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Fair Value Disclosures
6 Months Ended
Jun. 30, 2022
Fair Value Disclosures [Abstract]  
FAIR VALUE DISCLOSURES FAIR VALUE DISCLOSURES
Fair Value Classification and Transfers

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:

Table 9.1
Assets and Liabilities Measured at Fair Value as of June 30, 2022
 Level 1Level 2
Level 3(1)
Total
 (in thousands)
Recurring: 
Assets:    
Investment Securities:    
Available-for-sale:    
Floating rate auction-rate certificates backed by Government guaranteed student loans$— $— $19,061 $19,061 
Floating rate Government/GSE guaranteed mortgage-backed securities— 2,372,459 — 2,372,459 
Fixed rate GSE guaranteed mortgage-backed securities— 677,678 — 677,678 
Fixed rate U.S. Treasuries1,176,814 — — 1,176,814 
Total Available-for-sale Investment Securities1,176,814 3,050,137 19,061 4,246,012 
Farmer Mac Guaranteed Securities:    
Available-for-sale:    
AgVantage— — 6,440,396 6,440,396 
Farmer Mac Guaranteed Securities— — 9,816 9,816 
Total Farmer Mac Guaranteed Securities— — 6,450,212 6,450,212 
USDA Securities:    
Trading— — 2,275 2,275 
Total USDA Securities— — 2,275 2,275 
Financial derivatives350 29,661 — 30,011 
Guarantee Asset— — 5,636 5,636 
Total Assets at fair value$1,177,164 $3,079,798 $6,477,184 $10,734,146 
Liabilities:    
Financial derivatives$1,046 $126,937 $— $127,983 
Total Liabilities at fair value$1,046 $126,937 $— $127,983 
(1) Level 3 assets represent 25% of total assets and 60% of financial instruments measured at fair value.
Assets and Liabilities Measured at Fair Value as of December 31, 2021
 Level 1Level 2
Level 3(1)
Total
 (in thousands)
Recurring: 
Assets:    
Investment Securities:    
Available-for-sale:    
Floating rate auction-rate certificates backed by Government guaranteed student loans$— $— $19,254 $19,254 
Floating rate Government/GSE guaranteed mortgage-backed securities— 2,178,831 — 2,178,831 
Fixed rate GSE guaranteed mortgage-backed securities— 458,837 — 458,837 
Fixed rate U.S. Treasuries1,179,469 — — 1,179,469 
Total Available-for-sale Investment Securities1,179,469 2,637,668 19,254 3,836,391 
Farmer Mac Guaranteed Securities:    
Available-for-sale:    
AgVantage— — 6,316,145 6,316,145 
Farmer Mac Guaranteed Securities— — 12,414 12,414 
Total Farmer Mac Guaranteed Securities— — 6,328,559 6,328,559 
USDA Securities:    
Trading— — 4,401 4,401 
Total USDA Securities— — 4,401 4,401 
Financial derivatives73 19,066 — 19,139 
Guarantee Asset— — 6,237 6,237 
Total Assets at fair value$1,179,542 $2,656,734 $6,358,451 $10,194,727 
Liabilities:    
Financial derivatives$— $34,248 $— $34,248 
Total Liabilities at fair value$— $34,248 $— $34,248 
Non-recurring:
Assets
Mortgage Servicing Rights$— $— $2,681 $2,681 
Total non-recurring assets at fair value$— $— $2,681 $2,681 
(1) Level 3 assets represent 25% of total assets and 62% of financial instruments measured at fair value.

There were no material assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2022 or December 31, 2021.

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. During the six months ended June 30, 2022 and 2021, there were no transfers within the fair value hierarchy.
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, 2022 and 2021.

Table 9.2
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2022
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized (losses)/gains included
in Income
Unrealized gains/(losses)
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$18,961 $— $— $— $$— $99 $19,061 
Total available-for-sale18,961 — — — — 99 19,061 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,589,224 520,000 — (513,342)84 (149,205)(6,365)6,440,396 
Farmer Mac Guaranteed Securities11,022 — — (358)— — (848)9,816 
Total available-for-sale6,600,246 520,000 — (513,700)84 (149,205)(7,213)6,450,212 
USDA Securities:
Trading3,386 — — (1,140)— 29 — 2,275 
Total USDA Securities3,386 — — (1,140)29 — 2,275 
Guarantee and commitment obligations:
Guarantee Asset6,138 — — (188)— (314)— 5,636 
Total Guarantee and commitment obligations6,138 — — (188)— (314)— 5,636 
Total Assets at fair value$6,628,731 $520,000 $— $(515,028)$85 $(149,490)$(7,114)$6,477,184 
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2021
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized gains/(losses) included
in Income
Unrealized gains/(losses)
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,146 $— $— $— $$— $99 $19,248 
Total available-for-sale19,146 — — — — 99 19,248 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,763,209 417,500 — (310,403)(93)49,939 (42,747)6,877,405 
Total available-for-sale6,763,209 417,500 — (310,403)(93)49,939 (42,747)6,877,405 
USDA Securities:
Trading5,578 — — (467)— (61)— 5,050 
Total USDA Securities5,578 — — (467)(61)— 5,050 
Total Assets at fair value$6,787,933 $417,500 $— $(310,870)$(90)$49,878 $(42,648)$6,901,703 

Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2022
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized losses included
in Income
Unrealized losses
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,254 $— $— $— $$— $(196)$19,061 
Total available-for-sale19,254 — — — — (196)19,061 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,316,145 1,352,750 — (808,626)(334)(359,792)(59,747)6,440,396 
Farmer Mac Guaranteed Securities12,414 — — (737)— — (1,861)9,816 
Total available-for-sale6,328,559 1,352,750 — (809,363)(334)(359,792)(61,608)6,450,212 
USDA Securities:
Trading4,401 — — (2,092)— (34)— 2,275 
Total USDA Securities4,401 — — (2,092)(34)— 2,275 
Guarantee and commitment obligations:
Guarantee Asset6,237 — — (443)— (158)— 5,636 
Total Guarantee and commitment obligations6,237 — — (443)— (158)— 5,636 
Total Assets at fair value$6,358,451 $1,352,750 $— $(811,898)$(331)$(359,984)$(61,804)$6,477,184 
Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2021
Beginning BalancePurchasesSalesSettlementsAllowance for LossesRealized and
unrealized losses included
in Income
Unrealized gains
included in Other
Comprehensive
Income
Ending Balance
(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,171 $— $— $— $(22)$— $99 $19,248 
Total available-for-sale19,171 — — — (22)— 99 19,248 
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage6,947,701 578,115 — (554,235)89 (118,803)24,538 6,877,405 
Total available-for-sale6,947,701 578,115 — (554,235)89 (118,803)24,538 6,877,405 
USDA Securities:
Trading6,695 — — (1,570)— (75)— 5,050 
Total USDA Securities6,695 — — (1,570)(75)— 5,050 
Total Assets at fair value$6,973,567 $578,115 $— $(555,805)$67 $(118,878)$24,637 $6,901,703 
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, 2022 and December 31, 2021:

Table 9.3
As of June 30, 2022
Financial InstrumentsFair ValueValuation TechniqueUnobservable InputRange (Weighted-Average)
(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,061 Indicative bidsRange of broker quotes
97.0% - 97.0% (97.0%)
Farmer Mac Guaranteed Securities:
AgVantage$6,440,396 Discounted cash flowDiscount rate
3.1% - 4.0% (3.8%)
Farmer Mac Guaranteed Securities$9,816 Discounted cash flowDiscount rate
4.1% - 4.6% (4.4%)
CPR
8%
USDA Securities$2,275 Discounted cash flowDiscount rate
4.0% - 4.1% (4.1%)
CPR
22% - 23% (23%)
Guarantee Asset$5,636 Discounted cash flowDiscount rate
4.7% - 5.2% (4.9%)
CPR
8%

As of December 31, 2021
Financial InstrumentsFair ValueValuation TechniqueUnobservable InputRange (Weighted-Average)
(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans$19,254 Indicative bidsRange of broker quotes
98.0% - 98.0% (98.0%)
Farmer Mac Guaranteed Securities:
AgVantage$6,316,145 Discounted cash flowDiscount rate
0.9% - 2.1% (1.7%)
Farmer Mac Guaranteed Securities$12,414 Discounted cash flowDiscount rate
2.3% - 2.8% (2.6%)
CPR
8.0%
USDA Securities$4,401 Discounted cash flowDiscount rate
1.4% - 3.1% (2.8%)
CPR
25% - 42% (39%)
Guarantee Asset$6,237 Discounted cash flowDiscount rate
5.4% - 5.8% (5.6%)
CPR
7% - 12% (8%)

The significant unobservable input used in the fair value measurements of AgVantage Farmer Mac Guaranteed Securities is the discount rate commensurate with the risks involved. Typically, significant increases (decreases) in this input 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. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease. Prepayment rates are not presented in the table above for AgVantage
securities because they generally have fixed maturity dates when the secured general obligations are due and do not prepay.

The significant unobservable inputs used in the fair value measurements of USDA Securities are the prepayment rate and discount rate 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.

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, 2022 and December 31, 2021:

Table 9.4
 As of June 30, 2022As of December 31, 2021
 Fair ValueCarrying
Amount
Fair ValueCarrying
Amount
 (in thousands)
Financial assets:    
Cash and cash equivalents$909,430 $909,430 $908,785 $908,785 
Investment securities4,292,220 4,292,581 3,884,202 3,882,590 
Farmer Mac Guaranteed Securities8,096,651 8,139,681 8,360,293 8,361,798 
USDA Securities2,252,884 2,433,105 2,536,473 2,440,732 
Loans9,473,493 9,734,013 9,814,642 9,248,678 
Financial derivatives30,011 30,011 19,139 19,139 
Guarantee and commitment fees receivable46,641 44,388 42,533 45,538 
Financial liabilities:
Notes payable22,811,953 23,474,095 22,716,791 22,716,156 
Debt securities of consolidated trusts held by third parties818,159 866,107 1,005,306 981,379 
Financial derivatives127,983 127,983 34,248 34,248 
Guarantee and commitment obligations45,243 42,990 40,920 43,926 

The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1. The fair value of investments in U.S. Treasuries are valued based on unadjusted quoted prices in active markets and are classified as Level 1. A significant portion of Farmer Mac's investment portfolio is valued using a reputable nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades and are classified as Level 2. Farmer Mac internally models the fair value of its loan portfolio, including 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. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2. 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. 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. 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.