Investment Securities

6 Months Ended

Nov. 30, 2021


NOTE 3—INVESTMENT SECURITIES

Our investment securities portfolio consists of debt securities classified as trading and equity securities with readily determinable fair values. We therefore record changes in the fair value of our debt and equity securities in earnings and report these unrealized changes together with realized gains and losses from the sale of securities as a component of non-interest income in our consolidated statements of operations

Debt Securities

The following table presents the composition of our investment debt securities portfolio and the fair value as of November 30, 2021 and May 31, 2021.

Table 3.1: Investments in Debt Securities, at Fair Value


(Dollars in thousands)	November 30, 2021		May 31, 2021
Debt securities, at fair value:
Certificates of deposit	$	—	$	1,501
Commercial paper	13,979		12,365

Corporate debt securities	504,032		497,944

Commercial agency mortgage-backed securities (“MBS”)(1)	8,183		8,683


U.S. state and municipality debt securities	21,341		11,840
Foreign government debt securities	992		999
Other asset-backed securities(2)	40,088		42,843
Total debt securities trading, at fair value	$	588,615	$	576,175

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(1)Consists of securities backed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”).

(2)Consists primarily of securities backed by auto lease loans, equipment-backed loans, auto loans and credit card loans.

We recognized net unrealized losses on our debt securities of $6 million and $2 million for the three months ended November 30, 2021 and 2020, respectively. We recognized net unrealized losses on our debt securities of $9 million for the six months ended November 30, 2021, compared with net unrealized gains of $1 million for the six months ended November 30, 2020.

We did not sell any debt securities during the three months ended November 30, 2021. We received cash proceeds of $2 million on the sale of debt securities during the six months ended November 30, 2021 and recorded gains on the sale of these securities of less than $1 million for the period. We received cash proceeds of $3 million and $6 million on the sale of debt securities during the three and six months ended November 30, 2020, respectively, and recorded gains related to the sale of these securities of less than $1 million during each period.

Pledged Collateral—Debt securities

Under master repurchase agreements with two counterparties, we can obtain short-term funding by selling investment-grade corporate debt securities from our investment portfolio subject to an obligation to repurchase the same or similar securities at an agreed-upon price and date. Because we retain effective control over the transferred securities, transactions under these repurchase agreements are accounted for as collateralized financing agreements (i.e.,secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a component of our short-term borrowings on our consolidated balance sheets. The aggregate fair value of debt securities underlying repurchase transactions is parenthetically disclosed on our consolidated balance sheets.

We had short-term borrowings under repurchase transactions of $249 million and $200 million as of November 30, 2021 and May 31, 2021, respectively. The debt securities underlying these transactions had an aggregate fair value of $265 million and $211 million as of each respective date, and we repurchased the securities on December 6, 2021 and June 2, 2021, respectively.

Equity Securities

The following table presents the composition of our equity security holdings and the fair value as of November 30, 2021 and May 31, 2021.

Table 3.2: Investments in Equity Securities, at Fair Value


(Dollars in thousands)	November 30, 2021		May 31, 2021
Equity securities, at fair value:
Farmer Mac—Series C non-cumulative preferred stock	$	27,780	$	27,450
Farmer Mac—Class A common stock	9,725		7,652
Total equity securities, at fair value	$	37,505	$	35,102

We recognized net unrealized gains on our equity securities of $2 million for both the three and six months ended November 30, 2021. We recognized net unrealized gains on our equity securities of less than $1 million and $2 million for the three and six months ended November 30, 2020, respectively.