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Loans and Allowance for Losses

6 Months Ended

Jun. 30, 2019

Loans

Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost adjustments. The following table displays the composition of the loan balances as of June 30, 2019 and December 31, 2018:

Table 5.1



	As of June 30, 2019									As of December 31, 2018
	Unsecuritized			In Consolidated Trusts			Total			Unsecuritized			In Consolidated Trusts			Total
	(in thousands)
Farm & Ranch	$	3,191,035		$	1,563,223		$	4,754,258		$	3,071,222		$	1,517,101		$	4,588,323
Rural Utilities	1,527,150			—			1,527,150			938,843			—			938,843
Total unpaid principal balance⁽¹⁾	4,718,185			1,563,223			6,281,408			4,010,065			1,517,101			5,527,166
Unamortized premiums, discounts, and other cost basis adjustments	41,861			—			41,861			(5,097		)	—			(5,097		)
Total loans	4,760,046			1,563,223			6,323,269			4,004,968			1,517,101			5,522,069
Allowance for loan losses	(5,822		)	(1,442		)	(7,264		)	(5,565		)	(1,452		)	(7,017		)
Total loans, net of allowance	$	4,754,224		$	1,561,781		$	6,316,005		$	3,999,403		$	1,515,649		$	5,515,052


⁽¹⁾	Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business.

Allowance for Losses

Farm & Ranch

The following is a summary of the changes in the total allowance for losses for the three and six months ended June 30, 2019 and 2018:

Table 5.2



	June 30, 2019								June 30, 2018
	Allowance for Loan Losses			Reserve for Losses			Total Allowance for Losses		Allowance for Loan Losses			Reserve for Losses		Total Allowance for Losses
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	6,753		$	2,038		8,791		$	6,365		$	2,091	8,456
Provision for/(release of) losses	578			(158		)	420		424			158		582
Charge-offs	(67		)	—			(67	)	—			—		—
Ending Balance	7,264			1,880			9,144		6,789			2,249		9,038

For the Six Months Ended:
Beginning Balance	$	7,017		$	2,167		9,184		$	6,796		$	2,070	8,866
Provision for/(release of) losses	314			(287		)	27		(7		)	179		172
Charge-offs	(67		)	—			(67	)	—			—		—
Ending Balance	7,264			1,880			9,144		6,789			2,249		9,038

The provision for the allowance for loan losses recorded during second quarter 2019 was attributable to an increase in the general allowance due to net volume growth in on-balance sheet Farm & Ranch loans and a slight decrease in the portfolio credit quality of loan purchases. The release from the reserve for losses recorded during second quarter 2019 was primarily attributable to a net volume decrease in off-balance sheet Farm & Ranch LTSPCs and a slight improvement in off-balance sheet portfolio credit quality. The $0.1 million charge-off that occurred during the three and six months ended June 30, 2019 related to the foreclosure of one part-time farm loan.

During second quarter 2018, Farmer Mac recorded a provision to both its allowance for loan losses and reserve for losses of $0.4 million and $0.2 million, respectively. The net provisions to the total allowance for loan losses recorded during second quarter 2018 were attributable to (1) a modest decrease in overall portfolio credit quality, and (2) an increase in the general allowance due to net volume growth in both on and off-balance sheet Farm & Ranch loans, primarily related to new agricultural storage and processing loans purchased during second quarter 2018. Farmer Mac recorded no charge-offs to its allowance for loan losses during second quarter 2018.

The following tables present the changes in the total allowance for losses for the three and six months ended June 30, 2019 and 2018 by commodity type:

Table 5.3



	June 30, 2019
	Crops		Permanent Plantings			Livestock			Part-time Farm			Ag. Storage and Processing			Other			Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	4,233	$	1,934		$	1,452		$	413		$	737		$	22		$	8,791
Provision for/(release of) losses	540		(8		)	(29		)	54			(134		)	(3		)	420
Charge-offs	—		—			—			(67		)	—			—			(67		)
Ending Balance	$	4,773	$	1,926		$	1,423		$	400		$	603		$	19		$	9,144

For the Six Months Ended:
Beginning Balance	$	4,394	$	2,126		$	1,460		$	474		$	720		$	10		$	9,184
Provision for/(release of) losses	379		(200		)	(37		)	(7		)	(117		)	9			27
Charge-offs	—		—			—			(67		)	—			—			(67		)
Ending Balance	$	4,773	$	1,926		$	1,423		$	400		$	603		$	19		$	9,144



	June 30, 2018
	Crops		Permanent Plantings			Livestock		Part-time Farm			Ag. Storage and Processing		Other		Total
	(in thousands)
For the Three Months Ended:
Beginning Balance	$	3,793	$	2,479		$	1,236	$	413		$	522	$	13	$	8,456
Provision for/(release of) losses	332		(111		)	86		35			198		42		582
Ending Balance	$	4,125	$	2,368		$	1,322	$	448		$	720	$	55	$	9,038

For the Six Months Ended:
Beginning Balance	$	4,081	$	2,469		$	1,211	$	481		$	606	$	18	$	8,866
Provision for/(release of) losses	44		(101		)	111		(33		)	114		37		172
Ending Balance	$	4,125	$	2,368		$	1,322	$	448		$	720	$	55	$	9,038

The following tables present the unpaid principal balances of loans held and loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and the related total allowance for losses by impairment method and commodity type as of June 30, 2019 and December 31, 2018:

Table 5.4



	As of June 30, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Ending Balance:
Collectively evaluated for impairment:
On-balance sheet	$	2,501,439	$	1,021,253	$	725,595	$	333,130	$	11,581	$	4,620	$	4,597,618
Off-balance sheet	1,185,547		492,572		608,511		163,365		68,979		2,962		2,521,936
Total	$	3,686,986	$	1,513,825	$	1,334,106	$	496,495	$	80,560	$	7,582	$	7,119,554
Individually evaluated for impairment:
On-balance sheet	$	90,891	$	36,619	$	21,932	$	7,198	$	—	$	—	$	156,640
Off-balance sheet	7,869		2,128		4,243		860		—		58		15,158
Total	$	98,760	$	38,747	$	26,175	$	8,058	$	—	$	58	$	171,798
Total Farm & Ranch loans:
On-balance sheet	$	2,592,330	$	1,057,872	$	747,527	$	340,328	$	11,581	$	4,620	$	4,754,258
Off-balance sheet	1,193,416		494,700		612,754		164,225		68,979		3,020		2,537,094
Total	$	3,785,746	$	1,552,572	$	1,360,281	$	504,553	$	80,560	$	7,640	$	7,291,352
Allowance for Losses:
Collectively evaluated for impairment:
On-balance sheet	$	1,817	$	932	$	651	$	251	$	49	$	14	$	3,714
Off-balance sheet	612		112		277		25		554		5		1,585
Total	$	2,429	$	1,044	$	928	$	276	$	603	$	19	$	5,299
Individually evaluated for impairment:
On-balance sheet	$	2,194	$	832	$	418	$	106	$	—	$	—	$	3,550
Off-balance sheet	150		50		77		18		—		—		295
Total	$	2,344	$	882	$	495	$	124	$	—	$	—	$	3,845
Total Farm & Ranch loans:
On-balance sheet	$	4,011	$	1,764	$	1,069	$	357	$	49	$	14	$	7,264
Off-balance sheet	762		162		354		43		554		5		1,880
Total	$	4,773	$	1,926	$	1,423	$	400	$	603	$	19	$	9,144



