10Q-2014-Q1
As filed with the Securities and Exchange Commission on May 12, 2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
Commission File Number 001-14951 
 ____________________________________________________________
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality
of the United States
 
52-1578738
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer identification number)
 
 
 
1999 K Street, N.W., 4th Floor,
Washington, D.C.
 
20006
(Address of principal executive offices)
 
(Zip code)
(202) 872-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes        x                               No           o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes        x                                No          o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes        o                                No           x
As of May 2, 2014, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock and 9,392,511 shares of Class C non-voting common stock.


Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




2

PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
As of
 
March 31,
2014
 
December 31,
2013
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
866,585

 
$
749,313

Investment securities:
 

 
 

Available-for-sale, at fair value
2,469,092

 
2,483,147

Trading, at fair value
923

 
928

Total investment securities
2,470,015

 
2,484,075

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
3,489,263

 
5,091,600

Held-to-maturity, at amortized cost
1,660,270

 
—

Total Farmer Mac Guaranteed Securities
5,149,533

 
5,091,600

USDA Securities:
 

 
 

Available-for-sale, at fair value
1,600,659

 
1,553,669

Trading, at fair value
51,102

 
58,344

Total USDA Securities
1,651,761

 
1,612,013

Loans:
 

 
 

Loans held for investment, at amortized cost
2,641,714

 
2,570,125

Loans held for investment in consolidated trusts, at amortized cost
609,464

 
629,989

Allowance for loan losses
(7,410
)
 
(6,866
)
Total loans, net of allowance
3,243,768

 
3,193,248

Real estate owned, at lower of cost or fair value
2,503

 
2,617

Financial derivatives, at fair value
11,357

 
19,718

Interest receivable (includes $3,317 and $9,276, respectively, related to consolidated trusts)
65,223

 
107,201

Guarantee and commitment fees receivable
43,873

 
43,904

Deferred tax asset, net
32,818

 
44,045

Prepaid expenses and other assets
16,917

 
14,046

Total Assets
$
13,554,353

 
$
13,361,780

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
7,354,271

 
$
7,338,781

Due after one year
5,036,375

 
5,001,169

Total notes payable
12,390,646

 
12,339,950

Debt securities of consolidated trusts held by third parties
312,643

 
261,760

Financial derivatives, at fair value
73,887

 
75,708

Accrued interest payable (includes $1,852 and $2,823, respectively, related to consolidated trusts)
37,104

 
53,772

Guarantee and commitment obligation
40,643

 
39,667

Accounts payable and accrued expenses
13,886

 
9,986

Reserve for losses
6,569

 
6,468

Total Liabilities
12,875,378

 
12,787,311

Commitments and Contingencies (Note 6)


 


Equity:
 

 
 

Preferred stock:
 

 
 

Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding
58,333

 
58,333

Series B, par value $25 per share, 3,000,000 shares authorized, issued and outstanding
73,306

 
—

Common stock:
 

 
 

Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding
1,031

 
1,031

Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding
500

 
500

Class C Non-Voting, $1 par value, no maximum authorization, 9,354,992 shares and 9,354,804 shares outstanding, respectively
9,355

 
9,355

Additional paid-in capital
111,477

 
110,722

Accumulated other comprehensive income/(loss), net of tax
14,954

 
(16,202
)
Retained earnings
168,166

 
168,877

Total Stockholders' Equity
437,122

 
332,616

Non-controlling interest - preferred stock
241,853

 
241,853

Total Equity
678,975

 
574,469

Total Liabilities and Equity
$
13,554,353

 
$
13,361,780

See accompanying notes to consolidated financial statements.


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Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
(in thousands except per share amounts)
Interest income:
 
 
 
Investments and cash equivalents
$
5,237

 
$
5,734

Farmer Mac Guaranteed Securities and USDA Securities
30,112

 
31,721

Loans
14,369

 
24,043

Total interest income
49,718

 
61,498

Total interest expense
34,726

 
33,128

Net interest income
14,992

 
28,370

Provision for loan losses
(573
)
 
(430
)
Net interest income after provision for loan losses
14,419

 
27,940

Non-interest (loss)/income:
 
 
 
Guarantee and commitment fees
6,518

 
6,612

(Losses)/gains on financial derivatives and hedging activities
(7,578
)
 
4,494

Gains on trading assets
655

 
210

Gains on sale of available-for-sale investment securities
15

 
2

(Losses)/gains on sale of real estate owned
(3
)
 
47

Other income
92

 
1,080

Non-interest (loss)/income
(301
)
 
12,445

Non-interest expense:
 
 
 
Compensation and employee benefits
4,456

 
4,698

General and administrative
2,794

 
2,917

Regulatory fees
594

 
594

Real estate owned operating costs, net
2

 
126

Provision for losses
101

 
746

Non-interest expense
7,947

 
9,081

Income before income taxes
6,171

 
31,304

Income tax (benefit)/expense
(1,141
)
 
8,716

Net income
7,312

 
22,588

Less: Net income attributable to non-controlling interest - preferred stock dividends
(5,547
)
 
(5,547
)
Net income attributable to Farmer Mac
1,765

 
17,041

Preferred stock dividends
(952
)
 
(851
)
Net income attributable to common stockholders
$
813

 
$
16,190

 
 
 
 
Earnings per common share and dividends:
 
 
 
Basic earnings per common share
$
0.07

 
$
1.51

Diluted earnings per common share
$
0.07

 
$
1.45

Common stock dividends per common share
$
0.14

 
$
0.12

See accompanying notes to consolidated financial statements.


