Document


As filed with the Securities and Exchange Commission on May 10, 2018
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, 2018
Commission File Number 001-14951 
 ____________________________________________________________

logo2016.jpg
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, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o (Do not check if smaller reporting company)
 
 
 
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 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 1, 2018, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock, and 9,120,776 shares of Class C non-voting common stock.





Table of Contents
PART I - Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I

Item 1.
Financial Statements


3


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
As of
 
March 31, 2018
 
December 31, 2017
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
493,258

 
$
302,022

Investment securities:
 

 
 

Available-for-sale, at fair value
2,193,352

 
2,215,405

Held-to-maturity, at amortized cost
45,032

 
45,032

Total Investment Securities
2,238,384

 
2,260,437

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
5,839,387

 
5,471,914

Held-to-maturity, at amortized cost
2,182,043

 
2,126,274

Total Farmer Mac Guaranteed Securities
8,021,430

 
7,598,188

USDA Securities:
 

 
 

Trading, at fair value
11,558

 
13,515

Held-to-maturity, at amortized cost
2,127,769

 
2,117,850

Total USDA Securities
2,139,327

 
2,131,365

Loans:
 

 
 

Loans held for investment, at amortized cost
3,866,844

 
3,873,755

Loans held for investment in consolidated trusts, at amortized cost
1,441,718

 
1,399,827

Allowance for loan losses
(6,365
)
 
(6,796
)
Total loans, net of allowance
5,302,197

 
5,266,786

Real estate owned, at lower of cost or fair value
123

 
139

Financial derivatives, at fair value
5,142

 
7,093

Interest receivable (includes $10,179 and $17,373, respectively, related to consolidated trusts)
114,070

 
155,278

Guarantee and commitment fees receivable
39,997

 
39,895

Deferred tax asset, net
—

 
2,048

Prepaid expenses and other assets
43,308

 
29,023

Total Assets
$
18,397,236

 
$
17,792,274

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
7,896,359

 
$
8,089,826

Due after one year
8,127,594

 
7,432,790

Total notes payable
16,023,953

 
15,522,616

Debt securities of consolidated trusts held by third parties
1,463,653

 
1,404,945

Financial derivatives, at fair value
22,570

 
26,599

Accrued interest payable (includes $8,533 and $14,631, respectively, related to consolidated trusts)
71,348

 
75,402

Guarantee and commitment obligation
38,487

 
38,400

Accounts payable and accrued expenses
25,641

 
14,096

Deferred tax liability, net
4,227

 
—

Reserve for losses
2,091

 
2,070

Total Liabilities
17,651,970

 
17,084,128

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
73,044

 
73,044

      Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding
73,382

 
73,382

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, 9,119,416 shares and 9,087,670 shares outstanding, respectively
9,119

 
9,088

Additional paid-in capital
118,208

 
118,979

Accumulated other comprehensive income, net of tax
72,111

 
51,085

Retained earnings
339,538

 
322,704

Total Equity
745,266

 
708,146

Total Liabilities and Equity
$
18,397,236

 
$
17,792,274

The accompanying notes are an integral part of these consolidated financial statements.



4


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands, except per share amounts)
Interest income:
 
 
 
Investments and cash equivalents
$
11,463

 
$
7,243

Farmer Mac Guaranteed Securities and USDA Securities
62,430

 
42,522

Loans
45,653

 
36,852

Total interest income
119,546

 
86,617

Total interest expense
76,317

 
49,546

Net interest income
43,229

 
37,071

Release of/(provision for) loan losses
431

 
(637
)
Net interest income after release of (provision for) loan losses
43,660

 
36,434

Non-interest income:
 
 
 
Guarantee and commitment fees
3,499

 
3,844

(Losses)/gains on financial derivatives and hedging activities
(3,850
)
 
2,486

Gains/(losses) on trading securities
16

 
(82
)
Losses on sale of real estate owned
—

 
(5
)
Other income
574

 
553

Non-interest income
239

 
6,796

Non-interest expense:
 
 
 
Compensation and employee benefits
6,654

 
6,317

General and administrative
4,326

 
3,800

Regulatory fees
625

 
625

Real estate owned operating costs, net
16

 
—

Provision for/(release of) reserve for losses
21

 
(193
)
Non-interest expense
11,642

 
10,549

Income before income taxes
32,257

 
32,681

Income tax expense
6,438

 
10,786

Net income
25,819

 
21,895

Less: Net loss attributable to non-controlling interest
—

 
15

Net income attributable to Farmer Mac
25,819

 
21,910

Preferred stock dividends
(3,295
)
 
(3,295
)
Net income attributable to common stockholders
$
22,524

 
$
18,615

 
 
 
 
Earnings per common share and dividends:
 
 
 
Basic earnings per common share
$
2.12

 
$
1.76

Diluted earnings per common share
$
2.10

 
$
1.73

Common stock dividends per common share
$
0.58

 
$
0.36

The accompanying notes are an integral part of these consolidated financial statements.


