Investment Securities

9 Months Ended

Feb. 28, 2022


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 February 28, 2022 and May 31, 2021.

Table 3.1: Investments in Debt Securities, at Fair Value


(Dollars in thousands)	February 28, 2022		May 31, 2021
Debt securities, at fair value:
Certificates of deposit	$	—	$	1,501
Commercial paper	13,969		12,365

Corporate debt securities	483,588		497,944

Commercial agency mortgage-backed securities (“MBS”)(1)	7,786		8,683


U.S. state and municipality debt securities	21,396		11,840
Foreign government debt securities	979		999
Other asset-backed securities(2)	37,708		42,843
Total debt securities trading, at fair value	$	565,426	$	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 $9 million and $3 million for the three months ended February 28, 2022 and 2021, respectively. We recognized net unrealized losses on our debt securities of $18 million and $2 million for the nine months ended February 28, 2022 and 2021, respectively.

We received cash proceeds of $3 million on the sale of debt securities during the three months ended February 28, 2022 and recorded gains on the sale of these securities of less than $1 million for the period. We did not sell any debt securities during the three months ended February 28, 2021. We received cash proceeds of $5 million on the sale of debt securities during the nine months ended February 28, 2022 and recorded gains on the sale of these securities of less than $1 million for the period. We received cash proceeds of $6 million on the sale of debt securities during the nine months ended February 28, 2021 and recorded losses related to the sale of these securities of less than $1 million during nine months ended February 28, 2021.

Pledged Collateral—Debt securities

Under master repurchase agreements with 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 no borrowings under repurchase transactions outstanding as of February 28, 2022; therefore, we had no debt securities pledged as collateral as of February 28, 2022. We had short-term borrowings under repurchase transactions of $200 million as of May 31, 2021. The debt securities underlying these transactions had an aggregate fair value of $211 million as of this date, and we repurchased the securities on June 2, 2021.

Equity Securities

The following table presents the composition of our equity security holdings and the fair value as of February 28, 2022 and May 31, 2021.

Table 3.2: Investments in Equity Securities, at Fair Value


(Dollars in thousands)	February 28, 2022		May 31, 2021
Equity securities, at fair value:
Farmer Mac—Series C non-cumulative preferred stock	$	25,750	$	27,450
Farmer Mac—Class A common stock	9,608		7,652
Total equity securities, at fair value	$	35,358	$	35,102

We recognized net unrealized losses on our equity securities of $2 million for the three months ended February 28, 2022, compared with net unrealized gains of less than $1 million for the three months ended February 28, 2021. We recognized net unrealized gains on our equity securities of less than $1 million and $2 million for the nine months ended February 28, 2022 and 2021, respectively.