	As of December 31, 2018
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Ending Balance:
Collectively evaluated for impairment:
On-balance sheet	$	2,452,803	$	952,719	$	705,752	$	329,070	$	12,097	$	4,477	$	4,456,918
Off-balance sheet	1,239,094		515,520		624,522		166,907		73,084		3,286		2,622,413
Total	$	3,691,897	$	1,468,239	$	1,330,274	$	495,977	$	85,181	$	7,763	$	7,079,331
Individually evaluated for impairment:
On-balance sheet	$	66,432	$	36,333	$	21,361	$	7,278	$	—	$	—	$	131,404
Off-balance sheet	13,298		5,249		3,737		883		—		69		23,236
Total	$	79,730	$	41,582	$	25,098	$	8,161	$	—	$	69	$	154,640
Total Farm & Ranch loans:
On-balance sheet	$	2,519,235	$	989,052	$	727,113	$	336,348	$	12,097	$	4,477	$	4,588,322
Off-balance sheet	1,252,392		520,769		628,259		167,790		73,084		3,355		2,645,649
Total	$	3,771,627	$	1,509,821	$	1,355,372	$	504,138	$	85,181	$	7,832	$	7,233,971
Allowance for Losses:
Collectively evaluated for impairment:
On-balance sheet	$	2,120	$	822	$	731	$	303	$	84	$	4	$	4,064
Off-balance sheet	668		170		207		29		636		5		1,715
Total	$	2,788	$	992	$	938	$	332	$	720	$	9	$	5,779
Individually evaluated for impairment:
On-balance sheet	$	1,329	$	1,065	$	437	$	122	$	—	$	—	$	2,953
Off-balance sheet	277		69		85		20		—		1		452
Total	$	1,606	$	1,134	$	522	$	142	$	—	$	1	$	3,405
Total Farm & Ranch loans:
On-balance sheet	$	3,449	$	1,887	$	1,168	$	425	$	84	$	4	$	7,017
Off-balance sheet	945		239		292		49		636		6		2,167
Total	$	4,394	$	2,126	$	1,460	$	474	$	720	$	10	$	9,184

The following tables present by commodity type the unpaid principal balances, recorded investment, and specific allowance for losses related to impaired loans and the recorded investment in loans on nonaccrual status as of June 30, 2019 and December 31, 2018:

Table 5.5



	As of June 30, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Impaired Loans:
With no specific allowance:
Recorded investment	$	25,163	$	14,402	$	7,475	$	1,903	$	—	$	58	$	49,001
Unpaid principal balance	25,067		14,346		7,447		1,895		—		58		48,813
With a specific allowance:
Recorded investment⁽¹⁾	73,953		24,489		18,786		6,184		—		—		123,412
Unpaid principal balance	73,693		24,401		18,728		6,163		—		—		122,985
Associated allowance	2,344		882		495		124		—		—		3,845
Total:
Recorded investment	99,116		38,891		26,261		8,087		—		58		172,413
Unpaid principal balance	98,760		38,747		26,175		8,058		—		58		171,798
Associated allowance	2,344		882		495		124		—		—		3,845

Recorded investment of loans on nonaccrual status⁽²⁾	$	35,437	$	12,778	$	10,289	$	3,351	$	—	$	—	$	61,855


⁽¹⁾	Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $121.0 million (70%) of impaired loans as of June 30, 2019, which resulted in a specific allowance of $2.6 million.


⁽²⁾	Includes $41.0 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status.



	As of December 31, 2018
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Impaired Loans:
With no specific allowance:
Recorded investment	$	20,734	$	3,592	$	5,764	$	1,922	$	—	$	—	$	32,012
Unpaid principal balance	20,632		3,573		5,737		1,912		—		—		31,854
With a specific allowance:
Recorded investment⁽¹⁾	59,335		38,176		19,443		6,276		—		70		123,300
Unpaid principal balance	59,098		38,009		19,361		6,249		—		69		122,786
Associated allowance	1,606		1,134		522		142		—		1		3,405
Total:
Recorded investment	80,069		41,768		25,207		8,198		—		70		155,312
Unpaid principal balance	79,730		41,582		25,098		8,161		—		69		154,640
Associated allowance	1,606		1,134		522		142		—		1		3,405

Recorded investment of loans on nonaccrual status⁽²⁾	$	26,611	$	21,349	$	8,803	$	4,645	$	—	$	—	$	61,408


⁽¹⁾	Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $120.9 million (78%) of impaired loans as of December 31, 2018, which resulted in a specific allowance of $2.7 million.


⁽²⁾	Includes $41.8 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status.