5


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands)
Net income
$
25,819

 
$
21,895

Other comprehensive income before taxes:
 
 
 
Net unrealized gains on available-for-sale securities
21,228

 
14,838

Net changes in held-to-maturity securities
(1,310
)
 
(3,487
)
Net unrealized gains on cash flow hedges
6,663

 
629

Other comprehensive income before tax
26,581

 
11,980

Income tax expense related to other comprehensive income
(5,582
)
 
(4,194
)
Other comprehensive income net of tax
20,999

 
7,786

Comprehensive income
46,818

 
29,681

Less: comprehensive loss attributable to non-controlling interest
—

 
15

Comprehensive income attributable to Farmer Mac
$
46,818

 
$
29,696

The accompanying notes are an integral part of these consolidated financial statements.


6


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Other
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In
 
Comprehensive
 
Retained
 
Non-controlling
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Income/(Loss)
 
Earnings
 
Interest
 
Equity
 
(in thousands)
Balance as of December 31, 2016
8,400

 
$
204,759

 
10,539

 
$
10,539

 
$
118,655

 
$
33,758

 
$
275,714

 
$
222

 
$
643,647

Net income/(loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Farmer Mac
—

 
—

 
—

 
—

 
—

 
—

 
21,910

 
—

 
21,910

Attributable to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(15
)
 
(15
)
Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
7,786

 
—

 
—

 
7,786

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
(3,295
)
 
—

 
(3,295
)
Common stock
—

 
—

 
—

 
—

 
—

 
—

 
(3,799
)
 
—

 
(3,799
)
Issuance of Class C Common Stock
—

 
—

 
57

 
57

 
144

 
—

 
—

 
—

 
201

Stock-based compensation cost
—

 
—

 
—

 
—

 
981

 
—

 
—

 
—

 
981

Other stock-based award activity
—

 
—

 
—

 
—

 
(1,394
)
 
—

 
—

 
—

 
(1,394
)
Balance as of March 31, 2017
8,400

 
$
204,759

 
10,596

 
$
10,596

 
$
118,386

 
$
41,544

 
$
290,530

 
$
207

 
$
666,022

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
8,400

 
$
204,759

 
10,619

 
$
10,619

 
$
118,979

 
$
51,085

 
$
322,704

 
$
—

 
$
708,146

Cumulative effect from change in hedge accounting
—

 
—

 
—

 
—

 
—

 
27

 
471

 
—

 
498

Balance as of January 1, 2018
8,400

 
$
204,759

 
10,619

 
$
10,619

 
$
118,979

 
$
51,112

 
$
323,175

 
$
—

 
$
708,644

Net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Farmer Mac
—

 
—

 
—

 
—

 
—

 
—

 
25,819

 
—

 
25,819

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
20,999

 
—

 
—

 
20,999

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
(3,295
)
 
—

 
(3,295
)
Common stock
—

 
—

 
—

 
—

 
—

 
—

 
(6,161
)
 
—

 
(6,161
)
Issuance of Class C Common Stock
—

 
—

 
31

 
31

 
3

 
—

 
—

 
—

 
34

Stock-based compensation cost
—

 
—

 
—

 
—

 
664

 
—

 
—

 
—

 
664

Other stock-based award activity
—

 
—

 
—

 
—

 
(1,438
)
 
—

 
—

 
—

 
(1,438
)
Balance as of March 31, 2018
8,400

 
$
204,759

 
10,650

 
$
10,650

 
$
118,208

 
$
72,111

 
$
339,538

 
$
—

 
$
745,266

The accompanying notes are an integral part of these consolidated financial statements.


