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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Consolidation of Variable Interest Entities

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

Table 1.1


	Consolidation of Variable Interest Entities
	As of September 30, 2020
	Farm & Ranch		USDA Guarantees		Corporate		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	1,276,407	$	—	$	—	$	1,276,407
Debt securities of consolidated trusts held by third parties (1)	1,292,416		—		—		1,292,416
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (2)	—		36,505		—		36,505
Maximum exposure to loss (3)	—		36,414		—		36,414
Investment securities:
Carrying value (4)	—		—		1,835,688		1,835,688
Maximum exposure to loss (3) (4)	—		—		1,829,604		1,829,604
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3) (5)	85,767		310,682		—		396,449

(1)Includes borrower remittances of $16.0 million. The borrower remittances had not been passed through to third party investors as of September 30, 2020.

(2)Includes $0.1 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.


	Consolidation of Variable Interest Entities
	As of December 31, 2019
	Farm & Ranch		USDA Guarantees		Corporate		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost	$	1,600,917	$	—	$	—	$	1,600,917
Debt securities of consolidated trusts held by third parties (1)	1,616,504		—		—		1,616,504
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (2)	—		32,041		—		32,041
Maximum exposure to loss (3)	—		31,887		—		31,887
Investment securities:
Carrying value (4)	—		—		1,117,203		1,117,203
Maximum exposure to loss (3) (4)	—		—		1,120,765		1,120,765
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (3) (5)	107,322		389,216		—		496,538

(1)Includes borrower remittances of $15.6 million. The borrower remittances had not been passed through to third party investors as of December 31, 2019.

(2)Includes $0.2 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.

Basic and Diluted EPS

The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2020 and 2019:

Table 1.2


	For the Three Months Ended
	September 30, 2020					September 30, 2019
	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	$	18,659	10,734	$	1.74	$	14,406	10,706	$	1.34
Effect of dilutive securities(1)
SARs and restricted stock	—		51	(0.01)		—		70	(0.01)
Diluted EPS	$	18,659	10,785	$	1.73	$	14,406	10,776	$	1.33

(1)For the three months ended September 30, 2020 and 2019, SARs and restricted stock of 66,445 and 26,768, 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 September 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 8,414, 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.


	For the Nine Months Ended
	September 30, 2020					September 30, 2019
	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	$	59,745	10,725	$	5.57	$	64,584	10,691	$	6.04
Effect of dilutive securities(1)
SARs and restricted stock	—		56	(0.03)		—		83	(0.05)
Diluted EPS	$	59,745	10,781	$	5.54	$	64,584	10,774	$	5.99

(1)For the nine months ended September 30, 2020 and 2019, SARs and restricted stock of 78,963 and 48,801, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the nine months ended September 30, 2020 and 2019, contingent shares of unvested restricted stock of 12,680 and 10,994, 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.

Schedule of Accumulated Other Comprehensive Income, Net of Tax

The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three and nine months ended September 30, 2020 and 2019:

Table 1.3


	As of September 30, 2020								As of September 30, 2019
	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:
Beginning Balance	$	(88,261)	$	26,379	$	(29,615)	$	(91,497)	$	(45,384)	$	38,021	$	(5,480)	$	(12,843)
Other comprehensive income/(loss) before reclassifications	38,099		—		904		39,003		(18,915)		—		(5,071)		(23,986)
Amounts reclassified from AOCI	(783)		(1,993)		1,433		(1,343)		(776)		(5,169)		(250)		(6,195)
Net comprehensive income/(loss)	37,316		(1,993)		2,337		37,660		(19,691)		(5,169)		(5,321)		(30,181)
Ending Balance	$	(50,945)	$	24,386	$	(27,278)	$	(53,837)	$	(65,075)	$	32,852	$	(10,801)	$	(43,024)

For the Nine Months Ended:
Beginning Balance	$	(43,397)	$	32,845	$	(5,609)	$	(16,161)	$	(25,360)	$	43,443	$	6,873	$	24,956
Other comprehensive loss before reclassifications	(5,210)		—		(24,684)		(29,894)		(37,308)		—		(16,679)		(53,987)
Amounts reclassified from AOCI	(2,338)		(8,459)		3,015		(7,782)		(2,407)		(10,591)		(995)		(13,993)
Net comprehensive loss	(7,548)		(8,459)		(21,669)		(37,676)		(39,715)		(10,591)		(17,674)		(67,980)
Ending Balance	$	(50,945)	$	24,386	$	(27,278)	$	(53,837)	$	(65,075)	$	32,852	$	(10,801)	$	(43,024)

Schedule of Reclassification out of Accumulated Other Comprehensive Income

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 and nine months ended September 30, 2020 and 2019:

Table 1.4


	For the Three Months Ended
	September 30, 2020						September 30, 2019
	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	$	48,226	$	10,127	$	38,099	$	(23,943)	$	(5,028)	$	(18,915)
Less reclassification adjustments included in:
Net interest income(1)	(976)		(205)		(771)		(961)		(202)		(759)

Other income(2)	(15)		(3)		(12)		(21)		(4)		(17)
Total	$	47,235	$	9,919	$	37,316	$	(24,925)	$	(5,234)	$	(19,691)
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)	(2,523)		(530)		(1,993)		(6,543)		(1,374)		(5,169)
Total	$	(2,523)	$	(530)	$	(1,993)	$	(6,543)	$	(1,374)	$	(5,169)
Cash flow hedges
Unrealized gains/(losses) on cash flow hedges	$	1,145	$	241	$	904	$	(6,419)	$	(1,348)	$	(5,071)
Less reclassification adjustments included in:
Net interest income(4)	1,814		381		1,433		(317)		(67)		(250)
Total	$	2,959	$	622	$	2,337	$	(6,736)	$	(1,415)	$	(5,321)
Other comprehensive income/(loss)	$	47,671	$	10,011	$	37,660	$	(38,204)	$	(8,023)	$	(30,181)

(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.


	For the Nine Months Ended
	September 30, 2020						September 30, 2019
	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
	(in thousands)
Other comprehensive income:
Available-for-sale-securities:
Unrealized holding losses on available-for-sale securities	$	(6,596)	$	(1,386)	$	(5,210)	$	(47,225)	$	(9,917)	$	(37,308)
Less reclassification adjustments included in:
Net interest income(1)	(2,916)		(612)		(2,304)		(2,870)		(603)		(2,267)

Other income(2)	(42)		(8)		(34)		(177)		(37)		(140)
Total	$	(9,554)	$	(2,006)	$	(7,548)	$	(50,272)	$	(10,557)	$	(39,715)
Held-to-maturity securities:
Less reclassification adjustments included in:
Net interest income(3)	(10,707)		(2,248)		(8,459)		(13,406)		(2,815)		(10,591)
Total	$	(10,707)	$	(2,248)	$	(8,459)	$	(13,406)	$	(2,815)	$	(10,591)
Cash flow hedges
Unrealized losses on cash flow hedges	$	(31,246)	$	(6,562)	$	(24,684)	$	(21,113)	$	(4,434)	$	(16,679)
Less reclassification adjustments included in:
Net interest income(4)	3,817		802		3,015		(1,260)		(265)		(995)
Total	$	(27,429)	$	(5,760)	$	(21,669)	$	(22,373)	$	(4,699)	$	(17,674)
Other comprehensive loss	$	(47,690)	$	(10,014)	$	(37,676)	$	(86,051)	$	(18,071)	$	(67,980)

(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.

(4)Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.

Recently Adopted Accounting Guidance and Recently Issued Accounting Guidance, Note Yet Adopted Within Out Consolidated Financial Statements

Recently Adopted Accounting Guidance


Standard	Description	Date of Adoption	Effect on Consolidated Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This Update required entities to measure all expected credit losses for financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, as well as requiring entities to use forward-looking information to form their credit loss estimates.	January 1, 2020	In first quarter 2020 Farmer Mac adopted the new guidance. The cumulative-effect adjustment to retained earnings as of January 1, 2020 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. For more information on the transition adjustment see Table 1.5 below.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. There is no required accounting change for securities held at a discount in this Update.	January 1, 2020	The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added.	January 1, 2020	The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

The following table presents the impact of adopting CECL on January 1, 2020 on our allowance and retained earnings:

Table 1.5


	December 31, 2019		Transition Adjustment		January 1, 2020
	(in thousands)
Allowance:
Farm & Ranch:
Loans	$	10,454	$	(3,909)	$	6,545
Long-term standby purchase commitments and guarantees	2,164		(148)		2,016
Rural Utilities:
Loans	—		5,378		5,378
Long-term standby purchase commitments	—		1,011		1,011
Farmer Mac Guaranteed Securities:
AgVantage	—		315		315
Investment Securities	—		9		9
Total Allowance	$	12,618	$	2,656	$	15,274

Retained Earnings	$	457,047	$	(2,099)	$	454,948

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements


Standard	Description	Date of Planned Adoption	Effect on Consolidated Financial Statements
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. They provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.	The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.	Farmer Mac is currently evaluating the impact of the discontinuation of LIBOR on the consolidated financial statements and the applicability of the optional guidance provided by this Update.

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

+ References + Details