The following table presents by commodity type the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2019 and 2018:

Table 5.6



	June 30, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
For the Three Months Ended:
Average recorded investment in impaired loans	$	98,176	$	39,056	$	28,650	$	7,675	$	—	$	59	$	173,616
Income recognized on impaired loans	379		121		304		55		—		—		859

For the Six Months Ended:
Average recorded investment in impaired loans	$	85,652	$	41,903	$	26,279	$	8,268	$	—	$	66	$	162,168
Income recognized on impaired loans	701		420		417		122		—		—		1,660



	June 30, 2018
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
For the Three Months Ended:
Average recorded investment in impaired loans	$	72,041	$	49,919	$	23,453	$	9,214	$	—	$	392	$	155,019
Income recognized on impaired loans	327		492		60		62		—		—		941

For the Six Months Ended:
Average recorded investment in impaired loans	$	74,527	$	45,945	$	21,361	$	8,780	$	—	$	557	$	151,170
Income recognized on impaired loans	719		664		139		117		—		—		1,639

Net credit losses and 90-day delinquencies as of and for the periods indicated for loans held and loans underlying off-balance sheet securities representing interests in pools of eligible Farm & Ranch loans ("Farm & Ranch Guaranteed Securities") and LTSPCs are presented in the table below. As of June 30, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities loan portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities loans.

Table 5.7



	90-Day Delinquencies⁽¹⁾				Net Credit Losses/(Recoveries)
	As of				For the Six Months Ended
	June 30, 2019		December 31, 2018		June 30, 2019		June 30, 2018
	(in thousands)
On-balance sheet assets:
Farm & Ranch:
Loans	$	20,812	$	19,577	$	131	$	(18	)
Total on-balance sheet	$	20,812	$	19,577	$	131	$	(18	)
Off-balance sheet assets:
Farm & Ranch:
LTSPCs	$	7,233	$	7,304	$	—	$	—
Total off-balance sheet	$	7,233	$	7,304	$	—	$	—
Total	$	28,045	$	26,881	$	131	$	(18	)


⁽¹⁾	Includes loans and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

Of the $20.8 million of on-balance sheet loans reported as 90-day delinquencies as of June 30, 2019, $0.1 million were loans subject to "removal-of-account" provisions. Of the $19.6 million of on-balance sheet loans reported as 90-day delinquencies as of December 31, 2018, $0.1 million were loans subject to "removal-of-account" provisions.

Credit Quality Indicators

The following tables present credit quality indicators related to Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of June 30, 2019 and December 31, 2018:

Table 5.8



	As of June 30, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Credit risk profile by internally assigned grade⁽¹⁾
On-balance sheet:
Acceptable	$	2,421,677	$	972,075	$	691,516	$	320,449	$	11,581	$	4,620	$	4,421,918
Special mention⁽²⁾	79,905		49,178		34,079		12,681		—		—		175,843
Substandard⁽³⁾	90,748		36,619		21,932		7,198		—		—		156,497
Total on-balance sheet	$	2,592,330	$	1,057,872	$	747,527	$	340,328	$	11,581	$	4,620	$	4,754,258
Off-Balance Sheet:
Acceptable	$	1,069,784	$	462,735	$	552,051	$	159,738	$	68,979	$	2,364	$	2,315,651
Special mention⁽²⁾	77,264		23,893		33,223		857		—		—		135,237
Substandard⁽³⁾	46,368		8,072		27,480		3,630		—		656		86,206
Total off-balance sheet	$	1,193,416	$	494,700	$	612,754	$	164,225	$	68,979	$	3,020	$	2,537,094
Total Ending Balance:
Acceptable	$	3,491,461	$	1,434,810	$	1,243,567	$	480,187	$	80,560	$	6,984	$	6,737,569
Special mention⁽²⁾	157,169		73,071		67,302		13,538		—		—		311,080
Substandard⁽³⁾	137,116		44,691		49,412		10,828		—		656		242,703
Total	$	3,785,746	$	1,552,572	$	1,360,281	$	504,553	$	80,560	$	7,640	$	7,291,352

Commodity analysis of past due loans⁽¹⁾
On-balance sheet	$	10,677	$	3,375	$	4,854	$	1,906	$	—	$	—	$	20,812
Off-balance sheet	4,706		911		1,128		488		—		—		7,233
90 days or more past due	$	15,383	$	4,286	$	5,982	$	2,394	$	—	$	—	$	28,045


⁽¹⁾	Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans.


⁽²⁾	Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.


⁽³⁾	Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected.



	As of December 31, 2018
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Credit risk profile by internally assigned grade⁽¹⁾
On-balance sheet:
Acceptable	$	2,381,853	$	937,793	$	679,253	$	321,345	$	10,604	$	4,477	$	4,335,325
Special mention⁽²⁾	71,096		14,926		26,499		7,725		1,493		—		121,739
Substandard⁽³⁾	66,286		36,333		21,361		7,278		—		—		131,258
Total on-balance sheet	$	2,519,235	$	989,052	$	727,113	$	336,348	$	12,097	$	4,477	$	4,588,322
Off-Balance Sheet
Acceptable	$	1,128,787	$	469,479	$	577,708	$	162,730	$	71,959	$	2,656	$	2,413,319
Special mention⁽²⁾	62,430		36,778		30,703		1,023		—		—		130,934
Substandard⁽³⁾	61,175		14,512		19,848		4,037		1,125		699		101,396
Total off-balance sheet	$	1,252,392	$	520,769	$	628,259	$	167,790	$	73,084	$	3,355	$	2,645,649
Total Ending Balance:
Acceptable	$	3,510,640	$	1,407,272	$	1,256,961	$	484,075	$	82,563	$	7,133	$	6,748,644
Special mention⁽²⁾	133,526		51,704		57,202		8,748		1,493		—		252,673
Substandard⁽³⁾	127,461		50,845		41,209		11,315		1,125		699		232,654
Total	$	3,771,627	$	1,509,821	$	1,355,372	$	504,138	$	85,181	$	7,832	$	7,233,971

Commodity analysis of past due loans⁽¹⁾
On-balance sheet	$	8,345	$	2,997	$	4,059	$	4,176	$	—	$	—	$	19,577
Off-balance sheet	6,476		197		—		631		—		—		7,304
90 days or more past due	$	14,821	$	3,194	$	4,059	$	4,807	$	—	$	—	$	26,881


⁽¹⁾	Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans.


⁽²⁾	Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured.


⁽³⁾	Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected.

Concentrations of Credit Risk

The following table sets forth the geographic and commodity/collateral diversification, the range of original loan-to-value ratios, and the range in the size of borrower exposure for all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs as of June 30, 2019 and December 31, 2018:

Table 5.9



	As of
	June 30, 2019		December 31, 2018
	(in thousands)
By commodity/collateral type:
Crops	$	3,785,746	$	3,771,627
Permanent plantings	1,552,572		1,509,821
Livestock	1,360,281		1,355,372
Part-time farm	504,553		504,138
Ag. Storage and Processing	80,560		85,181
Other	7,640		7,832
Total	$	7,291,352	$	7,233,971
By geographic region⁽¹⁾:
Northwest	$	847,475	$	855,596
Southwest	2,337,303		2,273,184
Mid-North	2,304,637		2,296,073
Mid-South	891,870		883,279
Northeast	340,290		332,370
Southeast	569,777		593,469
Total	$	7,291,352	$	7,233,971
By original loan-to-value ratio:
0.00% to 40.00%	$	1,298,487	$	1,333,790
40.01% to 50.00%	1,856,262		1,811,166
50.01% to 60.00%	2,556,271		2,530,484
60.01% to 70.00%	1,268,048		1,244,823
70.01% to 80.00%⁽²⁾	292,080		289,427
80.01% to 90.00%⁽²⁾	20,204		24,281
Total	$	7,291,352	$	7,233,971
By size of borrower exposure⁽³⁾:
Less than $1,000,000	$	2,438,984	$	2,431,296
$1,000,000 to $4,999,999	2,766,582		2,755,996
$5,000,000 to $9,999,999	927,153		916,422
$10,000,000 to $24,999,999	612,040		601,349
$25,000,000 and greater	546,593		528,908
Total	$	7,291,352	$	7,233,971


⁽¹⁾	Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN).


⁽²⁾	Primarily part-time farm loans. Loans with original loan-to-value ratios of greater than 80% are required to have private mortgage insurance.


⁽³⁾	Includes multiple loans to the same borrower or borrower-related entities.

The original loan-to-value ratio is calculated by dividing the loan principal balance at the time of guarantee, purchase, or commitment by the appraised value at the date of loan origination or, when

available, the updated appraised value at the time of guarantee, purchase, or commitment. Current loan-to-value ratios may be higher or lower than the original loan-to-value ratios.