7


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
25,819

 
$
21,895

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
309

 
181

Amortization of debt premiums, discounts and issuance costs
6,008

 
5,656

Net change in fair value of trading securities, hedged assets, and financial derivatives
19,174

 
525

(Gains)/losses on sale of real estate owned
—

 
5

Total provision for losses
(410
)
 
444

Excess tax benefits related to stock-based awards
440

 
679

Deferred income taxes
(161
)
 
1,419

Stock-based compensation expense
664

 
981

Proceeds from repayment of loans purchased as held for sale
34,699

 
25,928

Net change in:
 
 
 
Interest receivable
41,219

 
37,292

Guarantee and commitment fees receivable
(15
)
 
(357
)
Other assets
(11,973
)
 
2,236

Accrued interest payable
(4,054
)
 
(2,855
)
Other liabilities
6,111

 
8,605

Net cash provided by operating activities
117,830

 
102,634

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale investment securities
(242,677
)
 
(66,561
)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
(931,199
)
 
(692,245
)
Purchases of loans held for investment
(267,756
)
 
(341,702
)
Purchases of defaulted loans
(721
)
 
(311
)
Proceeds from repayment of available-for-sale investment securities
263,621

 
183,749

Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
472,235

 
338,063

Proceeds from repayment of loans purchased as held for investment
191,298

 
182,790

Proceeds from sale of Farmer Mac Guaranteed Securities
131,202

 
149,607

Proceeds from sale of real estate owned
—

 
697

Net cash used by investing activities
(383,997
)
 
(245,913
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of discount notes
10,587,657

 
13,618,574

Proceeds from issuance of medium-term notes
2,060,844

 
2,251,535

Payments to redeem discount notes
(10,941,104
)
 
(14,766,905
)
Payments to redeem medium-term notes
(1,200,936
)
 
(856,300
)
Payments to third parties on debt securities of consolidated trusts
(38,197
)
 
(46,926
)
Proceeds from common stock issuance
3

 
148

Tax payments related to share-based awards
(1,407
)
 
(1,341
)
Dividends paid on common and preferred stock
(9,457
)
 
(7,094
)
Net cash provided/(used) by financing activities
457,403

 
191,691

Net increase in cash and cash equivalents
191,236

 
48,412

Cash and cash equivalents at beginning of period
302,022

 
265,229

Cash and cash equivalents at end of period
$
493,258

 
$
313,641

  The accompanying notes are an integral part of these consolidated financial statements.



8


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

1.
SUMMARY OF SIGNIFICANT 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 ("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, 2017 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2017 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 2017 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, 2017 filed with the SEC on March 8, 2018. 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, 2018.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of 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 accounts of Contour Valuation Services, LLC (which began doing business as AgVisory during first quarter 2016) ("AgVisory"), Farmer Mac's former majority-owned subsidiary, are also included through March 31, 2017. Farmer Mac redeemed its ownership interest in AgVisory on May 1, 2017.



9


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



Table 1.1
 
Consolidation of Variable Interest Entities
 
As of March 31, 2018
 
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
$
1,441,718

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,441,718

Debt securities of consolidated trusts held by third parties (1)
1,463,653

 
—

 
—

 
—

 
—

 
1,463,653

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value (2)
—

 
29,900

 
—

 
—

 
—

 
29,900

      Maximum exposure to loss (3)
—

 
29,596

 
—

 
—

 
—

 
29,596

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
837,840

 
837,840

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
835,202

 
835,202

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
314,497

 
284,435

 
—

 
—

 
—

 
598,932

(1) 
Includes borrower remittances of $21.9 million. The borrower remittances had not been passed through to third party investors as of March 31, 2018.
(2) 
Includes $0.3 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(3) 
Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
(4) 
Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(5) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.



10


 
Consolidation of Variable Interest Entities
 
As of December 31, 2017
 
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
$
1,399,827

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,399,827

Debt securities of consolidated trusts held by third parties (1)
1,404,945

 
—

 
—

 
—

 
—

 
1,404,945

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value (2)
—

 
30,300

 
—

 
—

 
—

 
30,300

      Maximum exposure to loss (3)
—

 
29,980

 
—

 
—

 
—

 
29,980

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
783,964

 
783,964

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
783,916

 
783,916

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
333,511

 
254,217

 
—

 
—

 
—

 
587,728

(1) 
Includes borrower remittances of $5.1 million, which have not been passed through to third party investors as of December 31, 2017.
(2) 
Includes $0.3 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(3) 
Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.
(4) 
Includes auction-rate certificates, asset-backed securities, and GSE-guaranteed mortgage-backed securities.
(5) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.