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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
(in thousands)
Net income
$
7,312

 
$
22,588

Other comprehensive income, net of tax:
 
 
 
Unrealized holding gains on available-for-sale securities (1)
34,241

 
21,812

Unrealized losses on cash flow hedges (2)
(68
)
 
—

Less reclassification adjustments included in:
 
 
 
(Losses)/gains on financial derivatives and hedging activities (3)
(3,101
)
 
(3,207
)
Gains on sale of available-for-sale investment securities (4)
(10
)
 
(1
)
Other income (5)
94

 
(214
)
Other comprehensive income
31,156

 
18,390

Comprehensive income
38,468

 
40,978

Less: Comprehensive income attributable to noncontrolling interest - preferred stock dividends
(5,547
)
 
(5,547
)
Comprehensive income attributable to Farmer Mac
$
32,921

 
$
35,431

(1)
Presented net of income tax expense of $18.4 million and $11.7 million for the three months ended March 31, 2014 and 2013, respectively.
(2)
Presented net of income tax benefit of $37,000 for the three months ended March 31, 2014.
(3)
Relates to the amortization of the unrealized gains on the hedged items prior to application of hedge accounting. Presented net of income tax benefit of $1.7 million for both the three months ended March 31, 2014 and 2013.
(4)
Represents realized gains on sales of available-for-sale investment securities. Presented net of income tax benefit of $5,000 and $1,000 for the three months ended March 31, 2014 and 2013, respectively.
(5)
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed Securities. Presented net of income tax expense of $0.1 million and tax benefit of $0.1 million for the three months ended March 31, 2014 and 2013, respectively.

See accompanying notes to consolidated financial statements.


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Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
  
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
Shares
 
Amount
 
Shares
 
Amount
 
(in thousands)
Preferred stock:
 
 
 
 
 
 
 
Balance, beginning of period
2,400

 
$
58,333

 
58

 
$
57,578

Issuance of Series A preferred stock
—

 
—

 
2,400

 
58,333

Issuance of Series B preferred stock
3,000

 
73,306

 
—

 
—

Redemption of Series C preferred stock
—

 
—

 
(58
)
 
(57,578
)
Balance, end of period
5,400

 
$
131,639

 
2,400

 
$
58,333

Common stock:
 

 
 

 
 

 
 

Balance, beginning of period
10,886

 
$
10,886

 
10,702

 
$
10,702

Issuance of Class C common stock
—

 
—

 
52

 
52

Balance, end of period
10,886

 
$
10,886

 
10,754

 
$
10,754

Additional paid-in capital:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
110,722

 
 

 
$
106,617

Stock-based compensation expense
 

 
713

 
 

 
866

Issuance of Class C common stock
 

 
6

 
 

 
3

Tax effect of stock-based awards
 

 
36

 
 

 
900

Balance, end of period
  

 
$
111,477

 
  

 
$
108,386

Retained earnings:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
168,877

 
 

 
$
102,243

Net income attributable to Farmer Mac
 

 
1,765

 
 

 
17,041

Cash dividends:
 

 
 

 
 

 
 

Preferred stock, Series A ($0.3672 per share in 2014 and $0.2978 per share in 2013)
 
 
(881
)
 
 
 
(715
)
Preferred stock, Series B ($0.105 per share)
 
 
(71
)
 
 
 
—

Preferred stock, Series C ($2.36 per share )
 

 
—

 
 

 
(136
)
Common stock ($0.14 per share in 2014 and $0.12 per share in 2013)
 

 
(1,524
)
 
 

 
(1,290
)
Balance, end of period
 

 
$
168,166

 
 

 
$
117,143

Accumulated other comprehensive income:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
(16,202
)
 
 

 
$
73,969

Other comprehensive income, net of tax
 

 
31,156

 
 

 
18,390

Balance, end of period
 

 
$
14,954

 
 

 
$
92,359

Total Stockholders' Equity
 

 
$
437,122

 
 

 
$
386,975

Non-controlling interest - preferred stock:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
241,853

 
 

 
$
241,853

Balance, end of period
 

 
$
241,853

 
 

 
$
241,853

Total Equity
 
 
$
678,975

 
 

 
$
628,828


See accompanying notes to consolidated financial statements.




