Accounting Policies

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Accounting Policies

ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2012 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2012 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2012 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013. Described in that Form 10-K are Farmer Mac's significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Investment Securities, Farmer Mac Guaranteed Securities, and USDA Guaranteed Securities; Loans; Securitization of Loans; Non-accrual Loans; Real Estate Owned; Financial Derivatives; Notes Payable; Allowance for Losses; Earnings Per Common Share; Income Taxes; Stock-Based Compensation; Comprehensive Income; Long-Term Standby Purchase Commitments; Fair Value Measurement; and Consolidation of Variable Interest Entities. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and six month periods ended June 30, 2013.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA-guaranteed portions of loans that are guaranteed by the USDA pursuant to the Consolidated Farm and Rural Development Act ("USDA Guaranteed Securities").  The consolidated financial statements also include the accounts of variable interest entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary. 

The following tables present, by line of business, details about the consolidation of VIEs:

Table 1.1

	Consolidation of Variable Interest Entities
	June 30, 2013
	Farm & Ranch		USDA Guarantees		Rural Utilities		Investments		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost (1)	$	164,056	$	—	$	394,993	$	—	$	559,049
Debt securities of consolidated trusts held by third parties (2)	168,488		—		—		—		168,488
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (3)	31,010		25,794		—		—		56,804
Maximum exposure to loss (4)	30,000		25,339		—		—		55,339
Investment securities:
Carrying value	—		—		—		694,454		694,454
Maximum exposure to loss (4)	—		—		—		701,287		701,287
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (4) (5)	1,797,069		22,971		—		—		1,820,040

(1) Includes unamortized premiums related to Rural Utilities of $33.2 million.

(2) Includes borrower remittances of $4.4 million, which have not been passed through to third party investors as of June 30, 2013.

(3) Includes unamortized premiums and discounts and fair value adjustments related to Farm & Ranch and USDA Guarantees of $1.0 million and $0.5 million, respectively.

(4) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.

(5) Of the Farm & Ranch amount, $827.1 million relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.

	Consolidation of Variable Interest Entities
	December 31, 2012
	Farm & Ranch		USDA Guarantees		Rural Utilities		Investments		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost (1)	$	160,436	$	—	$	403,139	$	—	$	563,575
Debt securities of consolidated trusts held by third parties (2)	167,621		—		—		—		167,621
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (3)	31,370		26,681		—		—		58,051
Maximum exposure to loss (4)	30,000		26,238		—		—		56,238
Investment securities:
Carrying value	—		—		—		724,893		724,893
Maximum exposure to loss (4)	—		—		—		737,148		737,148
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (4) (5)	1,881,370		29,658		—		—		1,911,028

(1) Includes unamortized premiums related to Rural Utilities of $34.3 million.

(2) Includes borrower remittances of $7.2 million, which have not been passed through to third party investors as of December 31, 2012.

(3) Includes unamortized premiums and discounts and fair value adjustments related to Farm & Ranch and USDA Guarantees of $1.4 million and $0.4 million, respectively.

(4) Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.

(5) Of the Farm & Ranch amount, $911.4 million relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.

A Farmer Mac guarantee of timely payment of principal and interest is an explicit element of the terms of all Farmer Mac Guaranteed Securities.  When Farmer Mac retains such securities in its portfolio, that guarantee is not extinguished.  For Farmer Mac Guaranteed Securities in Farmer Mac's portfolio, Farmer Mac has entered into guarantee arrangements with FMMSC.  The guarantee fee rate established between Farmer Mac and FMMSC is an element in determining the fair value of these Farmer Mac Guaranteed Securities, and guarantee fees related to these securities are reflected in guarantee and commitment fees in the consolidated statements of operations.  These guarantee fees totaled $2.7 million and $5.4 million for the three and six months ended June 30, 2013, respectively, compared to $2.5 million and $5.1 million for the same periods in 2012. The corresponding expense of FMMSC has been eliminated against interest income in consolidation.  All other inter-company balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents and Statements of Cash Flows

Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents.  The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value.  Changes in the balance of cash and cash equivalents are reported in the consolidated statements of cash flows.  

The following table sets forth information regarding certain cash and non-cash transactions for the six months ended June 30, 2013 and 2012:

Table 1.2

	For the Six Months Ended
	June 30, 2013		June 30, 2012
	(in thousands)
Cash paid during the period for:
Interest	$	54,674	$	55,131
Income taxes	13,000		13,500
Non-cash activity:
Real estate owned acquired through loan liquidation	1,034		—
Loans acquired and securitized as Farmer Mac Guaranteed Securities	35,891		12,301
Consolidation of Farm & Ranch Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties	35,891		12,301
Deconsolidation of loans held for investment in consolidated trusts and debt securities of consolidated trusts held by third parties - transferred to off-balance sheet Farm & Ranch Guaranteed Securities	—		460,261
Transfers of loans held for sale to loans held for investment	673,991		—

On January 1, 2013, Farmer Mac transferred $674.0 million of loans from held for sale to held for investment because Farmer Mac either (1) no longer intends to sell these loans in the foreseeable future or (2) generally securitizes these loans using VIEs that are ultimately consolidated on Farmer Mac's balance sheet and reported as "Loans held for investment in consolidated trusts, at amortized cost." Farmer Mac transferred these loans at the lower of cost or fair value (determined on a pooled basis). Farmer Mac recorded a $5.9 million unamortized discount for loans transferred at fair value. At the time of purchase, loans are classified as either held for sale or held for investment depending upon management's intent and ability to hold the loans for the foreseeable future. Cash receipts from the repayment of loans are classified within the statements of cash flows based on management's intent upon purchase of the loan, as prescribed by accounting guidance related to the statement of cash flows.

Earnings/Loss Per Common Share

Basic earnings/loss per common share ("EPS") is based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per common share is based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights ("SARs"), and non-vested restricted stock awards.  The following schedule reconciles basic and diluted EPS for the three and six months ended June 30, 2013 and 2012:

Table 1.3

	For the Three Months Ended
	June 30, 2013						June 30, 2012
	Net Income		Weighted-Average Shares	$ per Share			Net Loss			Weighted-Average Shares	$ per Share
	(in thousands, except per share amounts)
Basic EPS
Net income/(loss) attributable to common stockholders	$	27,745	10,815	$	2.57		$	(4,291	)	10,468	$	(0.41	)
Effect of dilutive securities (1):
Stock options, SARs and restricted stock	—		383	(0.09		)	—			—	—
Diluted EPS	$	27,745	11,198	$	2.48		$	(4,291	)	10,468	$	(0.41	)

(1) For the three months ended June 30, 2013 and 2012, stock options and SARs of 89,937 and 1,270,777, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended June 30, 2013 and 2012, contingent shares of non-vested restricted stock of 44,894 and 146,311, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions were not met.

	For the Six Months Ended
	June 30, 2013						June 30, 2012
	Net Income		Weighted-Average Shares	$ per Share			Net Income		Weighted-Average Shares	$ per Share
	(in thousands, except per share amounts)
Basic EPS
Net income attributable to common stockholders	$	43,935	10,776	$	4.08		$	17,912	10,417	$	1.72
Effect of dilutive securities (1):
Stock options, SARs and restricted stock	—		403	(0.15		)	—		545	(0.09		)
Diluted EPS	$	43,935	11,179	$	3.93		$	17,912	10,962	$	1.63

(1) For the six months ended June 30, 2013 and 2012, stock options and SARs of 46,969 and 469,577, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the six months ended June 30, 2013 and 2012, contingent shares of non-vested restricted stock of 35,097 and 92,800, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions were not met.

Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.