FAIR VALUE DISCLOSURES

As of June 30, 2016, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.7 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 40 percent of total assets and 72 percent of financial instruments measured at fair value as of June 30, 2016. As of December 31, 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. These financial instruments measured as level 3 represented 39 percent of total assets and 69 percent of financial instruments measured at fair value as of December 31, 2015.

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 six months of 2016 and 2015.

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2016 and December 31, 2015, 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 June 30, 2016
	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	$	—	$	—	$	17,730	$	17,730
Floating rate asset-backed securities	—		59,999		—		59,999
Floating rate corporate debt securities	—		10,002		—		10,002
Floating rate Government/GSE guaranteed mortgage-backed securities	—		1,264,317		—		1,264,317
Fixed rate GSE guaranteed mortgage-backed securities	—		7,765		—		7,765
Floating rate GSE subordinated debt	—		65,104		—		65,104
Fixed rate senior agency debt	—		174,998		—		174,998
Fixed rate U.S. Treasuries	860,764		—		—		860,764
Total available-for-sale	860,764		1,582,185		17,730		2,460,679
Trading:
Floating rate asset-backed securities	—		—		281		281
Total trading	—		—		281		281
Total Investment Securities	860,764		1,582,185		18,011		2,460,960
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		4,697,584		4,697,584
Farmer Mac Guaranteed USDA Securities	—		—		33,447		33,447
Total Farmer Mac Guaranteed Securities	—		—		4,731,031		4,731,031
USDA Securities:
Available-for-sale	—		—		1,967,759		1,967,759
Trading	—		—		24,787		24,787
Total USDA Securities	—		—		1,992,546		1,992,546
Financial derivatives	—		8,242		—		8,242
Total Assets at fair value	$	860,764	$	1,590,427	$	6,741,588	$	9,192,779
Liabilities:
Financial derivatives	$	309	$	140,449	$	—	$	140,758
Total Liabilities at fair value	$	309	$	140,449	$	—	$	140,758
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	2,227	$	2,227
REO	—		—		630		630
Total Nonrecurring Assets at fair value	$	—	$	—	$	2,857	$	2,857



Assets and Liabilities Measured at Fair Value as of December 31, 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	—		73,729		—		73,729
Floating rate corporate debt securities	—		9,991		—		9,991
Fixed rate corporate debt	—		9,994		—		9,994
Floating rate Government/GSE guaranteed mortgage-backed securities	—		1,355,459		—		1,355,459
Fixed rate GSE guaranteed mortgage-backed securities	—		7,904		—		7,904
Floating rate GSE subordinated debt	—		66,249		—		66,249
Fixed rate senior agency debt	—		213,987		—		213,987
Fixed rate U.S. Treasuries	992,788		—		—		992,788
Total available-for-sale	992,788		1,737,313		44,924		2,775,025
Trading:
Floating rate asset-backed securities	—		—		491		491
Total trading	—		—		491		491
Total Investment Securities	992,788		1,737,313		45,415		2,775,516
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		4,121,244		4,121,244
Farmer Mac Guaranteed USDA Securities	—		—		31,361		31,361
Total Farmer Mac Guaranteed Securities	—		—		4,152,605		4,152,605
USDA Securities:
Available-for-sale	—		—		1,888,344		1,888,344
Trading	—		—		28,975		28,975
Total USDA Guaranteed Securities	—		—		1,917,319		1,917,319
Financial derivatives	19		3,797		—		3,816
Total Assets at fair value	$	992,807	$	1,741,110	$	6,115,339	$	8,849,256
Liabilities:
Financial derivatives	$	—	$	77,199	$	—	$	77,199
Total Liabilities at fair value	$	—	$	77,199	$	—	$	77,199
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	11,443	$	11,443
REO	$	—	$	—	$	388	$	388
Total Nonrecurring Assets at fair value	$	—	$	—	$	11,831	$	11,831

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 and six months ended June 30, 2016 and 2015.

Table 8.2



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2016
	Beginning Balance		Purchases		Sales			Settlements			Realized and Unrealized Gains 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	$	17,730	$	—	$	—		$	—		$	—	$	—	$	17,730
Total available-for-sale	17,730		—		—			—			—		—		17,730
Trading:
Floating rate asset-backed securities⁽¹⁾	383		—		—			(120		)	18		—		281
Total trading	383		—		—			(120		)	18		—		281
Total Investment Securities	18,113		—		—			(120		)	18		—		18,011
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	4,534,810		163,845		—			(16,699		)	13,137		2,491		4,697,584
Farmer Mac Guaranteed USDA Securities	30,694		4,100		—			(2,238		)	—		891		33,447
Total Farmer Mac Guaranteed Securities	4,565,504		167,945		—			(18,937		)	13,137		3,382		4,731,031
USDA Securities:
Available-for-sale	1,908,014		129,645		(19,014		)	(97,303		)	—		46,417		1,967,759
Trading⁽²⁾	26,869		—		—			(2,459		)	377		—		24,787
Total USDA Securities	1,934,883		129,645		(19,014		)	(99,762		)	377		46,417		1,992,546
Total Assets at fair value	$	6,518,500	$	297,590	$	(19,014	)	$	(118,819	)	$	13,532	$	49,799	$	6,741,588


⁽¹⁾	Unrealized gains are attributable to assets still held as of June 30, 2016 and are recorded in "Gains on trading securities."


⁽²⁾	Includes unrealized gains of $0.3 million attributable to assets still held as of June 30, 2016 that are recorded in "Gains on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2015
	Beginning Balance		Purchases		Sales		Settlements			Realized and Unrealized Gains 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	$	40,379	$	—	$	—	$	—		$	—		$	(197	)	$	40,182
Total available-for-sale	40,379		—		—		—			—			(197		)	40,182
Trading:
Floating rate asset-backed securities⁽¹⁾	638		—		—		(190		)	158			—			606
Total trading	638		—		—		(190		)	158			—			606
Total Investment Securities	41,017		—		—		(190		)	158			(197		)	40,788
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	3,818,704		249,260		—		(9,245		)	(11,354		)	(31,165		)	4,016,200
Farmer Mac Guaranteed USDA Securities	23,505		12,512		—		(1,766		)	—			757			35,008
Total Farmer Mac Guaranteed Securities	3,842,209		261,772		—		(11,011		)	(11,354		)	(30,408		)	4,051,208
USDA Securities:
Available-for-sale	1,794,844		111,421		—		(69,192		)	—			(11,667		)	1,825,406
Trading⁽²⁾	37,593		—		—		(3,834		)	11			—			33,770
Total USDA Securities	1,832,437		111,421		—		(73,026		)	11			(11,667		)	1,859,176
Total Assets at fair value	$	5,715,663	$	373,193	$	—	$	(84,227	)	$	(11,185	)	$	(42,272	)	$	5,951,172


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


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



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2016
	Beginning Balance		Purchases		Sales			Settlements			Realized and Unrealized Gains 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	$	44,924	$	—	$	(26,806	)	$	—		$	6	$	(394	)	$	17,730
Total available-for-sale	44,924		—		(26,806		)	—			6		(394		)	17,730
Trading:
Floating rate asset-backed securities⁽¹⁾	491		—		—			(326		)	116		—			281
Total trading	491		—		—			(326		)	116		—			281
Total Investment Securities	45,415		—		(26,806		)	(326		)	122		(394		)	18,011
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	4,121,244		1,079,376		—			(529,229		)	37,435		(11,242		)	4,697,584
Farmer Mac Guaranteed USDA Securities	31,361		4,100		—			(2,736		)			722			33,447
Total Farmer Mac Guaranteed Securities	4,152,605		1,083,476		—			(531,965		)	37,435		(10,520		)	4,731,031
USDA Securities:
Available-for-sale	1,888,344		228,613		(22,662		)	(181,490		)	—		54,954			1,967,759
Trading⁽²⁾	28,975		—		—			(4,824		)	636		—			24,787
Total USDA Securities	1,917,319		228,613		(22,662		)	(186,314		)	636		54,954			1,992,546
Total Assets at fair value	$	6,115,339	$	1,312,089	$	(49,468	)	$	(718,605	)	$	38,193	$	44,040		$	6,741,588


⁽¹⁾	Unrealized gains are attributable to assets still held as of June 30, 2016 and are recorded in "Gains on trading securities."


⁽²⁾	Includes unrealized gains of $0.6 million attributable to assets still held as of June 30, 2016 that are recorded in "Gains on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2015
	Beginning Balance		Purchases		Sales		Settlements			Realized and Unrealized Gains 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	$	—	$	—	$	—		$	—		$	(394	)	$	40,182
Total available-for-sale	40,576		—		—		—			—			(394		)	40,182
Trading:
Floating rate asset-backed securities⁽¹⁾	689		—		—		(437		)	354			—			606
Total trading	689		—		—		(437		)	354			—			606
Total Investment Securities	41,265		—		—		(437		)	354			(394		)	40,788
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	3,631,662		464,175		—		(66,997		)	(2,478		)	(10,162		)	4,016,200
Farmer Mac Guaranteed USDA Securities	27,619		12,512		—		(6,418		)	—			1,295			35,008
Total Farmer Mac Guaranteed Securities	3,659,281		476,687		—		(73,415		)	(2,478		)	(8,867		)	4,051,208
USDA Securities:
Available-for-sale	1,731,222		200,607		—		(133,383		)	—			26,960			1,825,406
Trading⁽²⁾	40,310		—		—		(6,717		)	177			—			33,770
Total USDA Securities	1,771,532		200,607		—		(140,100		)	177			26,960			1,859,176
Total Assets at fair value	$	5,472,078	$	677,294	$	—	$	(213,952	)	$	(1,947	)	$	17,699		$	5,951,172


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


⁽²⁾	Includes unrealized gains of $0.2 million attributable to assets still held as of June 30, 2015 that are recorded in "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 June 30, 2016 and December 31, 2015.

Table 8.3



	As of June 30, 2016
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	$	17,730	Indicative bids	Range of broker quotes	90.0% - 90.0% (90.0%)
Floating rate asset-backed securities	$	281	Discounted cash flow	Discount rate	29.7% - 32.0% (31.2%)
				CPR	10.0%
Farmer Mac Guaranteed Securities:
AgVantage	$	4,697,584	Discounted cash flow	Discount rate	1.2% - 2.5% (1.7%)
Farmer Mac Guaranteed USDA Securities	$	33,447	Discounted cash flow	Discount rate	1.2% - 4.1% (1.7%)
				CPR	9% - 23% (12%)
USDA Securities	$	1,992,546	Discounted cash flow	Discount rate	1.8% - 5.0% (3.0%)
				CPR	0% - 22% (10%)



	As of December 31, 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	$	491	Discounted cash flow	Discount rate	18.3% - 23.9% (21.5%)
				CPR	10.0%
Farmer Mac Guaranteed Securities:
AgVantage	$	4,121,244	Discounted cash flow	Discount rate	1.1% - 3.3% (1.8%)
Farmer Mac Guaranteed USDA Securities	$	31,361	Discounted cash flow	Discount rate	1.0% - 3.9% (1.8%)
				CPR	9% - 20% (10.0%)
USDA Securities	$	1,917,319	Discounted cash flow	Discount rate	1.3% - 5.1% (3.1%)
				CPR	0% - 19% (7.0%)

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 June 30, 2016 and December 31, 2015:

Table 8.4



	As of June 30, 2016				As of December 31, 2015
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	1,764,626	$	1,764,626	$	1,210,084	$	1,210,084
Investment securities	2,460,960		2,460,960		2,775,516		2,775,516
Farmer Mac Guaranteed Securities	6,135,080		6,119,755		5,434,422		5,426,621
USDA Securities	1,992,546		1,992,546		1,917,319		1,917,319
Loans	4,343,577		4,195,295		4,027,660		3,962,044
Financial derivatives	8,242		8,242		3,816		3,816
Guarantee and commitment fees receivable:
LTSPCs	29,518		31,968		31,953		31,240
Farmer Mac Guaranteed Securities	7,248		7,685		8,872		8,949
Financial liabilities:
Notes payable:
Due within one year	10,128,930		10,125,269		9,108,468		9,111,461
Due after one year	4,875,304		4,722,814		5,009,310		4,967,036
Debt securities of consolidated trusts held by third parties	953,120		928,050		713,316		713,536
Financial derivatives	140,758		140,758		77,199		77,199
Guarantee and commitment obligations:
LTSPCs	28,680		31,130		31,015		30,301
Farmer Mac Guaranteed Securities	6,548		6,985		8,230		8,308

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.