(a)
Statements of Cash Flows 

The following table sets forth information regarding certain cash and non-cash transactions for the three months ended March 31, 2018 and 2017:


Table 1.2

 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
(in thousands)
Non-cash activity:
 
 
 
Real estate owned acquired through loan liquidation
—

 
4,630

Loans acquired and securitized as Farmer Mac Guaranteed Securities
131,202

 
149,607

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
96,909

 
117,018

Purchases of securities - traded not yet settled
5,640

 
—






11


(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, 2018 and 2017:

Table 1.3
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
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
$
22,524

 
10,622

 
$
2.12

 
$
18,615

 
10,551

 
$
1.76

Effect of dilutive securities(1)
 

 
 

 
 
 
 

 
 

 
 
Stock options, SARs and restricted stock
—

 
119

 
(0.02
)
 
—

 
231

 
(0.03
)
Diluted EPS
$
22,524

 
10,741

 
$
2.10

 
$
18,615

 
10,782

 
$
1.73

(1) 
For the three months ended March 31, 2018, 25,062 SARs were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive, compared to 50,757 stock options and SARs for the three months ended March 31, 2017. For the three months ended March 31, 2018 and 2017, contingent shares of non-vested restricted stock of 13,138 and 32,892, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met.

(c)
Comprehensive Income

Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes.



12


The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three months ended March 31, 2018 and 2017:

Table 1.4

 
As of March 31, 2018
 
As of March 31, 2017
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Cash Flow Hedges
 
Total
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Cash Flow Hedges
 
Total
 
(in thousands)
For the Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
$
(1,676
)
 
$
48,236

 
$
4,525

 
$
51,085

 
$
(14,387
)
 
$
45,752

 
$
2,393

 
$
33,758

Cumulative effect from change in hedge accounting
—

 
—

 
27

 
27

 
—

 
—

 
—

 
—

Balance as of January 1, 2018
(1,676
)
 
48,236

 
4,552

 
51,112

 
(14,387
)
 
45,752

 
2,393

 
33,758

Other comprehensive income before reclassifications
18,187

 
—

 
5,053

 
23,240

 
12,223

 
—

 
76

 
12,299

Amounts reclassified from AOCI
(1,417
)
 
(1,035
)
 
211

 
(2,241
)
 
(2,578
)
 
(2,267
)
 
332

 
(4,513
)
Net comprehensive income/(loss)
16,770

 
(1,035
)
 
5,264

 
20,999

 
9,645

 
(2,267
)
 
408

 
7,786

Ending Balance
$
15,094

 
$
47,201

 
$
9,816

 
$
72,111

 
$
(4,742
)
 
$
43,485

 
$
2,801

 
$
41,544




13


The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three months ended March 31, 2018 and 2017:

Table 1.5

 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
(in thousands)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale-securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains/(losses) on available-for-sale-securities
$
23,022

 
$
4,835

 
$
18,187

 
$
18,804

 
$
6,581

 
$
12,223

Less reclassification adjustments included in:
 
 
 
 
 
 

 
 
 
 
Net Interest Income(1)
(1,787
)
 
(375
)
 
(1,412
)
 
—

 
—

 
—

Gains/(losses) on financial derivatives and hedging activities(1)
—

 
—

 
—

 
(3,959
)
 
(1,386
)
 
(2,573
)
 
 
 
 
 
 
 
 
 
 
 
 
Other income(2)
(7
)
 
(2
)
 
(5
)
 
(7
)
 
(2
)
 
(5
)
Total
$
21,228

 
$
4,458

 
$
16,770

 
$
14,838

 
$
5,193

 
$
9,645

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
Net interest income(3)
(1,310
)
 
(275
)
 
(1,035
)
 
(3,487
)
 
(1,220
)
 
(2,267
)
Total
$
(1,310
)
 
$
(275
)
 
$
(1,035
)
 
$
(3,487
)
 
$
(1,220
)
 
$
(2,267
)
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses) on cash flow hedges
$
6,396

 
$
1,343

 
$
5,053

 
$
117

 
$
41

 
$
76

Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
Net interest income(4)
267

 
56

 
211

 
512

 
180

 
332

Total
$
6,663

 
$
1,399

 
$
5,264

 
$
629

 
$
221

 
$
408

Other comprehensive income/(loss)
$
26,581

 
$
5,582

 
$
20,999

 
$
11,980

 
$
4,194

 
$
7,786

(1) 
Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.
(2) 
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.
(3) 
Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income.
(4) 
Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.

(d) New Accounting Standards

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments—Credit Losses," which will require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Entities will be required to use forward-looking information to form their credit loss estimates.  The ASU will also require enhanced disclosures to help users of financial statements better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.  The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019.   Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Farmer Mac is currently developing its accounting policy, planning for changes to its loss estimation methodologies and evaluating the impact that the new guidance will have on its consolidated financial statements. That impact will primarily be from the new requirement to recognize all expected losses rather than just incurred losses as of the reporting date. 


14



In March 2017, the FASB issued ASU 2017-08, "Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. The ASU does not require an accounting change for securities held at a discount. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. Farmer Mac does not expect that adoption of the new guidance will have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

In first quarter 2018 Farmer Mac adopted ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which amends hedge accounting recognition and presentation requirements to better align a reporting entity's risk management activities and hedge accounting. The new guidance reduces the complexity and simplifies the application of hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness and by requiring the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The cumulative-effect adjustment to retained earnings as of January 1, 2018 reflected application of the new guidance and did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

(e)
Reclassifications

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

2.
INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's investment securities as of March 31, 2018 and December 31, 2017:
 
Table 2.1

 
As of March 31, 2018
 
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
$
19,700

 
$
—

 
$
19,700

 
$
—

 
$
(690
)
 
$
19,010

Floating rate asset-backed securities
33,060

 
(143
)
 
32,917

 
24

 
(128
)
 
32,813

Floating rate Government/GSE guaranteed mortgage-backed securities
1,305,939

 
2,053

 
1,307,992

 
1,567

 
(1,883
)
 
1,307,676

Fixed rate GSE guaranteed mortgage-backed securities(1)
435

 
2,029

 
2,464

 
2,121

 
—

 
4,585

Fixed rate U.S. Treasuries
833,912

 
(2,564
)
 
831,348

 
—

 
(2,080
)
 
829,268

Total available-for-sale
2,193,046

 
1,375

 
2,194,421

 
3,712

 
(4,781
)
 
2,193,352

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Fixed rate Government/GSE guaranteed mortgage-backed securities
45,032

 
—

 
45,032

 
1,331

 
—

 
46,363

Total investment securities
$
2,238,078

 
$
1,375

 
$
2,239,453

 
$
5,043

 
$
(4,781
)
 
$
2,239,715

(1) 
Fair value includes $4.1 million of an interest-only security with a notional amount of $143.1 million.



15


 
As of December 31, 2017
 
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
$
19,700

 
$
—

 
$
19,700

 
$
—

 
$
(886
)
 
$
18,814

Floating rate asset-backed securities
34,462

 
(154
)
 
34,308

 
22

 
(120
)
 
34,210

Floating rate Government/GSE guaranteed mortgage-backed securities
1,289,123

 
2,217

 
1,291,340

 
2,215

 
(3,368
)
 
1,290,187

Fixed rate GSE guaranteed mortgage-backed securities(1)
451

 
2,138

 
2,589

 
2,230

 
—

 
4,819

Fixed rate senior agency debt
100,000

 
—

 
100,000

 
—

 
(49
)
 
99,951

Fixed rate U.S. Treasuries
770,852

 
(1,836
)
 
769,016

 
—

 
(1,592
)
 
767,424

Total available-for-sale
2,214,588

 
2,365

 
2,216,953

 
4,467

 
(6,015
)
 
2,215,405

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Fixed rate Government/GSE guaranteed mortgage-backed securities
45,032

 
—

 
45,032

 
532

 
—

 
45,564

Total investment securities
$
2,259,620

 
$
2,365

 
$
2,261,985

 
$
4,999

 
$
(6,015
)
 
$
2,260,969

(1) 
Fair value includes $4.3 million of an interest-only security with a notional amount of $143.7 million.

Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the three months ended March 31, 2018 and 2017.

