | ) |  | (6,751 | ) |  | — |  |  | (5,894 | )
Recognized on hedged items | 86,628 |  |  | 18,199 |  |  | (32,594 | ) |  | — |  |  | 72,233 |
Discount amortization recognized on hedged items | — |  |  | — |  |  | (460 | ) |  | — |  |  | (460 | )
Income/(expense) related to interest settlements on fair value hedging relationships | $ | 88,293 |  |  | $ | 17,391 |  |  | $ | (39,805 | ) |  | $ | — |  |  | $ | 65,879 |
Gains/(losses) on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | $ | (262,886 | ) |  | $ | (89,631 | ) |  | $ | 27,101 |  |  | $ | — |  |  | $ | (325,416 | )
Recognized on hedged items | 258,155 |  |  | 83,524 |  |  | (24,880 | ) |  | — |  |  | 316,799 |
Gains/(losses) on fair value hedging relationships | $ | (4,731 | ) |  | $ | (6,107 | ) |  | $ | 2,221 |  |  | $ | — |  |  | $ | (8,617 | )
Expense related to interest settlements on cash flow hedging relationships: |  |  |  |  |  |  |  |  |
Interest settlements reclassified from AOCI into net income on derivatives | $ | — |  |  | $ | — |  |  | $ | 1,260 |  |  | $ | — |  |  | $ | 1,260 |
Recognized on hedged items | — |  |  | — |  |  | (8,142 | ) |  | — |  |  | (8,142 | )
Discount amortization recognized on hedged items | — |  |  | — |  |  | (3 | ) |  | — |  |  | (3 | )
Expense recognized on cash flow hedges | $ | — |  |  | $ | — |  |  | $ | (6,885 | ) |  | $ | — |  |  | $ | (6,885 | )
Gains on financial derivatives not designated in hedging relationships: |  |  |  |  |  |  |  |  |
Gains on interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,920 |  |  | $ | 5,920 |
Interest expense on interest rate swaps | — |  |  | — |  |  | — |  |  | (3,321 | ) |  | (3,321 | )
Treasury futures | — |  |  | — |  |  | — |  |  | (1,406 | ) |  | (1,406 | )
Gains on financial derivatives not designated in hedge relationships | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,193 |  |  | $ | 1,193 |
| For the Nine Months Ended September 30, 2018
| Net Income/(Expense) Recognized in Consolidated Statement of Operations on Derivatives
| Net Interest Income |  | Non-Interest Income |  | Total
| Interest Income Farmer Mac Guaranteed Securities and USDA Securities |  | Interest Income Loans |  | Total Interest Expense |  | Gains/(losses) on financial derivatives |
| (in thousands)
Total amounts presented in the consolidated statement of operations: | $ | 213,479 |  |  | $ | 145,671 |  |  | $ | (265,611 | ) |  | $ | (688 | ) |  | $ | 92,851 |
Income/(expense) related to interest settlements on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | 465 |  |  | (560 | ) |  | (5,315 | ) |  | — |  |  | (5,410 | )
Recognized on hedged items | 46,289 |  |  | 4,619 |  |  | (28,633 | ) |  | — |  |  | 22,275 |
Discount amortization recognized on hedged items | — |  |  | — |  |  | (534 | ) |  | — |  |  | (534 | )
Income/(expense) related to interest settlements on fair value hedging relationships | $ | 46,754 |  |  | $ | 4,059 |  |  | $ | (34,482 | ) |  | $ | — |  |  | $ | 16,331 |
Gains/(losses) on fair value hedging relationships: |  |  |  |  |  |  |  |  |
Recognized on derivatives | $ | 46,354 |  |  | $ | 12,564 |  |  | $ | (13,565 | ) |  | $ | — |  |  | $ | 45,353 |
Recognized on hedged items | (43,229 | ) |  | (13,106 | ) |  | 16,733 |  |  | — |  |  | (39,602 | )
Gains/(losses) on fair value hedging relationships | $ | 3,125 |  |  | $ | (542 | ) |  | $ | 3,168 |  |  | $ | — |  |  | $ | 5,751 |
Expense related to interest settlements on cash flow hedging relationships: |  |  |  |  |  |  |  |  |
Interest settlements reclassified from AOCI into net income on derivatives | $ | — |  |  | $ | — |  |  | $ | (21 | ) |  | $ | — |  |  | $ | (21 | )
Recognized on hedged items | — |  |  | — |  |  | (6,611 | ) |  | — |  |  | (6,611 | )
Discount amortization recognized on hedged items | — |  |  | — |  |  | (5 | ) |  | — |  |  | (5 | )
Expense recognized on cash flow hedges | $ | — |  |  | $ | — |  |  | $ | (6,637 | ) |  | $ | — |  |  | $ | (6,637 | )
Losses on financial derivatives not designated in hedge relationships: |  |  |  |  |  |  |  |  |
Gains on interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7,443 |  |  | $ | 7,443 |
Interest expense on interest rate swaps | — |  |  | — |  |  | — |  |  | (8,903 | ) |  | (8,903 | )
Treasury futures | — |  |  | — |  |  | — |  |  | 772 |  |  | 772 |
Losses on financial derivatives not designated in hedge relationships | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (688 | ) |  | $ | (688 | )
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 September 30, 2019 and December 31, 2018: Table 4.3
| 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)
| September 30, 2019 |  | December 31, 2018 |  | September 30, 2019 |  | December 31, 2018
| (in thousands)
Farmer Mac Guaranteed Securities, Available-for-Sale, at fair value(1) | $ | 4,167,059 |  |  | $ | 2,882,919 |  |  | $ | 257,231 |  |  | $ | (906 | )
Loans held for investment, at amortized cost | 1,006,952 |  |  | 194,617 |  |  | 78,091 |  |  | (5,287 | )
Other Assets | 146 |  |  | — |  |  | 146 |  |  | — |
Notes Payable, due after one year(2)(3) | (1,902,570 | ) |  | (2,021,356 | ) |  | (16,238 | ) |  | 8,785 |
(1) | Includes $0.1 million and none of hedging adjustments on a discontinued hedging relationship as of September 30, 2019 and December 31, 2018, respectively.
(2) | Carrying amount represents amortized cost.
(3) | Includes $0.1 million and $0.3 million of hedging adjustments on a discontinued hedging relationship as of September 30, 2019 and December 31, 2018, respectively.
The following table shows Farmer Mac's credit exposure to interest rate swap counterparties as of September 30, 2019 and December 31, 2018: Table 4.4
| September 30, 2019
| Gross Amount Recognized(1) |  | Counterparty Netting |  | Net Amount Presented in the Consolidated Balance Sheet
| (in thousands)
Assets: |  |  |  |  |
Derivatives |  |  |  |  |
Interest rate swap | $ | 54,469 |  |  | $ | 52,071 |  |  | $ | 2,398 |
Liabilities: |  |  |  |  |
Derivatives |  |  |  |  |
Interest rate swap | $ | 421,166 |  |  | $ | 399,955 |  |  | $ | 21,211 |
(1) | Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.
| December 31, 2018
| Gross Amount Recognized(1) |  | Counterparty Netting |  | Net Amount Presented in the Consolidated Balance Sheet
| (in thousands)
Assets: |  |  |  |  |
Derivatives |  |  |  |  |
Interest rate swaps | $ | 51,267 |  |  | $ | 48,124 |  |  | $ | 3,143 |
Liabilities: |  |  |  |  |
Derivatives |  |  |  |  |
Interest rate swaps | $ | 78,437 |  |  | $ | 64,568 |  |  | $ | 13,869 |
(1) | Gross amount excludes netting arrangements and any adjustment for nonperformance risk, but includes accrued interest.
As of September 30, 2019, Farmer Mac held $2.7 million of cash and no investment securities as collateral for its derivatives in net asset positions resulting in uncollateralized net liability positions of $0.3 million. As of December 31, 2018, Farmer Mac held $0.7 million of cash and $1.1 million of investment securities as collateral for its derivatives in net asset positions, resulting in uncollateralized net asset positions of $1.4 million. Farmer Mac posted $0.6 million of cash and $166.5 million of investment securities as of September 30, 2019 and posted no cash and $47.0 million investment securities as of December 31, 2018. 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 September 30, 2019 and December 31, 2018, it could have been required to settle its obligations under the agreements, but would not have been required to post additional collateral. As of September 30, 2019 and December 31, 2018, 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 $13.8 billion notional amount of interest rate swaps outstanding as of September 30, 2019, $10.8 billion were cleared through the swap clearinghouse, the Chicago Mercantile Exchange ("CME"). Of Farmer Mac's $9.9 billion notional amount of interest rate swaps outstanding as of December 31, 2018, $8.5 billion were cleared through the swap clearinghouse. For more information about interest rate swaps cleared through a clearinghouse, see Note 6 in Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on February 21, 2019.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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