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Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
7,312

 
$
22,588

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Net amortization of deferred gains, premiums and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities
13,983

 
2,712

Amortization of debt premiums, discounts and issuance costs
2,658

 
3,286

Net change in fair value of trading securities, hedged assets, and financial derivatives
3,029

 
(8,997
)
Gains on sale of available-for-sale investment securities
(15
)
 
(2
)
Losses/(gains) on sale of real estate owned
3

 
(47
)
Total provision for losses
674

 
1,176

Deferred income taxes
(6,009
)
 
1,992

Stock-based compensation expense
713

 
865

Proceeds from repayment of trading investment securities
283

 
315

Proceeds from repayment of loans purchased as held for sale
42,713

 
66,095

Net change in:
 
 
 

Interest receivable
41,978

 
36,879

Guarantee and commitment fees receivable
31

 
(570
)
Other assets
(2,827
)
 
27,003

Accrued interest payable
(16,668
)
 
(16,305
)
Other liabilities
4,793

 
5,069

Net cash provided by operating activities
92,651

 
142,059

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale investment securities
(369,120
)
 
(244,819
)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
(289,484
)
 
(222,187
)
Purchases of loans held for investment
(246,310
)
 
(190,149
)
Purchases of defaulted loans
(440
)
 
(140
)
Proceeds from repayment of available-for-sale investment securities
370,084

 
439,135

Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
244,014

 
163,508

Proceeds from repayment of loans purchased as held for investment
141,534

 
93,587

Proceeds from sale of available-for-sale investment securities
10,015

 
15,014

Proceeds from sale of Farmer Mac Guaranteed Securities
62,751

 
25,042

Proceeds from sale of real estate owned
11

 
203

Net cash (used in)/provided by investing activities
(76,945
)
 
79,194

Cash flows from financing activities:
 

 
 

Proceeds from issuance of discount notes
15,566,728

 
15,653,949

Proceeds from issuance of medium-term notes
750,354

 
703,268

Payments to redeem discount notes
(15,582,044
)
 
(16,021,517
)
Payments to redeem medium-term notes
(687,000
)
 
(419,000
)
Excess tax benefits related to stock-based awards
36

 
613

Payments to third parties on debt securities of consolidated trusts
(11,868
)
 
(25,413
)
Proceeds from common stock issuance
6

 
888

Proceeds from Series A Preferred stock issuance
—

 
58,333

Proceeds from Series B Preferred stock issuance
73,306

 
—

Retirement of Series C Preferred stock
—

 
(57,578
)
Dividends paid - Non-controlling interest - preferred stock
(5,547
)
 
(5,547
)
Dividends paid on common and preferred stock
(2,405
)
 
(1,426
)
Net cash provided by/(used in) financing activities
101,566

 
(113,430
)
Net increase in cash and cash equivalents
117,272

 
107,823

Cash and cash equivalents at beginning of period
749,313

 
785,564

Cash and cash equivalents at end of period
$
866,585

 
$
893,387

 See accompanying notes to consolidated financial statements.




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Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.
ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2013 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2013 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2013 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 13, 2014. That Form 10-K describes Farmer Mac's significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities; Loans; Securitization of Loans; Non-accrual Loans; Real Estate Owned; Financial Derivatives; Notes Payable; Allowance for Losses; Earnings Per Common Share; Income Taxes; Stock-Based Compensation; Comprehensive Income; Long-Term Standby Purchase Commitments; Fair Value Measurement; and Consolidation of Variable Interest Entities ("VIEs"). Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three months ended March 31, 2014.


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Table of Contents

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of securities guaranteed by Farmer Mac that represent interests in, or obligations secured by, pools of eligible loans ("Farmer Mac Guaranteed Securities") and (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities.  The consolidated financial statements also include the accounts of VIEs in which Farmer Mac determined itself to be the primary beneficiary. 

The following tables present, by line of business, details about the consolidation of VIEs:

Table 1.1

 
Consolidation of Variable Interest Entities
 
March 31, 2014
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost (1)
$
312,569

 
$
—

 
$
296,895

 
$
—

 
$
—

 
$
609,464

Debt securities of consolidated trusts held by third parties (2)
312,643

 
—

 
—

 
—

 
—

 
312,643

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value (3)
—

 
21,608

 
—

 
33,098

 
—

 
54,706

      Maximum exposure to loss (4)
—

 
20,894

 
—

 
30,000

 
—

 
50,894

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (5)
—

 
—

 
—

 
—

 
572,345

 
572,345

        Maximum exposure to loss (4) (5)
—

 
—

 
—

 
—

 
579,225

 
579,225

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (4) (6)
731,574

 
19,562

 
—

 
970,000

 
—

 
1,721,136


(1) Includes unamortized premiums related to Rural Utilities of $4.4 million.
(2) Includes borrower remittances of $0.1 million, which have not been passed through to third party investors as of March 31, 2014.
(3) Includes unamortized premiums and discounts and fair value adjustments related to USDA Guarantees and Institutional Credit of $0.7 million and $3.1 million, respectively.
(4) Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
(5) Includes auction-rate certificates, asset-backed securities and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(6) The Farm & Ranch amount relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.