As of March 31, 2018 and December 31, 2017, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2

 
As of March 31, 2018
 
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
$
—

 
$
—

 
$
19,010

 
$
(690
)
Floating rate asset-backed securities
—

 
—

 
22,114

 
(128
)
Floating rate Government/GSE guaranteed mortgage-backed securities
383,636

 
(703
)
 
188,940

 
(1,180
)
Fixed rate U.S. Treasuries
819,271

 
(2,077
)
 
9,996

 
(3
)
Fixed rate senior agency debt
—

 
—

 
—

 
—

Total
$
1,202,907

 
$
(2,780
)
 
$
240,060

 
$
(2,001
)



16


 
As of December 31, 2017
 
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
$
—

 
$
—

 
$
18,814

 
$
(886
)
Floating rate asset-backed securities
—

 
—

 
23,145

 
(120
)
Floating rate Government/GSE guaranteed mortgage-backed securities
292,522

 
(2,337
)
 
221,641

 
(1,031
)
Fixed rate U.S. Treasuries
742,442

 
(1,572
)
 
24,983

 
(20
)
Fixed rate senior agency debt
—

 
—

 
99,951

 
(49
)
Total
$
1,034,964

 
$
(3,909
)
 
$
388,534

 
$
(2,106
)

The unrealized losses presented above are principally due to a general widening of market spreads and an increase in the levels of interest rates from the dates of acquisition to March 31, 2018 and December 31, 2017, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of March 31, 2018 and December 31, 2017, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+." The unrealized losses were on 104 and 91 individual investment securities as of March 31, 2018 and December 31, 2017, respectively.

As of March 31, 2018, 45 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $2.0 million. As of December 31, 2017, 51 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $2.1 million.  Securities in unrealized loss positions for 12 months or longer have a fair value as of March 31, 2018 that is, on average, approximately 99.2 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 maturity or changes in credit spreads. Accordingly, Farmer Mac has concluded that none of the unrealized losses on these available-for-sale investment securities are other-than-temporary impairment as of March 31, 2018 and December 31, 2017.

As of March 31, 2018, Farmer Mac owned $45.0 million of held-to-maturity investment securities at amortized cost with a fair value of $46.4 million and a weighted average yield of 2.8 percent. As of December 31, 2017, Farmer Mac owned $45.0 million of held-to-maturity investment securities at amortized cost with a fair value of $45.6 million and a weighted average yield of 2.5 percent. Farmer Mac did not own any trading investment securities as of March 31, 2018 and December 31, 2017.



17


The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of March 31, 2018 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

 
As of March 31, 2018
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
716,640

 
$
715,000

 
1.09%
Due after one year through five years
358,743

 
358,688

 
1.83%
Due after five years through ten years
402,603

 
405,264

 
2.06%
Due after ten years
716,435

 
714,400

 
2.19%
Total
$
2,194,421

 
$
2,193,352

 
1.75%

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, 2018 and December 31, 2017:

Table 3.1

 
As of March 31, 2018
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
2,152,618

 
$
(475
)
 
$
2,152,143

 
$
534

 
$
(16,265
)
 
$
2,136,412

Farmer Mac Guaranteed USDA Securities
29,596

 
304

 
29,900

 
422

 
(6
)
 
30,316

Total Farmer Mac Guaranteed Securities
2,182,214

 
(171
)
 
2,182,043

 
956

 
(16,271
)
 
2,166,728

USDA Securities
2,066,645

 
61,124

 
2,127,769

 
740

 
(52,293
)
 
2,076,216

Total held-to-maturity
$
4,248,859

 
$
60,953

 
$
4,309,812

 
$
1,696

 
$
(68,564
)
 
$
4,242,944

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
5,861,731

 
$
(165
)
 
$
5,861,566

 
$
22,731

 
$
(44,910
)
 
$
5,839,387

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
11,063

 
$
852

 
$
11,915

 
$
38

 
$
(395
)
 
$
11,558




18


 
As of December 31, 2017
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
2,096,754

 
$
(779
)
 
$
2,095,975

 
$
2,011

 
$
(11,429
)
 
$
2,086,557

Farmer Mac Guaranteed USDA Securities
29,980

 
319

 
30,299

 
108

 
(73
)
 
30,334

Total Farmer Mac Guaranteed Securities
2,126,734

 
(460
)
 
2,126,274

 
2,119

 
(11,502
)
 
2,116,891

USDA Securities
2,055,050

 
62,800

 
2,117,850

 
—

 
(54,969
)
 
2,062,881

Total held-to-maturity
$
4,181,784

 
$
62,340

 
$
4,244,124

 
$
2,119

 
$
(66,471
)
 
$
4,179,772

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
5,496,569

 
$
(182
)
 
$
5,496,387

 
$
21,838

 
$
(46,311
)
 
$
5,471,914

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
12,966

 
$
922

 
$
13,888

 
$
28

 
$
(401
)
 
$
13,515



As of March 31, 2018 and December 31,2017, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows:

Table 3.2

 
As of March 31, 2018
 
Held-to-Maturity and Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss