FAIR VALUE DISCLOSURES

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). In determining fair value, Farmer Mac uses various valuation approaches, including market and income based approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements. Farmer Mac's accounting policies for fair value measurement and a description of the fair value techniques used for instruments measured at fair value is discussed in Note 2(p) and Note 13 to the consolidated financial statements included in the Segment Recast 8-K.

Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements.

Fair Value Classification and Transfers

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The following three levels are used to classify fair value measurements:


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.


Level 2	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3	Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

As of September 30, 2014, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $5.1 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 35 percent of total assets and 58 percent of financial instruments measured at fair value as of September 30, 2014. As of December 31, 2013, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.8 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 51 percent of total assets and 73 percent of financial instruments measured at fair value as of December 31, 2013.

Net 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. 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 during the first nine months of 2014 and 2013. See Note 1(a) for information about the transfer of available-for-sale Farmer Mac Guaranteed Securities to held-to-maturity as of January 1, 2014.

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of September 30, 2014 and December 31, 2013, 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 September 30, 2014
	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	$	—	$	—	$	40,774	$	40,774
Floating rate asset-backed securities	—		108,325		—		108,325
Floating rate corporate debt securities	—		10,126		—		10,126
Fixed rate corporate debt securities	—		30,081		—		30,081
Floating rate Government/GSE guaranteed mortgage-backed securities	—		635,651		187		635,838
Fixed rate GSE guaranteed mortgage-backed securities	—		8,271		—		8,271
Floating rate GSE subordinated debt	—		63,385		—		63,385
Fixed rate GSE preferred stock	—		78,500		—		78,500
Fixed rate taxable municipal bonds	—		3,963		—		3,963
Floating rate U.S. Treasuries	75,015		—		—		75,015
Fixed rate U.S. Treasuries	930,705		—		—		930,705
Total available-for-sale	1,005,720		938,302		40,961		1,984,983
Trading:
Floating rate asset-backed securities	—		—		777		777
Total trading	—		—		777		777
Total Investment Securities	1,005,720		938,302		41,738		1,985,760
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		3,336,326		3,336,326
Farmer Mac Guaranteed USDA Securities	—		—		20,449		20,449
Total Farmer Mac Guaranteed Securities	—		—		3,356,775		3,356,775
USDA Securities:
Available-for-sale	—		—		1,687,881		1,687,881
Trading	—		—		42,964		42,964
Total USDA Securities	—		—		1,730,845		1,730,845
Financial derivatives	—		5,743		—		5,743
Total Assets at fair value	$	1,005,720	$	944,045	$	5,129,358	$	7,079,123
Liabilities:
Securities sold, not yet purchased
Fixed rate U.S. Treasuries	$	1,657,901	$	—	$	—	$	1,657,901
Financial derivatives	21		69,974		—		69,995
Total Liabilities at fair value	$	1,657,922	$	69,974	$	—	$	1,727,896
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	5,304	$	5,304
REO	—		—		762		762
Total Nonrecurring Assets at fair value	$	—	$	—	$	6,066	$	6,066



Assets and Liabilities Measured at Fair Value as of December 31, 2013
	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	$	—	$	—	$	65,285	$	65,285
Floating rate asset-backed securities	—		166,104		—		166,104
Floating rate corporate debt securities	—		109,769		—		109,769
Fixed rate corporate debt	—		55,141		—		55,141
Floating rate Government/GSE guaranteed mortgage-backed securities	—		621,064		205		621,269
Fixed rate GSE guaranteed mortgage-backed securities	—		8,657		—		8,657
Floating rate GSE subordinated debt	—		63,385		—		63,385
Fixed rate GSE preferred stock	—		83,161		—		83,161
Fixed rate taxable municipal bonds	—		30,681		—		30,681
Fixed rate senior agency debt	—		524,062		—		524,062
Fixed rate U.S. Treasuries	755,633		—		—		755,633
Total available-for-sale	755,633		1,662,024		65,490		2,483,147
Trading:
Floating rate asset-backed securities	—		—		928		928
Total trading	—		—		928		928
Total Investment Securities	755,633		1,662,024		66,418		2,484,075
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		5,070,366		5,070,366
Farmer Mac Guaranteed USDA Securities	—		—		21,234		21,234
Total Farmer Mac Guaranteed Securities	—		—		5,091,600		5,091,600
USDA Securities:
Available-for-sale	—		—		1,553,669		1,553,669
Trading	—		—		58,344		58,344
Total USDA Securities	—		—		1,612,013		1,612,013
Financial derivatives	—		19,718		—		19,718
Total Assets at fair value	$	755,633	$	1,681,742	$	6,770,031	$	9,207,406
Liabilities:
Financial derivatives	$	1	$	75,472	$	235	$	75,708
Total Liabilities at fair value	$	1	$	75,472	$	235	$	75,708
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	4,420	$	4,420
REO	—		—		1,818		1,818
Total Nonrecurring Assets at fair value	$	—	$	—	$	6,238	$	6,238

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 September 30, 2014.

Table 8.2



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2014
	Beginning Balance		Purchases		Sales			Settlements			Realized and Unrealized Gains/(Losses) 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	$	54,976	$	—	$	(14,550	)	$	—		$	(450	)	$	798		$	40,774
Floating rate Government/GSE guaranteed mortgage-backed securities	195		—		—			(7		)	—			(1		)	187
Total available-for-sale	55,171		—		(14,550		)	(7		)	(450		)	797			40,961
Trading:
Floating rate asset-backed securities (1)	880		—		—			(127		)	24			—			777
Total trading	880		—		—			(127		)	24			—			777
Total Investment Securities	56,051		—		(14,550		)	(134		)	(426		)	797			41,738
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	3,416,512		295,700		—			(382,630		)	(2,549		)	9,293			3,336,326
Farmer Mac Guaranteed USDA Securities	21,044		—		—			(200		)	—			(395		)	20,449
Total Farmer Mac Guaranteed Securities	3,437,556		295,700		—			(382,830		)	(2,549		)	8,898			3,356,775
USDA Securities:
Available-for-sale	1,636,930		97,275		—			(42,821		)	—			(3,503		)	1,687,881
Trading (2)	46,099		—		—			(3,079		)	(56		)	—			42,964
Total USDA Securities	1,683,029		97,275		—			(45,900		)	(56		)	(3,503		)	1,730,845
Total Assets at fair value	$	5,176,636	$	392,975	$	(14,550	)	$	(428,864	)	$	(3,031	)	$	6,192		$	5,129,358


(1)	Unrealized gains are attributable to assets still held as of September 30, 2014 and are recorded in "Gains/(losses) on trading securities."


(2)	Includes immaterial unrealized gains attributable to assets still held as of September 30, 2014 that are recorded in "Gains/(losses) on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2013
	Beginning Balance			Purchases		Sales		Settlements			Realized and Unrealized Gains/ (Losses) 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	$	65,088		$	—	$	—	$	—		$	—		$	—		$	65,088
Floating rate Government/GSE guaranteed mortgage-backed securities	222			—		—		(8		)	—			—			214
Total available-for-sale	65,310			—		—		(8		)	—			—			65,302
Trading:
Floating rate asset-backed securities (1)	1,064			—		—		(156		)	69			—			977
Total trading	1,064			—		—		(156		)	69			—			977
Total Investment Securities	66,374			—		—		(164		)	69			—			66,279
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	5,033,059			353,500		—		(258,522		)	2,996			(17,985		)	5,113,048
Farmer Mac Guaranteed USDA Securities	25,794			—		—		(414		)	—			328			25,708
Total Farmer Mac Guaranteed Securities	5,058,853			353,500		—		(258,936		)	2,996			(17,657		)	5,138,756
USDA Securities:
Available-for-sale	1,543,764			70,372		—		(48,380		)	—			935			1,566,691
Trading (2)	73,592			—		—		(10,578		)	(695		)	—			62,319
Total USDA Securities	1,617,356			70,372		—		(58,958		)	(695		)	935			1,629,010
Total Assets at fair value	$	6,742,583		$	423,872	$	—	$	(318,058	)	$	2,370		$	(16,722	)	$	6,834,045
Liabilities:
Financial derivatives (3)	$	(390	)	$	—	$	—	$	—		$	61		$	—		$	(329	)
Total Liabilities at fair value	$	(390	)	$	—	$	—	$	—		$	61		$	—		$	(329	)


(1)	Unrealized gains are attributable to assets still held as of September 30, 2013 and are recorded in "Gains/(losses) on trading securities."


(2)	Includes unrealized losses of $0.4 million attributable to assets still held as of September 30, 2013 that are recorded in "Gains/(losses) on trading securities."


(3)	Unrealized gains are attributable to liabilities still held as of September 30, 2013 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."



Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2014
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/(Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Transfers Out			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	65,285		$	—	$	(26,675	)	$	—		$	(825	)	$	2,989		$	—		$	40,774
Floating rate Government/GSE guaranteed mortgage-backed securities	205			—		—			(18		)	—			—			—			187
Total available-for-sale	65,490			—		(26,675		)	(18		)	(825		)	2,989			—			40,961
Trading:
Floating rate asset-backed securities (1)	928			—		—			(541		)	390			—			—			777
Total trading	928			—		—			(541		)	390			—			—			777
Total Investment Securities	66,418			—		(26,675		)	(559		)	(435		)	2,989			—			41,738
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	5,070,366			761,475		—			(915,218		)	4,019			27,770			(1,612,086		)	3,336,326
Farmer Mac Guaranteed USDA Securities	21,234			—		—			(562		)	—			(223		)	—			20,449
Total Farmer Mac Guaranteed Securities	5,091,600			761,475		—			(915,780		)	4,019			27,547			(1,612,086		)	3,356,775
USDA Securities:
Available-for-sale	1,553,669			256,044		—			(162,917		)	—			41,085			—			1,687,881
Trading (2)	58,344			—		—			(15,541		)	161			—			—			42,964
Total USDA Securities	1,612,013			256,044		—			(178,458		)	161			41,085			—			1,730,845
Total Assets at fair value	$	6,770,031		$	1,017,519	$	(26,675	)	$	(1,094,797	)	$	3,745		$	71,621		$	(1,612,086	)	$	5,129,358
Liabilities:
Financial derivatives	$	(235	)	$	—	$	—		$	—		$	235		$	—		$	—		$	—
Total Liabilities at fair value	$	(235	)	$	—	$	—		$	—		$	235		$	—		$	—		$	—


(1)	Unrealized gains are attributable to assets still held as of September 30, 2014 and are recorded in "Gains/(losses) on trading securities."


(2)	Includes unrealized gains of $0.7 million attributable to assets still held as of September 30, 2014 that are recorded in "Gains/(losses) on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 30, 2013
	Beginning Balance			Purchases		Sales		Settlements			Realized and Unrealized Gains/ (Losses) 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	$	63,159		$	—	$	—	$	—		$	—		$	1,929		$	65,088
Floating rate Government/GSE guaranteed mortgage-backed securities	—			233		—		(17		)	—			(2		)	214
Total available-for-sale	63,159			233		—		(17		)	—			1,927			65,302
Trading:
Floating rate asset-backed securities (1)	1,247			—		—		(656		)	386			—			977
Total trading	1,247			—		—		(656		)	386			—			977
Total Investment Securities	64,406			233		—		(673		)	386			1,927			66,279
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	4,739,577			978,500		—		(542,974		)	(14,872		)	(47,183		)	5,113,048
Farmer Mac Guaranteed USDA Securities	26,681			—		—		(1,312		)	—			339			25,708
Total Farmer Mac Guaranteed Securities	4,766,258			978,500		—		(544,286		)	(14,872		)	(46,844		)	5,138,756
USDA Securities:
Available-for-sale	1,486,595			303,456		—		(193,946		)	—			(29,414		)	1,566,691
Trading (2)	104,188			—		—		(40,740		)	(1,129		)	—			62,319
Total USDA Securities	1,590,783			303,456		—		(234,686		)	(1,129		)	(29,414		)	1,629,010
Total Assets at fair value	$	6,421,447		$	1,282,189	$	—	$	(779,645	)	$	(15,615	)	$	(74,331	)	$	6,834,045
Liabilities:
Financial derivatives (3)	$	(691	)	$	—	$	—	$	—		$	362		$	—		$	(329	)
Total Liabilities at fair value	$	(691	)	$	—	$	—	$	—		$	362		$	—		$	(329	)


(1)	Unrealized gains are attributable to assets still held as of September 30, 2013 and are recorded in "Gains/(losses) on trading securities."


(2)	Includes unrealized losses of $0.5 million attributable to assets still held as of September 30, 2013 that are recorded in "Gains/(losses) on trading securities."


(3)	Unrealized gains are attributable to liabilities still held as of September 30, 2013 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."

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 September 30, 2014 and December 31, 2013.

Table 8.3



	As of September 30, 2014
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	$	40,774	Indicative bids	Range of broker quotes	82.0% - 95.0% (87.5%)
Floating rate asset-backed securities	$	777	Discounted cash flow	Discount rate	13.2% - 22.8% (18.0%)
				CPR	10%
Floating rate Government/GSE guaranteed mortgage-backed securities	$	187	Discounted cash flow	Discount rate	1.8% - 1.8% (1.8%)
				CPR	7%
Farmer Mac Guaranteed Securities:
AgVantage	$	3,336,326	Discounted cash flow	Discount rate	0.7% - 2.8% (1.4%)
Farmer Mac Guaranteed USDA Securities	$	20,449	Discounted cash flow	Discount rate	0.8% - 3.3% (2.0%)
				CPR	8% - 16% (12%)
USDA Securities	$	1,730,845	Discounted cash flow	Discount rate	1.1% - 5.3% (3.2%)
				CPR	0% - 18% (7%)



	As of December 31, 2013
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	$	65,285	Indicative bids	Range of broker quotes	82.0% - 92.0% (88.1%)
Floating rate asset-backed securities	$	928	Discounted cash flow	Discount rate	13.0% - 22.5% (17.7%)
				CPR	10%
Floating rate Government/GSE guaranteed mortgage-backed securities	$	205	Discounted cash flow	Discount rate	1.8% - 1.8% (1.8%)
				CPR	6%
Farmer Mac Guaranteed Securities:
AgVantage	$	5,070,366	Discounted cash flow	Discount rate	0.9% - 3.6% (1.8%)
Farmer Mac Guaranteed USDA Securities	$	21,234	Discounted cash flow	Discount rate	0.9% - 3.2% (1.9%)
				CPR	7% - 14% (11%)
USDA Securities	$	1,612,013	Discounted cash flow	Discount rate	1.2% - 5.3% (3.4%)
				CPR	0% - 23% (5%)
Liabilities:
Financial Derivatives:
Basis swaps	$	235	Discounted cash flow	Discount rate	0.7% - 2.3% (1.3%)
				CPR	10% - 11% (10%)

The significant unobservable inputs used in the fair value measurements of Farmer Mac Guaranteed Securities and USDA Securities are prepayment rates and discount rates 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. 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.

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 September 30, 2014 and December 31, 2013:

Table 8.4



	As of September 30, 2014				As of December 31, 2013
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	627,670	$	627,670	$	749,313	$	749,313
Securities purchased under agreements to resell	1,630,078		1,630,427		—		—
Investment securities	1,985,078		1,985,760		2,484,075		2,484,075
Farmer Mac Guaranteed Securities	5,013,038		5,009,406		5,091,600		5,091,600
USDA Securities	1,730,845		1,730,845		1,612,013		1,612,013
Loans	3,372,470		3,353,345		3,138,932		3,193,248
Financial derivatives	5,743		5,743		19,718		19,718
Guarantee and commitment fees receivable:
LTSPCs	30,664		28,065		33,807		27,244
Farmer Mac Guaranteed Securities	14,563		14,013		18,470		16,660
Financial liabilities:
Notes payable:
Due within one year	6,341,896		6,332,887		7,353,356		7,338,781
Due after one year	5,237,130		5,186,393		4,977,942		5,001,169
Securities sold, not yet purchased	1,657,901		1,657,901		—		—
Debt securities of consolidated trusts held by third parties	398,445		400,012		257,512		261,760
Financial derivatives	69,995		69,995		75,708		75,708
Guarantee and commitment obligations:
LTSPCs	29,701		27,102		32,856		26,293
Farmer Mac Guaranteed Securities	12,404		11,855		15,185		13,374