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Table of Contents

 
Consolidation of Variable Interest Entities
 
December 31, 2013
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost (1)
$
259,509

 
$
—

 
$
370,480

 
$
—

 
$
—

 
$
629,989

Debt securities of consolidated trusts held by third parties (2)
261,760

 
—

 
—

 
—

 
—

 
261,760

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value (3)
—

 
21,234

 
—

 
33,248

 
—

 
54,482

      Maximum exposure to loss (4)
—

 
21,088

 
—

 
30,000

 
—

 
51,088

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (5)
—

 
—

 
—

 
—

 
533,688

 
533,688

        Maximum exposure to loss (4) (5)
—

 
—

 
—

 
—

 
540,726

 
540,726

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (4) (6)
765,751

 
20,222

 
—

 
970,000

 
—

 
1,755,973


(1) Includes unamortized premiums related to Rural Utilities of $16.2 million.
(2) Includes borrower remittances of $2.3 million, which have not been passed through to third party investors as of December 31, 2013.
(3) Includes unamortized premiums and discounts and fair value adjustments related to USDA Guarantees and Institutional Credit of $0.1 million and $3.2 million, respectively.
(4) Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.
(5) Includes auction-rate certificates, asset-backed securities and GSE-guaranteed mortgage-backed securities.
(6) The Farm & Ranch amount relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.

A guarantee by Farmer Mac of timely payment of principal and interest is an explicit element of the terms of all Farmer Mac Guaranteed Securities.  When Farmer Mac retains such securities in its portfolio, that guarantee is not extinguished.  For Farmer Mac Guaranteed Securities held in Farmer Mac's portfolio, Farmer Mac has entered into guarantee arrangements with FMMSC.  The guarantee fee rate established between Farmer Mac and FMMSC is an element in determining the fair value of these Farmer Mac Guaranteed Securities, and guarantee fees related to these securities are reflected in guarantee and commitment fees in the consolidated statements of operations.  These guarantee fees totaled $2.6 million for the three months ended March 31, 2014 and March 31, 2013, respectively. The corresponding expense of FMMSC has been eliminated against interest income in consolidation.  All other inter-company balances and transactions have been eliminated in consolidation.


(a)
Cash and Cash Equivalents and Statements of Cash Flows

Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents.  The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value.  Changes in the balance of cash and cash equivalents are reported in the consolidated statements of cash flows.  



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The following table sets forth information regarding certain cash and non-cash transactions for the three months ended March 31, 2014 and 2013:

Table 1.2

 
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
(in thousands)
Cash paid during the period for:
 
 
 
Interest
$
36,535

 
$
33,068

Income taxes
—

 
—

Non-cash activity:
 
 
 
Real estate owned acquired through loan liquidation
—

 
1,034

Loans acquired and securitized as Farmer Mac Guaranteed Securities
62,751

 
25,042

Purchases of investment securities traded, not yet settled
—

 
325,000

Consolidation of Farm & Ranch Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties
62,751

 
25,042

Transfers of loans held for sale to loans held for investment
—

 
673,991

Transfers of available-for-sale Farmer Mac Guaranteed Securities to held-to-maturity
1,589,775

 
—



On January 1, 2014, Farmer Mac transferred $1.6 billion of Farmer Mac Guaranteed Securities from available-for-sale to held-to-maturity because Farmer Mac determined it has the ability and intent to hold these securities until maturity or payoff. Farmer Mac transferred these securities at fair value which reflected an unrealized holding gain of $22.3 million. Farmer Mac accounts for held-to-maturity securities at amortized cost.

On January 1, 2013, Farmer Mac transferred $674.0 million of loans from held for sale to held for investment because Farmer Mac either (1) no longer intends to sell these loans in the foreseeable future or (2) securitizes these loans using VIEs that are ultimately consolidated on Farmer Mac's balance sheet and reported as "Loans held for investment in consolidated trusts, at amortized cost." Farmer Mac transferred these loans at the lower of cost or fair value (determined on a pooled basis). Farmer Mac recorded a $5.9 million unamortized discount for loans transferred at fair value. At the time of purchase, loans are classified as either held for sale or held for investment depending upon management's intent and ability to hold the loans for the foreseeable future. Cash receipts from the repayment of loans are classified within the statements of cash flows based on management's intent upon purchase of the loan.

      


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(b)
Earnings Per Common Share

Basic earnings per common share ("EPS") is based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per common share is based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights ("SARs"), and non-vested restricted stock awards.  The following schedule reconciles basic and diluted EPS for the three months ended March 31, 2014 and 2013:

Table 1.3

 
For the Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
813

 
10,887

 
$
0.07

 
$
16,190

 
10,737

 
$
1.51

Effect of dilutive securities (1):
 
 
 
 
 
 
 

 
 

 
 

Stock options, SARs and restricted stock
—

 
459

 
—

 
—

 
424

 
(0.06
)
Diluted EPS
$
813

 
11,346

 
$
0.07

 
$
16,190

 
11,161

 
$
1.45

(1)
For the three months ended March 31, 2014 and 2013, stock options and SARs of 32,983 and 4,000, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended March 31, 2014 and 2013, contingent shares of non-vested restricted stock of 31,594 and 25,300, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions were not met.

(c)
Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.




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2.
INVESTMENT SECURITIES

The following tables present the amount outstanding, amortized cost, and fair values of Farmer Mac's investment securities as of March 31, 2014 and December 31, 2013:
 
Table 2.1

 
March 31, 2014
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
74,100

 
$
—

 
$
74,100

 
$
—

 
$
(9,137
)
 
$
64,963

Floating rate asset-backed securities
177,999

 
(176
)
 
177,823

 
385

 
(13
)
 
178,195

Floating rate corporate debt securities
107,130

 
2

 
107,132

 
411

 
(1
)
 
107,542

Fixed rate corporate debt securities
55,000

 
32

 
55,032

 
158

 
—

 
55,190

Floating rate Government/GSE guaranteed mortgage-backed securities
640,910

 
4,056

 
644,966

 
4,891

 
(640
)
 
649,217

Fixed rate GSE guaranteed mortgage-backed securities (1)
1,123

 
3,860

 
4,983

 
3,601

 
—

 
8,584

Floating rate GSE subordinated debt
70,000

 
—

 
70,000

 
—

 
(6,615
)
 
63,385

Fixed rate GSE preferred stock
78,500

 
253

 
78,753

 
2,887

 
—

 
81,640

Fixed rate taxable municipal bonds
22,053

 
47

 
22,100

 
7

 
—

 
22,107

Fixed rate senior agency debt
518,691

 
204

 
518,895

 
149

 
(129
)
 
518,915

Floating rate U.S. Treasuries
75,000

 
(16
)
 
74,984

 
—

 
(26
)
 
74,958

Fixed rate U.S. Treasuries
643,692

 
608

 
644,300

 
100

 
(4
)
 
644,396

Total available-for-sale
2,464,198

 
8,870

 
2,473,068

 
12,589

 
(16,565
)
 
2,469,092

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
3,270

 
—

 
3,270

 
—

 
(2,347
)
 
923

Total investment securities
$
2,467,468

 
$
8,870

 
$
2,476,338

 
$
12,589

 
$
(18,912
)
 
$
2,470,015

(1)
Fair value includes $7.4 million of an interest-only security with a notional amount of $152.4 million.







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December 31, 2013
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
74,100

 
$
—

 
$
74,100

 
$
—

 
$
(8,815
)
 
$
65,285

Floating rate asset-backed securities
166,185

 
(217
)
 
165,968

 
195

 
(59
)
 
166,104

Floating rate corporate debt securities
109,345

 
(3
)
 
109,342

 
445

 
(18
)
 
109,769

Fixed rate corporate debt securities
55,000

 
48

 
55,048

 
97

 
(4
)
 
55,141

Floating rate Government/GSE guaranteed mortgage-backed securities
612,413

 
4,336

 
616,749

 
4,955

 
(435
)
 
621,269

Fixed rate GSE guaranteed mortgage-backed securities (1)
1,173

 
3,966

 
5,139

 
3,518

 
—

 
8,657

Floating rate GSE subordinated debt
70,000

 
—

 
70,000

 
—

 
(6,615
)
 
63,385

Fixed rate GSE preferred stock
78,500

 
365

 
78,865

 
4,296

 
—

 
83,161

Fixed rate taxable municipal bonds
30,595

 
84

 
30,679

 
5

 
(3
)
 
30,681

Fixed rate senior agency debt
523,691

 
294

 
523,985

 
107

 
(30
)
 
524,062

Fixed rate U.S. Treasuries
754,405

 
1,141

 
755,546

 
95

 
(8
)
 
755,633

Total available-for-sale
2,475,407

 
10,014

 
2,485,421

 
13,713

 
(15,987
)
 
2,483,147

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
3,553

 
—

 
3,553

 
—

 
(2,625
)
 
928

Total investment securities
$
2,478,960

 
$
10,014

 
$
2,488,974

 
$
13,713

 
$
(18,612
)
 
$
2,484,075

(1)
Fair value includes $7.4 million of an interest-only security with a notional amount of $152.4 million.


During the three months ended March 31, 2014, Farmer Mac received proceeds of $10.0 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $15,000, compared to proceeds of $15.0 million for the same period in 2013, resulting in gross realized gains of $2,000.



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As of March 31, 2014 and December 31, 2013, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2

 
March 31, 2014
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
64,963

 
$
(9,137
)
Floating rate asset-backed securities
21,645

 
(13
)
 
—

 
—

Floating rate corporate debt securities
4,999

 
(1
)
 
—

 
—

Floating rate Government/GSE guaranteed mortgage-backed securities
230,889

 
(615
)
 
7,337

 
(25
)
Floating rate GSE subordinated debt
—

 
—

 
63,385

 
(6,615
)
Fixed rate senior agency debt
284,512

 
(129
)
 
—

 
—

Floating rate U.S. Treasuries
74,958

 
(26
)
 
—

 
—

Fixed rate U.S. Treasuries
150,045

 
(4
)
 
—

 
—

Total
$
767,048

 
$
(788
)
 
$
135,685

 
$
(15,777
)

 
December 31, 2013
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
65,285

 
$
(8,815
)
Floating rate asset-backed securities
50,129

 
(59
)
 
—

 
—

Floating rate corporate debt securities
19,982

 
(18
)
 
—

 
—

Fixed rate corporate debt securities
10,058

 
(4
)
 
—

 
—

Floating rate Government/GSE guaranteed mortgage-backed securities
161,960

 
(435
)
 
—

 
—

Floating rate GSE subordinated debt
—

 
—

 
63,385

 
(6,615
)
Fixed rate taxable municipal bonds
8,041

 
(3
)
 
—

 
—

Fixed rate senior agency debt
316,273

 
(30
)
 
—

 
—

Fixed rate U.S. Treasuries
118,056

 
(8
)
 
—

 
—

Total
$
684,499

 
$
(557
)
 
$
128,670

 
$
(15,430
)

 
The unrealized losses presented above are principally due to a general widening of credit spreads from the dates of acquisition to March 31, 2014 and December 31, 2013, as applicable. The resulting decrease in fair values reflect an increase in the perceived risk by the financial markets related to those securities. As of March 31, 2014, all of the investment securities in an unrealized loss position had credit ratings of at least "AA+," except one, comprising the floating rate GSE subordinated debt category, that was rated "A-". As of December 31, 2013, all of the investment securities in an unrealized loss position had credit ratings of at least "AA+," except two that were rated "A-" and one that was rated "BBB+". The unrealized


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losses were on 45 and 64 individual investment securities as of March 31, 2014 and December 31, 2013, respectively.

As of March 31, 2014, 10 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $15.8 million. As of December 31, 2013, 7 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $15.4 million.  Securities in unrealized loss positions for 12 months or longer have a fair value as of March 31, 2014 that is, on average, approximately 89.6 percent of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of changes in credit spreads or maturity. Accordingly, Farmer Mac has concluded that none of the unrealized losses on these available-for-sale investment securities represents other-than-temporary impairment as of March 31, 2014 and December 31, 2013. Farmer Mac does not intend to sell these securities and it is not more likely than not that Farmer Mac will be required to sell the securities before recovery of the amortized cost basis.

Farmer Mac did not own any held-to-maturity investment securities as of March 31, 2014 and December 31, 2013. As of March 31, 2014, Farmer Mac owned trading investment securities with an amortized cost of $3.3 million, a fair value of $0.9 million, and a weighted average yield of 4.24 percent. As of December 31, 2013, Farmer Mac owned trading investment securities with an amortized cost of $3.6 million, a fair value of $0.9 million, and a weighted average yield of 4.25 percent.

The amortized cost, fair value, and weighted average yield of available-for-sale investment securities by remaining contractual maturity as of March 31, 2014 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets.

Table 2.3

 
March 31, 2014
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
1,246,490

 
$
1,246,691

 
0.43%
Due after one year through five years
288,599

 
289,722

 
0.84%
Due after five years through ten years
325,128

 
323,229

 
0.79%
Due after ten years
612,851

 
609,450

 
2.35%
Total
$
2,473,068

 
$
2,469,092

 
1.00%





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3.
FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES

The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of March 31, 2014 and December 31, 2013:

Table 3.1

 
March 31, 2014
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
1,641,150

 
$
19,120

 
$
1,660,270

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
3,470,937

 
$
—

 
$
3,470,937

 
$
35,565

 
$
(38,847
)
 
$
3,467,655

Farmer Mac Guaranteed USDA Securities
20,894

 
(494
)
 
20,400

 
1,210

 
(2
)
 
21,608

Total Farmer Mac Guaranteed Securities
3,491,831

 
(494
)
 
3,491,337

 
36,775

 
(38,849
)
 
3,489,263

USDA Securities
1,597,956

 
4,591

 
1,602,547

 
7,346

 
(9,234
)
 
1,600,659

Total available-for-sale
$
5,089,787

 
$
4,097

 
$
5,093,884

 
$
44,121

 
$
(48,083
)
 
$
5,089,922

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
48,283

 
$
4,441

 
$
52,724

 
$
151

 
$
(1,773
)
 
$
51,102


 
December 31, 2013
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
5,066,855

 
$
125

 
$
5,066,980

 
$
64,051

 
$
(60,665
)
 
$
5,070,366

Farmer Mac Guaranteed USDA Securities
21,089

 
(518
)
 
20,571

 
669

 
(6
)
 
21,234

Total Farmer Mac Guaranteed Securities
5,087,944

 
(393
)
 
5,087,551

 
64,720

 
(60,671
)
 
5,091,600

USDA Securities
1,590,433

 
4,585

 
1,595,018

 
2,753

 
(44,102
)
 
1,553,669

Total available-for-sale
$
6,678,377

 
$
4,192

 
$
6,682,569

 
$
67,473

 
$
(104,773
)
 
$
6,645,269

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
55,373

 
$
4,972

 
$
60,345

 
$
193

 
$
(2,194
)
 
