FAIR VALUE DISCLOSURES

As of September 30, 2015, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.1 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 41 percent of total assets and 74 percent of financial instruments measured at fair value as of September 30, 2015. As of December 31, 2014, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $5.5 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 38 percent of total assets and 73 percent of financial instruments measured at fair value as of December 31, 2014.

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 2015 and 2014. 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, 2015 and December 31, 2014, 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, 2015
	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	$	—	$	—	$	44,924	$	44,924
Floating rate asset-backed securities	—		81,118		—		81,118
Floating rate corporate debt securities	—		9,991		—		9,991
Fixed rate corporate debt securities	—		10,005		—		10,005
Floating rate Government/GSE guaranteed mortgage-backed securities	—		862,224		—		862,224
Fixed rate GSE guaranteed mortgage-backed securities	—		7,973		—		7,973
Floating rate GSE subordinated debt	—		66,112		—		66,112
Fixed rate senior agency debt	—		380,786		—		380,786
Fixed rate U.S. Treasuries	568,496		—		—		568,496
Total available-for-sale	568,496		1,418,209		44,924		2,031,629
Trading:
Floating rate asset-backed securities	—		—		550		550
Total trading	—		—		550		550
Total Investment Securities	568,496		1,418,209		45,474		2,032,179
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		4,125,962		4,125,962
Farmer Mac Guaranteed USDA Securities	—		—		30,708		30,708
Total Farmer Mac Guaranteed Securities	—		—		4,156,670		4,156,670
USDA Securities:
Available-for-sale	—		—		1,854,422		1,854,422
Trading	—		—		31,936		31,936
Total USDA Securities	—		—		1,886,358		1,886,358
Financial derivatives	—		7,027		—		7,027
Total Assets at fair value	$	568,496	$	1,425,236	$	6,088,502	$	8,082,234
Liabilities:
Financial derivatives	$	52	$	94,828	$	—	$	94,880
Total Liabilities at fair value	$	52	$	94,828	$	—	$	94,880
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	1,852	$	1,852
REO	—		—		281		281
Total Nonrecurring Assets at fair value	$	—	$	—	$	2,133	$	2,133



Assets and Liabilities Measured at Fair Value as of December 31, 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	$	—	$	—	$	40,576	$	40,576
Floating rate asset-backed securities	—		100,902		—		100,902
Floating rate corporate debt securities	—		10,091		—		10,091
Fixed rate corporate debt	—		30,025		—		30,025
Floating rate Government/GSE guaranteed mortgage-backed securities	—		612,753		—		612,753
Fixed rate GSE guaranteed mortgage-backed securities	—		8,202		—		8,202
Floating rate GSE subordinated debt	—		66,320		—		66,320
Fixed rate senior agency debt	—		18,939		—		18,939
Floating rate U.S. Treasuries	74,979		—		—		74,979
Fixed rate U.S. Treasuries	975,712		—		—		975,712
Total available-for-sale	1,050,691		847,232		40,576		1,938,499
Trading:
Floating rate asset-backed securities	—		—		689		689
Total trading	—		—		689		689
Total Investment Securities	1,050,691		847,232		41,265		1,939,188
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		3,631,662		3,631,662
Farmer Mac Guaranteed USDA Securities	—		—		27,619		27,619
Total Farmer Mac Guaranteed Securities	—		—		3,659,281		3,659,281
USDA Guaranteed Securities:
Available-for-sale	—		—		1,731,222		1,731,222
Trading	—		—		40,310		40,310
Total USDA Guaranteed Securities	—		—		1,771,532		1,771,532
Financial derivatives	—		4,177		—		4,177
Total Assets at fair value	$	1,050,691	$	851,409	$	5,472,078	$	7,374,178
Liabilities:
Financial derivatives	$	3	$	84,841	$	—	$	84,844
Total Liabilities at fair value	$	3	$	84,841	$	—	$	84,844
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	5,973	$	5,973
Total Nonrecurring Assets at fair value	$	—	$	—	$	5,973	$	5,973

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, 2015.

Table 8.2



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended September 30, 2015
	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	$	40,182	$	—	$	—	$	—		$	(100	)	$	4,842		$	44,924
Total available-for-sale	40,182		—		—		—			(100		)	4,842			44,924
Trading:
Floating rate asset-backed securities⁽¹⁾	606		—		—		(106		)	50			—			550
Total trading	606		—		—		(106		)	50			—			550
Total Investment Securities	40,788		—		—		(106		)	(50		)	4,842			45,474
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	4,016,200		200,000		—		(59,311		)	15,834			(46,761		)	4,125,962
Farmer Mac Guaranteed USDA Securities	35,008		—		—		(2,614		)	—			(1,686		)	30,708
Total Farmer Mac Guaranteed Securities	4,051,208		200,000		—		(61,925		)	15,834			(48,447		)	4,156,670
USDA Securities:
Available-for-sale	1,825,406		91,374		—		(51,282		)	—			(11,076		)	1,854,422
Trading⁽²⁾	33,770		—		—		(1,777		)	(57		)	—			31,936
Total USDA Securities	1,859,176		91,374		—		(53,059		)	(57		)	(11,076		)	1,886,358
Total Assets at fair value	$	5,951,172	$	291,374	$	—	$	(115,090	)	$	15,727		$	(54,681	)	$	6,088,502


⁽¹⁾	Unrealized gains are attributable to assets still held as of September 30, 2015 and are recorded in "(Losses)/gains on trading securities."


⁽²⁾	Includes unrealized losses of $0.1 million attributable to assets still held as of September 30, 2015 that are recorded in "(Losses)/gains on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the 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 "(Losses)/gains on trading securities."


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



Level 3 Assets and Liabilities Measured at Fair Value for the the Nine Months Ended September 30, 2015
	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	$	40,576	$	—	$	—	$	—		$	(100	)	$	4,448		$	44,924
Total available-for-sale	40,576		—		—		—			(100		)	4,448			44,924
Trading:
Floating rate asset-backed securities⁽¹⁾	689		—		—		(543		)	404			—			550
Total trading	689		—		—		(543		)	404			—			550
Total Investment Securities	41,265		—		—		(543		)	304			4,448			45,474
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	3,631,662		664,175		—		(126,308		)	13,356			(56,923		)	4,125,962
Farmer Mac Guaranteed USDA Securities	27,619		12,512		—		(9,032		)	—			(391		)	30,708
Total Farmer Mac Guaranteed Securities	3,659,281		676,687		—		(135,340		)	13,356			(57,314		)	4,156,670
USDA Securities:
Available-for-sale	1,731,222		291,981		—		(184,665		)	—			15,884			1,854,422
Trading⁽²⁾	40,310		—		—		(8,494		)	120			—			31,936
Total USDA Securities	1,771,532		291,981		—		(193,159		)	120			15,884			1,886,358
Total Assets at fair value	$	5,472,078	$	968,668	$	—	$	(329,042	)	$	13,780		$	(36,982	)	$	6,088,502


⁽¹⁾	Unrealized gains are attributable to assets still held as of September 30, 2015 and are recorded in "(Losses)/gains on trading securities."


⁽²⁾	Includes unrealized gains of $0.2 million attributable to assets still held as of September 30, 2015 that are recorded in "(Losses)/gains on trading securities."



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 "(Losses)/gains 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 "(Losses)/gains on trading securities."

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, 2015 and December 31, 2014.

Table 8.3



	As of September 30, 2015
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	$	44,924	Indicative bids	Range of broker quotes	92.0% - 99.6% (96.6%)
Floating rate asset-backed securities	$	550	Discounted cash flow	Discount rate	16.8% - 22.2% (19.9%)
				CPR	10.0%
Farmer Mac Guaranteed Securities:
AgVantage	$	4,125,962	Discounted cash flow	Discount rate	1.06% - 3.08% (1.7%)
Farmer Mac Guaranteed USDA Securities	$	30,708	Discounted cash flow	Discount rate	1.1% - 4.1% (1.9%)
				CPR	8% - 20% (10.0%)
USDA Securities	$	1,886,358	Discounted cash flow	Discount rate	1.2% - 5.3% (3.2%)
				CPR	0% - 19% (8.0%)



	As of December 31, 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	$	40,576	Indicative bids	Range of broker quotes	82.0% - 94.0% (87.1%)
Floating rate asset-backed securities	$	689	Discounted cash flow	Discount rate	14.3% - 23.9% (19.1%)
				CPR	10.0%
Farmer Mac Guaranteed Securities:
AgVantage	$	3,631,662	Discounted cash flow	Discount rate	0.7% - 2.7% (1.3%)
Farmer Mac Guaranteed USDA Securities	$	27,619	Discounted cash flow	Discount rate	0.8% - 3.6% (1.9%)
				CPR	0% - 21% (9.0%)
USDA Securities	$	1,771,532	Discounted cash flow	Discount rate	1.1% - 5.3% (3.2%)
				CPR	0% - 20% (8.0%)

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, 2015 and December 31, 2014:

Table 8.4



	As of September 30, 2015				As of December 31, 2014
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	1,516,536	$	1,516,536	$	1,363,387	$	1,363,387
Investment securities	2,032,179		2,032,179		1,939,188		1,939,188
Farmer Mac Guaranteed Securities	5,447,960		5,432,823		5,459,857		5,453,901
USDA Securities	1,886,358		1,886,358		1,771,532		1,771,532
Loans	3,793,936		3,756,534		3,547,424		3,520,075
Financial derivatives	7,027		7,027		4,177		4,177
Guarantee and commitment fees receivable:
LTSPCs	31,143		29,972		29,095		27,807
Farmer Mac Guaranteed Securities	10,110		10,188		11,876		11,655
Financial liabilities:
Notes payable:
Due within one year	8,288,217		8,280,087		7,357,770		7,353,953
Due after one year	5,305,185		5,217,307		5,556,570		5,471,186
Debt securities of consolidated trusts held by third parties	613,539		612,994		423,085		424,214
Financial derivatives	94,880		94,880		84,844		84,844
Guarantee and commitment obligations:
LTSPCs	30,242		29,071		28,130		26,843
Farmer Mac Guaranteed Securities	9,104		9,182		11,303		11,082

The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as level 1 within the fair value hierarchy. Investment securities primarily are valued based on unadjusted quoted prices in active markets and are classified as level 2 within the fair value hierarchy. Farmer Mac internally models the fair value of its loan portfolio, including loans held for sale, loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as level 3 within the fair value hierarchy. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as level 2 within the fair value hierarchy. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as level 3 within the fair value hierarchy. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as level 3 within the fair value hierarchy. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts.