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Guarantees

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Farmer Mac offers two credit enhancement alternatives to direct loan purchases that allow approved lenders the ability to retain the cash flow benefits of their loans and increase their liquidity and lending capacity: (1) Farmer Mac Guaranteed Securities, which are available through each of the Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit lines of business, and (2) LTSPCs, which are available through the Farm & Ranch or the Rural Utilities lines of business.

The contractual terms of Farmer Mac's off-balance sheet guarantees and LTSPCs range from less than 1 year to 30 years. However, the actual term of each guarantee or LTSPC may be significantly less than the contractual term based on the prepayment characteristics of the related loans. Farmer Mac's maximum potential exposure under these off-balance sheet guarantees and LTSPCs is the unpaid principal balance of the underlying loans. Guarantees issued or modified on or after January 1, 2003 are recorded in the consolidated balance sheets. Farmer Mac's maximum potential exposure was $3.3 billion and $3.5 billion as of December 31, 2020 and 2019, respectively. Farmer Mac's maximum potential exposure for guarantees issued before January 1, 2003, which are not recorded on the consolidated balance sheets, was $10.8 million and $15.5 million as of December 31, 2020 and 2019, respectively. The maximum exposure from these guarantees and LTSPCs is not representative of the actual loss Farmer Mac is likely to incur, based on historical loss experience. In the event Farmer Mac was required to make payments under its guarantees or LTSPCs, Farmer Mac would have the right to enforce the terms of the loans, and in the event of default, would have access to the underlying collateral. For information on Farmer Mac's methodology for determining the reserve for losses for its financial guarantees, see Note 2(h). The following table presents changes in Farmer Mac's guarantee and commitment obligations in the consolidated balance sheets for the years ended December 31, 2020, 2019, and 2018:

Table 12.1


	For the Years Ended December 31,
	2020		2019		2018
	(in thousands)
Beginning balance, January 1	$	36,700	$	38,683	$	38,400
Additions to the guarantee and commitment obligation(1)	5,210		4,398		6,202
Amortization of the guarantee and commitment obligation	(6,375)		(6,381)		(5,919)
Ending balance, December 31	$	35,535	$	36,700	$	38,683

(1)Represents the fair value of the guarantee and commitment obligation at inception.

Off-Balance Sheet Farmer Mac Guaranteed Securities

The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of December 31, 2020 and 2019, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans:

Table 12.2


Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities
	As of December 31, 2020		As of December 31, 2019
	(in thousands)
Farm & Ranch:
Farmer Mac Guaranteed Securities	$	79,312	$	107,322
USDA Guarantees:
Farmer Mac Guaranteed USDA Securities	299,298		389,216
Institutional Credit:
AgVantage Securities	4,412		7,567
Total off-balance sheet Farmer Mac Guaranteed Securities	$	383,022	$	504,105

Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors. The following table summarizes the significant cash flows received from and paid to trusts used for Farmer Mac securitizations:

Table 12.3


	For the Years Ended December 31,
	2020		2019		2018
	(in thousands)
Proceeds from new securitizations	$	165,054	$	321,414	$	382,929
Guarantee fees received	1,365		1,413		1,920

Farmer Mac presents a liability for its obligation to stand ready under its guarantee in "Guarantee and commitment obligation" on the consolidated balance sheets. The following table presents the liability and the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities:

Table 12.4


	As of December 31, 2020		As of December 31, 2019
	(dollars in thousands)
Guarantee and commitment obligation	$	1,625	$	2,230
Weighted average remaining maturity:
Farmer Mac Guaranteed Securities	9.5 years		9.8 years
AgVantage Securities	4.0 years		5.0 years

Long-Term Standby Purchase Commitments

Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the consolidated balance sheets. The following table presents the liability, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties, or collateral for the underlying loans, as well as the weighted-average remaining maturity of all loans underlying LTSPCs:

Table 12.5


	As of December 31, 2020		As of December 31, 2019
	(dollars in thousands)
Guarantee and commitment obligation(1)	$	33,909	$	34,470
Maximum principal amount	2,881,856		3,002,349
Weighted-average remaining maturity	15.3 years		15.2 years

(1) Relates to LTSPCs issued or modified on or after January 1, 2003.

Commitments

Farmer Mac enters into mandatory and optional delivery commitments to purchase loans. Most loan purchase commitments entered into by Farmer Mac are mandatory commitments, in which Farmer Mac charges a fee to extend or cancel the commitment. As of December 31, 2020 and 2019, commitments to purchase Farm & Ranch loans and USDA Guarantees totaled $125.8 million and $65.1 million, respectively, all of which were mandatory commitments. As of December 31, 2020, there were no commitments to purchase Rural Utilities loans. Any optional loan purchase commitments are sold forward under optional commitments to deliver Farmer Mac Guaranteed Securities that may be canceled by Farmer Mac without penalty.

Reserve for Losses

The following table is a summary, by asset type, of the reserve for losses as of December 31, 2020 and December 31, 2019:

Table 12.6


	December 31, 2020(1)		December 31, 2019(2)
	Reserve for Losses		Reserve for Losses
	(in thousands)
Farm & Ranch:
LTSPCs and Farmer Mac Guaranteed Securities	$	2,097	$	2,164
Rural Utilities
LTSPCs	1,180		—
Total	$	3,277	$	2,164

(1)Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.

(2)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities.

The following is a summary of the changes in the reserve for losses for each year in the three-year period ended December 31, 2020:

Table 12.7


	Farm & Ranch		Rural Utilities
	Reserve for Losses		Reserve for Losses
	(in thousands)
Balance as of December 31, 2017(1)	$	2,070	$	—
Provision for losses	97		—
Balance as of December 31, 2018(1)	$	2,167	$	—
(Release of)/provision for losses	(3)		—
Balance as of December 31, 2019(1)	$	2,164	$	—
Cumulative effect adjustment from adoption of current expected credit loss standard	(148)		1,011
Adjusted Beginning Balance	2,016		1,011
Provision for losses	81		169
Balance as of December 31, 2020(2)	$	2,097	$	1,180

(1)Prior to the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020, Farmer Mac maintained a reserve for losses to cover estimated probable incurred losses on loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities.

(2)Reserve for losses reflects the adoption of ASU 2016-13, "Financial Instruments - Credit Losses," in first quarter 2020.

The provision to the reserve for losses recorded during the year ended December 31, 2020 was primarily due to credit downgrades in the LTSPC portfolio.

The following table presents the unpaid principal balances by delinquency status of Farm & Ranch loans underlying LTSPCs. Farm & Ranch Farmer Mac Guaranteed Securities, Rural Utilities loans underlying LTSPCs, and non-performing assets as of December 31, 2020:

Table 12.8


	As of December 31, 2020
	Current(2)		30-59 Days		60-89 Days		90 Days and Greater(1)		Total Past Due		Total Loans
	(in thousands)
Farm and Ranch:
LTSPCs and Farmer Mac Guaranteed Securities	$	2,389,777	$	2,189	$	1,344	$	11,433	$	14,966	$	2,404,743
Rural Utilities:
LTSPCs	$	556,425	$	—	$	—	$	—	$	—	$	556,425

(1)Includes loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days of 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.

(2)Includes $193.7 million of unpaid principal balance related to Farm & Ranch LTSPCs for which the lender has notified Farmer Mac of an executed COVID-19 payment deferment.

The following table presents the unpaid principal balances of Farm & Ranch loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities (excluding AgVantage securities) and the related reserve for losses by impairment method and commodity type as of December 31, 2019:

Table 12.9


	As of December 31, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Ending Balance:
Collectively evaluated for impairment:	$	1,151,983	$	511,991	$	581,377	$	167,395	$	66,106	$	2,760	$	2,481,612
Individually evaluated for impairment:	5,698		2,114		10,207		706		—		56		18,781
Total Farm & Ranch	$	1,157,681	$	514,105	$	591,584	$	168,101	$	66,106	$	2,816	$	2,500,393
Allowance for Losses:
Collectively evaluated for impairment:	$	599	$	96	$	308	$	50	$	767	$	1	$	1,821
Individually evaluated for impairment:	97		43		189		14		—		—		343
Total Farm & Ranch	$	696	$	139	$	497	$	64	$	767	$	1	$	2,164

Net credit losses and 90-day delinquencies as of and for the periods indicated for loans underlying off-balance sheet securities representing interests in pools of eligible Farm & Ranch LTSPCs are presented in the table below. As of December 31, 2019, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities LTSPCs portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities LTSPCs.

Table 12.10


	90-Day Delinquencies(1)		Net Credit Losses/(Recoveries)
	As of		For the Years Ended
	December 31, 2019		December 31, 2019		December 31, 2018
	(in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities	$	3,235	$	—	$	—

(1)Includes 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.

Credit Quality Indicators

The following tables present credit quality indicators related to Farm & Ranch loans underlying LTSPCs, Farm & Ranch Farmer Mac Guaranteed Securities, and Rural Utilities loans underlying LTSPCs as of December 31, 2020, by year of origination:

Table 12.11


	As of December 31, 2020
	Year of Origination:
	2020		2019		2018		2017		2016		Prior		Revolving Loans - Amortized Cost Basis		Total
	(in thousands)
Farm & Ranch LTSPCs and Farmer Mac Guaranteed Securities:
Internally Assigned Risk Rating:
Acceptable	$	178,213	$	213,620	$	183,948	$	237,042	$	207,296	$	969,860	$	211,620	$	2,201,599
Special mention(1)	3,920		1,742		1,502		5,603		19,644		50,004		10,058		92,473
Substandard(2)	264		10,250		12,611		14,578		7,841		60,602		4,525		110,671
Total	$	182,397	$	225,612	$	198,061	$	257,223	$	234,781	$	1,080,466	$	226,203	$	2,404,743

For the Year Ended:
Current period charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period recoveries	—		—		—		—		—		—		—		—
Current period Farm & Ranch net charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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

(2)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, 2020
	Year of Origination:
	2020		2019		2018		2017		2016		Prior		Revolving Loans - Amortized Cost Basis		Total
	(in thousands)
Rural Utilities LTSPCs:
Internally Assigned Risk Rating:
Acceptable	$	—	$	—	$	—	$	—	$	—	$	549,405	$	7,020	$	556,425
Special mention(1)	—		—		—		—		—		—		—		—
Substandard(2)	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	549,405	$	7,020	$	556,425

For the Year Ended:
Current period charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period recoveries	—		—		—		—		—		—		—		—
Current period Rural Utilities net charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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

(2)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.

The following table presents credit quality indicators related to Farm & Ranch loans underlying LTSPCs and off-balance sheet Farm & Ranch Farmer Mac Guaranteed Securities as of December 31, 2019:

Table 12.12


	As of December 31, 2019
	Crops		Permanent Plantings		Livestock		Part-time Farm		Ag. Storage and Processing		Other		Total
	(in thousands)
Internally Assigned Risk Rating(1)
Acceptable	$	1,033,002	$	484,601	$	521,341	$	161,361	$	66,106	$	2,594	$	2,269,005
Special mention(2)	68,372		22,909		35,618		1,612		—		—		128,511
Substandard(3)	56,307		6,595		34,625		5,128		—		222		102,877
Total	$	1,157,681	$	514,105	$	591,584	$	168,101	$	66,106	$	2,816	$	2,500,393

Commodity analysis of past due loans(1)	$	1,493	$	196	$	1,066	$	480	$	—	$	—	$	3,235

(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.