$
58,344



The unrealized losses presented above are principally due to higher interest rates from the date of acquisition to March 31, 2014 and December 31, 2013, as applicable.  The credit exposure related to Farmer Mac's USDA Guarantees line of business is covered by the full faith and credit guarantee of the United States.  As of March 31, 2014, 13 AgVantage securities in loss positions that are secured by Farm & Ranch loans had been in a loss position for more than 12 months with a total unrealized loss of $27.4 million. AgVantage® is a registered trademark of Farmer Mac used to designate Farmer Mac Guaranteed Securities that are general obligations of lenders secured by pools of eligible loans. Each AgVantage security that is secured by Farm & Ranch loans held by the issuing institution requires some level of overcollateralization, the removal of delinquent loans from the collateral pool, and the replacement of delinquent loans with current eligible loans. Thus, Farmer Mac does not believe it will


17
Table of Contents

realize any of those losses. None of the Rural Utilities Guaranteed Securities has been in an unrealized loss position for greater than 12 months. Farmer Mac has concluded that none of the unrealized losses on its available-for-sale Farmer Mac Guaranteed Securities and USDA Securities represents an other-than-temporary impairment as of March 31, 2014 and December 31, 2013.  Farmer Mac does not intend to sell these securities, and it is not more likely than not that Farmer Mac will be required to sell the securities before recovery of the amortized cost basis.

During the three months ended March 31, 2014 and 2013, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities and USDA Securities.

The amortized cost, fair value, and weighted average yield of available-for-sale and held-to-maturity Farmer Mac Guaranteed Securities and USDA Securities by remaining contractual maturity as of March 31, 2014 are set forth below. The balances presented are based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets.

Table 3.2

 
March 31, 2014
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
785,824

 
$
788,681

 
1.93
%
Due after one year through five years
1,561,316

 
1,578,618

 
1.89
%
Due after five years through ten years
879,210

 
874,896

 
1.79
%
Due after ten years
1,867,534

 
1,847,727

 
2.59
%
Total
$
5,093,884

 
$
5,089,922

 
2.13
%
 
March 31, 2014
 
Held-to-Maturity Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
1,124

 
$
1,007

 
4.34
%
Due after one year through five years
1,659,146

 
1,661,337

 
2.45
%
Total
$
1,660,270

 
$
1,662,344

 
2.45
%


Farmer Mac did not own any held-to-maturity Farmer Mac Guaranteed Securities or USDA Securities as of December 31, 2013. See Note 1(a) for more information about the transfer of Farmer Mac Guaranteed Securities to held-to-maturity as of January 1, 2014. As of March 31, 2014, Farmer Mac owned trading USDA Securities with an amortized cost of $52.7 million, a fair value of $51.1 million, and a weighted average yield of 5.56 percent. As of December 31, 2013, Farmer Mac owned trading USDA Securities with an amortized cost of $60.3 million, a fair value of $58.3 million, and a weighted average yield of 5.60 percent.  



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4.
FINANCIAL DERIVATIVES

Farmer Mac enters into financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets, future cash flows, or debt issuance, and not for trading or speculative purposes.  Certain financial derivatives are designated as fair value hedges of fixed rate assets classified as available-for-sale to protect against fair value changes in the assets related to a benchmark interest rate (i.e., LIBOR). Other financial derivatives are designated as cash flow hedges to mitigate the volatility of future interest rate payments on floating rate debt.

All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability. Changes in the fair values of financial derivatives not designated as cash flow hedges are reported in "(Losses)/gains on financial derivatives and hedging activities" in the consolidated statements of operations. For financial derivatives designated in fair value hedging relationships, changes in the fair values of the hedged items related to the risk being hedged are also reported in "(Losses)/gains on financial derivatives and hedging activities" in the consolidated statements of operations. For financial derivatives designated in cash flow hedging relationships, the effective portion of the derivative gain/loss is recorded in other comprehensive income; amounts are disclosed as a reclassification out of other comprehensive income when the hedged transaction affects earnings. Any ineffective portion of designated hedge transactions is recognized immediately in"(Losses)/gains on financial derivatives and hedging activities" in the consolidated statements of operations.

As of March 31, 2014 and December 31, 2013, Farmer Mac's credit exposure to interest rate swap counterparties, excluding netting arrangements and any adjustment for nonperformance risk, but including accrued interest, was $19.3 million and $25.1 million, respectively; however, including netting arrangements and accrued interest, Farmer Mac's credit exposure was $2.3 million and $3.3 million as of March 31, 2014 and December 31, 2013, respectively. As of March 31, 2014 and December 31, 2013, Farmer Mac held no cash as collateral for its derivatives in net asset positions, resulting in uncollateralized net asset positions of $2.3 million and $3.0 million, respectively. Farmer Mac records cash held as collateral as an increase in the balance of cash and cash equivalents and an increase in the balance of accounts payable and accrued expenses.

As of March 31, 2014 and December 31, 2013, the fair value of Farmer Mac's derivatives in a net liability position including accrued interest but excluding netting arrangements and any adjustment for nonperformance risk, was $81.5 million and $92.0 million, respectively; however, including netting arrangements and accrued interest, the fair value of Farmer Mac's derivatives in a net liability position at the counterparty level, was $68.6 million and $74.8 million as of March 31, 2014 and December 31, 2013, respectively.  Farmer Mac posted cash of $14.2 million and no investment securities as of March 31, 2014 and posted cash of $9.8 million and investment securities with a fair value of $1.5 million as of December 31, 2013 as collateral for its derivatives in net liability positions.  Farmer Mac records posted cash as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of prepaid expenses and other assets. The investment securities posted as collateral are included in the investment securities balances on the consolidated balance sheets.  If Farmer Mac had breached certain provisions of the derivative contracts as of March 31, 2014 and December 31, 2013, it could have been required to settle its obligations under the agreements or post additional collateral of $54.4 million and $63.5 million, respectively. As of March 31, 2014 and December 31, 2013, there were no financial derivatives in a net payable position where Farmer Mac was required to pledge collateral which the counterparty had the right to sell or repledge.



19
Table of Contents

Effective in second quarter 2013, Farmer Mac expanded its use of centrally-cleared derivatives by clearing through a clearinghouse certain interest rate swaps. Farmer Mac posts initial and variation margin to the clearinghouses through which centrally-cleared derivatives and futures contracts are traded. These collateral postings expose Farmer Mac to institutional credit risk in the event that either the clearinghouse or the futures commission merchant that Farmer Mac uses to post collateral to the clearinghouse fails to meet its obligations. Conversely, the use of centrally-cleared derivatives mitigates Farmer Mac's credit risk to individual counterparties because clearinghouses assume the credit risk among counterparties in centrally-cleared derivatives transactions. Of Farmer Mac's $6.6 billion notional amount of interest rate swaps outstanding as of March 31, 2014, $3.1 billion were cleared through swap clearinghouses.

Farmer Mac’s counterparties are required to pledge collateral for transactions involving securities purchased under agreements to resell. Farmer Mac considers the types of securities being pledged as collateral when determining how much to lend in these transactions. Additionally, Farmer Mac regularly reviews the fair values of these securities compared to amounts loaned and derivative counterparty collateral posting thresholds in an effort to minimize exposure to losses. The fair value of non-cash collateral accepted for securities purchased under agreements to resell or similar arrangements was $150.0 million, all of which could be sold or repledged; however, none of the underlying collateral was sold or repledged as of March 31, 2014. There were no securities purchased under agreements to resell as of December 31, 2013.



20
Table of Contents

The following tables summarize information related to Farmer Mac's financial derivatives on a gross basis without giving consideration to master netting arrangements as of March 31, 2014 and December 31, 2013 and the effects of financial derivatives on the consolidated statements of operations for the three months ended March 31, 2014 and 2013:

Table 4.1

  
March 31, 2014
  
 
 
Fair Value
 
Weighted-
Average
Pay Rate
 
Weighted-
Average Receive Rate
 
Weighted-
Average
Forward
Price
 
Weighted-
Average
Remaining
Life (in years)
  
Notional Amount
 
Asset
 
(Liability)
 
 
 
 
  
(dollars in thousands)
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed non-callable
$
900,000

 
$
—

 
$
(28,789
)
 
2.25%
 
0.24%
 
 
 
3.00
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed non-callable
10,000

 
—

 
(36
)
 
2.50%
 
0.48%
 
 
 
6.70
No hedge designation:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed non-callable
507,820

 
3,074

 
(43,448
)
 
4.28%
 
0.24%
 
 
 
7.55
Receive fixed non-callable
4,431,663

 
8,045

 
(183
)
 
0.26%
 
0.68%
 
 
 
0.47
Receive fixed callable
195,000

 
4

 
(1,081
)
 
0.10%
 
0.65%
 
 
 
3.03
Basis swaps
565,189

 
336

 
(572
)
 
0.25%
 
0.26%
 
 
 
1.86
Agency forwards
—

 
—

 
—

 
 
 
 
 
—

 
 
Treasury futures
18,400

 
15

 
—

 
 
 
 
 
123.58

 
 
Credit valuation adjustment
 
 
(117
)
 
222

 
 
 
 
 
 
 
 
Total financial derivatives
$
6,628,072

 
$
11,357

 
$
(73,887
)
 
  
 
  
 
 
 
  
Collateral pledged
 
 
—

 
14,223

 
 
 
 
 
 
 
 
Net amount
 
 
$
11,357

 
$
(59,664
)
 
 
 
 
 
 
 
 


21
Table of Contents

  
December 31, 2013
  

 
Fair Value
 
Weighted-
Average
Pay Rate
 
Weighted-
Average Receive Rate
 
Weighted-
Average
Forward
Price
 
Weighted-
Average
Remaining
Life (in years)
  
Notional Amount
 
Asset
 
(Liability)
 
 
 
 
  
(dollars in thousands)
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed non-callable
$
900,000

 
$
—

 
$
(28,989
)