Edgar Filing: FEDERAL AGRICULTURAL MORTGAGE CORP

Q2 2013 10Q

As filed with the Securities and Exchange Commission on August 8, 2013

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 June 30, 2013

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 August 1, 2013, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock and 9,300,322 shares of Class C non-voting common stock.

Table of Contents



PART I - Financial Information		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
	1. Accounting Policies	8
	2. Investment Securities	13
	3. Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	17
	4. Financial Derivatives	18
	5. Loans and Allowance for Losses	23
	6. Off-Balance Sheet Guarantees and Long Term Standby Purchase Commitments	37
	7. Equity	39
	8. Fair Value Disclosures	41
	9. Business Segment Reporting	51
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	56
	Forward-Looking Statements	56
	Overview	57
	Critical Accounting Policies and Estimates	59
	Results of Operations	59
	Outlook	74
	Balance Sheet Review	76
	Off-Balance Sheet Arrangements	77
	Risk Management	77
	Liquidity and Capital Resources	93
	Regulatory Matters	95
	Other Matters	95
	Supplemental Information	96
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	100
Item 4.	Controls and Procedures	100
PART II - Other Information		101
Item 1.	Legal Proceedings	101
Item 1A.	Risk Factors	101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	101
Item 3.	Defaults Upon Senior Securities	101
Item 4.	Mine Safety Disclosures	101
Item 5.	Other Information	102
Item 6	Exhibits	103
Signatures		104

Table of Contents

PART I - FINANCIAL INFORMATION


Item 1.	Consolidated Financial Statements

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)



	June 30, 2013			December 31, 2012
	(in thousands)
Assets:
Cash and cash equivalents	$	650,723		$	785,564
Investment securities:
Available-for-sale, at fair value	2,455,852			2,498,382
Trading, at fair value	1,064			1,247
Total investment securities	2,456,916			2,499,629
Farmer Mac Guaranteed Securities:
Available-for-sale, at fair value	5,058,853			4,766,258
USDA Guaranteed Securities:
Available-for-sale, at fair value	1,543,764			1,486,595
Trading, at fair value	73,592			104,188
Total USDA Guaranteed Securities	1,617,356			1,590,783
Loans:
Loans held for sale, at lower of cost or fair value	—			673,991
Loans held for investment, at amortized cost	2,397,485			1,503,559
Loans held for investment in consolidated trusts, at amortized cost	559,048			563,575
Allowance for loan losses	(7,368		)	(11,351		)
Total loans, net of allowance	2,949,165			2,729,774
Real estate owned, at lower of cost or fair value	2,841			3,985
Financial derivatives, at fair value	23,164			31,173
Interest receivable (includes $9,318 and $9,676, respectively, related to consolidated trusts)	94,181			103,414
Guarantee and commitment fees receivable	43,074			41,789
Deferred tax asset, net	11,331			3,123
Prepaid expenses and other assets	28,347			66,709
Total Assets	$	12,935,951		$	12,622,201
Liabilities and Equity:
Liabilities:
Notes payable:
Due within one year	$	6,785,164		$	6,567,366
Due after one year	5,173,667			5,034,739
Total notes payable	11,958,831			11,602,105
Debt securities of consolidated trusts held by third parties	168,488			167,621
Financial derivatives, at fair value	99,063			150,682
Accrued interest payable (includes $2,249 and $2,534, respectively, related to consolidated trusts)	52,733			51,779
Guarantee and commitment obligation	39,027			37,803
Accounts payable and accrued expenses	9,378			13,710
Reserve for losses	6,110			5,539
Total Liabilities	12,333,630			12,029,239
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			—
Series C, par value $1,000 per share, 100,000 shares authorized, 57,578 shares issued and outstanding	—			57,578
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, 9,292,942 shares and 9,171,343 shares outstanding, respectively	9,293			9,171
Additional paid-in capital	109,001			106,617
Accumulated other comprehensive income, net of tax, related to available-for-sale securities	38,721			73,969
Retained earnings	143,589			102,243
Total Stockholders' Equity	360,468			351,109
Non-controlling interest - preferred stock	241,853			241,853
Total Equity	602,321			592,962
Total Liabilities and Equity	$	12,935,951		$	12,622,201

See accompanying notes to consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
	(in thousands, except per share amounts)
Interest income:
Investments and cash equivalents	$	5,471		$	6,024		$	11,205		$	12,256
Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	31,605			37,523			63,326			75,269
Loans	24,669			28,031			48,712			57,184
Total interest income	61,745			71,578			123,243			144,709
Total interest expense	33,584			36,961			66,712			75,884
Net interest income	28,161			34,617			56,531			68,825
Release of allowance for loan losses	529			1,220			99			800
Net interest income after release of loan losses	28,690			35,837			56,630			69,625
Non-interest income/(loss):
Guarantee and commitment fees	6,759			6,064			13,371			11,994
Gains/(losses) on financial derivatives and hedging activities	14,983			(31,292		)	19,477			(24,892		)
Losses on trading assets	(327		)	(3,086		)	(117		)	(1,987		)
Gains on sale of available-for-sale investment securities	3,071			—			3,073			28
Gains on sale of real estate owned	1,124			262			1,171			262
Other income	873			771			1,953			1,492
Non-interest income/(loss)	26,483			(27,281		)	38,928			(13,103		)
Non-interest expense:
Compensation and employee benefits	4,571			4,574			9,269			9,059
General and administrative	2,715			2,664			5,632			5,422
Regulatory fees	594			562			1,188			1,125
Real estate owned operating costs, net	259			15			385			21
(Release of)/provision for reserve for losses	(175		)	1,394			571			1,424
Non-interest expense	7,964			9,209			17,045			17,051
Income/(loss) before income taxes	47,209			(653		)	78,513			39,471
Income tax expense/(benefit)	13,036			(2,629		)	21,752			9,025
Net income	34,173			1,976			56,761			30,446
Less: Net income attributable to non-controlling interest - preferred stock dividends	(5,547		)	(5,547		)	(11,094		)	(11,094		)
Net income/(loss) attributable to Farmer Mac	28,626			(3,571		)	45,667			19,352
Preferred stock dividends	(881		)	(720		)	(1,732		)	(1,440		)
Net income/(loss) attributable to common stockholders	$	27,745		$	(4,291	)	$	43,935		$	17,912

Earnings/(loss) per common share and dividends:
Basic earnings/(loss) per common share	$	2.57		$	(0.41	)	$	4.08		$	1.72
Diluted earnings/(loss) per common share	$	2.48		$	(0.41	)	$	3.93		$	1.63
Common stock dividends per common share	$	0.12		$	0.10		$	0.24		$	0.20

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						For the Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
	(in thousands)
Net income	$	34,173		$	1,976		$	56,761		$	30,446
Other comprehensive (loss)/income, net of tax:
Unrealized holding (losses)/gains on available-for-sale securities (1)	(48,190		)	10,827			(26,378		)	10,863
Less reclassification adjustments included in:
Gains on financial derivatives and hedging activities (2)	(3,211		)	—			(6,418		)	—
Gains on sale of available-for-sale investment securities (3)	(1,996		)	—			(1,997		)	(18		)
Other income (4)	(241		)	(237		)	(455		)	(502		)
Other comprehensive (loss)/income	(53,638		)	10,590			(35,248		)	10,343
Comprehensive income	(19,465		)	12,566			21,513			40,789
Less: Comprehensive income attributable to noncontrolling interest - preferred stock dividends	(5,547		)	(5,547		)	(11,094		)	(11,094		)
Comprehensive income attributable to Farmer Mac	$	(25,012	)	$	7,019		$	10,419		$	29,695


(1)	Presented net of income tax benefit of $25.9 million and expense of $5.8 million for the three months ended June 30, 2013 and 2012, respectively, and income tax benefit of $14.2 million and expense of $5.8 million for the six months ended June 30, 2013 and 2012, respectively.


(2)	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 and $3.5 million for the three months and six months ended June 30, 2013, respectively.


(3)	Represents realized gains on sales of available-for-sale investment securities. Presented net of income tax benefit of $1.1 million for the three months ended June 30, 2013 and income tax benefit of $1.1 million and $10,000 for the six months ended June 30, 2013 and 2012, respectively.


(4)	Represents amortization of deferred gains related to certain available-for-sale USDA Guaranteed Securities and Farmer Mac Guaranteed Securities. Presented net of income tax benefit of $0.1 million for the three months ended June 30, 2013 and 2012, and income tax benefit of $0.2 million and $0.3 million for the six months ended June 30, 2013 and 2012, respectively.

See accompanying notes to consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)



	For the Six Months Ended
	June 30, 2013					June 30, 2012
	Shares		Amount			Shares	Amount
	(in thousands)
Preferred stock:
Balance, beginning of period	58		$	57,578		58	$	57,578
Issuance of Series A preferred stock	2,400		58,333			—	—
Redemption of Series C preferred stock	(58	)	(57,578		)	—	—
Balance, end of period	2,400		$	58,333		58	$	57,578
Common stock:
Balance, beginning of period	10,702		$	10,702		10,357	$	10,357
Issuance of Class C common stock	122		122			126	126
Balance, end of period	10,824		$	10,824		10,483	$	10,483
Additional paid-in capital:
Balance, beginning of period			$	106,617			$	102,821
Stock-based compensation expense			1,540				1,800
Issuance of Class C common stock			3				7
Tax effect of stock-based awards			841				(609		)
Balance, end of period			$	109,001			$	104,019
Retained earnings:
Balance, beginning of period			$	102,243			$	62,554
Net income attributable to Farmer Mac			45,667				19,352
Cash dividends:
Preferred stock, Series A ($0.6650 per share)			(1,596		)		—
Preferred stock, Series C ($2.36 per share in 2013 and $25.00 per share in 2012)			(136		)		(1,440		)
Common stock ($0.24 per share in 2013 and $0.20 per share in 2012)			(2,589		)		(2,084		)
Balance, end of period			$	143,589			$	78,382
Accumulated other comprehensive income:
Balance, beginning of period			$	73,969			$	79,370
Other comprehensive (loss)/income, net of tax			(35,248		)		10,343
Balance, end of period			$	38,721			$	89,713
Total Stockholders' Equity			$	360,468			$	340,175
Non-controlling interest - preferred stock:
Balance, beginning of period			$	241,853			$	241,853
Issuance of Preferred stock - Farmer Mac II LLC			—				—
Balance, end of period			$	241,853			$	241,853
Total Equity			$	602,321			$	582,028

See accompanying notes to consolidated financial statements.

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



	For the Six Months Ended
	June 30, 2013			June 30, 2012
	(in thousands)
Cash flows from operating activities:
Net income	$	56,761		$	30,446
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 Guaranteed Securities	5,138			6,998
Amortization of debt premiums, discounts and issuance costs	6,286			6,934
Net change in fair value of trading securities, hedged assets, financial derivatives, and loans held for sale	(25,626		)	7,911
Gains on the sale of available-for-sale investment securities	(3,073		)	(28		)
Gains on the sale of real estate owned	(1,171		)	(262		)
Total provision for losses	472			624
Deferred income taxes	10,117			(3,657		)
Stock-based compensation expense	1,539			1,800
Proceeds from repayment of trading investment securities	501			527
Purchases of loans held for sale	—			(86,963		)
Proceeds from repayment of loans purchased as held for sale	76,841			78,156
Net change in:
Interest receivable	9,233			14,290
Guarantee and commitment fees receivable	(1,285		)	(6,738		)
Other assets	37,930			(54,632		)
Accrued interest payable	954			(5,857		)
Other liabilities	(864		)	4,409
Net cash provided by/(used in) operating activities	173,753			(6,042		)
Cash flows from investing activities:
Purchases of available-for-sale investment securities	(744,464		)	(1,058,206		)
Purchases of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	(858,084		)	(667,338		)
Purchases of loans held for investment	(426,506		)	(251,583		)
Purchases of defaulted loans	(6,075		)	(3,857		)
Proceeds from repayment of available-for-sale investment securities	622,116			581,672
Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	459,241			437,375
Proceeds from repayment of loans purchased as held for investment	131,932			159,666
Proceeds from sale of available-for-sale investment securities	170,614			5,028
Proceeds from sale of Farmer Mac Guaranteed Securities	35,891			17,628
Proceeds from sale of real estate owned	3,407			938
Net cash used in investing activities	(611,928		)	(778,677		)
Cash flows from financing activities:
Proceeds from issuance of discount notes	32,594,765			34,231,830
Proceeds from issuance of medium-term notes	1,725,931			1,315,854
Payments to redeem discount notes	(32,998,256		)	(34,013,370		)
Payments to redeem medium-term notes	(972,000		)	(732,000		)
Excess tax benefits related to stock-based awards	658			856
Payments to third parties on debt securities of consolidated trusts	(35,024		)	(69,124		)
Proceeds from common stock issuance	1,205			27
Proceeds from Series A Preferred stock issuance	58,333			—
Retirement of Series C Preferred stock	(57,578		)	—
Dividends paid - Non-controlling interest - preferred stock	(11,094		)	(11,094		)
Dividends paid on common and preferred stock	(3,606		)	(2,804		)
Net cash provided by financing activities	303,334			720,175
Net decrease in cash and cash equivalents	(134,841		)	(64,544		)
Cash and cash equivalents at beginning of period	785,564			817,046
Cash and cash equivalents at end of period	$	650,723		$	752,502

See accompanying notes to consolidated financial statements.

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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, 2012 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2012 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 2012 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, 2012 filed with the SEC on March 18, 2013. Described in that Form 10-K are 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 Guaranteed 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. 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 and six month periods ended June 30, 2013.

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 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-guaranteed portions of loans that are guaranteed by the USDA pursuant to the Consolidated Farm and Rural Development Act ("USDA Guaranteed Securities"). The consolidated financial statements also include the accounts of variable interest entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary.

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

Table 1.1



	Consolidation of Variable Interest Entities
	June 30, 2013
	Farm & Ranch		USDA Guarantees		Rural Utilities		Investments		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost (1)	$	164,056	$	—	$	394,993	$	—	$	559,049
Debt securities of consolidated trusts held by third parties (2)	168,488		—		—		—		168,488
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (3)	31,010		25,794		—		—		56,804
Maximum exposure to loss (4)	30,000		25,339		—		—		55,339
Investment securities:
Carrying value	—		—		—		694,454		694,454
Maximum exposure to loss (4)	—		—		—		701,287		701,287
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (4) (5)	1,797,069		22,971		—		—		1,820,040


(1)	Includes unamortized premiums related to Rural Utilities of $33.2 million.


(2)	Includes borrower remittances of $4.4 million, which have not been passed through to third party investors as of June 30, 2013.


(3)	Includes unamortized premiums and discounts and fair value adjustments related to Farm & Ranch and USDA Guarantees of $1.0 million and $0.5 million, respectively.


(4)	Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.


(5)	Of the Farm & Ranch amount, $827.1 million 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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	Consolidation of Variable Interest Entities
	December 31, 2012
	Farm & Ranch		USDA Guarantees		Rural Utilities		Investments		Total
	(in thousands)
On-Balance Sheet:
Consolidated VIEs:
Loans held for investment in consolidated trusts, at amortized cost (1)	$	160,436	$	—	$	403,139	$	—	$	563,575
Debt securities of consolidated trusts held by third parties (2)	167,621		—		—		—		167,621
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Carrying value (3)	31,370		26,681		—		—		58,051
Maximum exposure to loss (4)	30,000		26,238		—		—		56,238
Investment securities:
Carrying value	—		—		—		724,893		724,893
Maximum exposure to loss (4)	—		—		—		737,148		737,148
Off-Balance Sheet:
Unconsolidated VIEs:
Farmer Mac Guaranteed Securities:
Maximum exposure to loss (4) (5)	1,881,370		29,658		—		—		1,911,028


(1)	Includes unamortized premiums related to Rural Utilities of $34.3 million.


(2)	Includes borrower remittances of $7.2 million, which have not been passed through to third party investors as of December 31, 2012.


(3)	Includes unamortized premiums and discounts and fair value adjustments related to Farm & Ranch and USDA Guarantees of $1.4 million and $0.4 million, respectively.


(4)	Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.


(5)	Of the Farm & Ranch amount, $911.4 million relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.

A Farmer Mac guarantee 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 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 $2.7 million and $5.4 million for the three and six months ended June 30, 2013, respectively, compared to $2.5 million and $5.1 million for the same periods in 2012. 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 six months ended June 30, 2013 and 2012:

Table 1.2



	For the Six Months Ended
	June 30, 2013		June 30, 2012
	(in thousands)
Cash paid during the period for:
Interest	$	54,674	$	55,131
Income taxes	13,000		13,500
Non-cash activity:
Real estate owned acquired through loan liquidation	1,034		—
Loans acquired and securitized as Farmer Mac Guaranteed Securities	35,891		12,301
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	35,891		12,301
Deconsolidation of loans held for investment in consolidated trusts and debt securities of consolidated trusts held by third parties - transferred to off-balance sheet Farm & Ranch Guaranteed Securities	—		460,261
Transfers of loans held for sale to loans held for investment	673,991		—

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) generally 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, as prescribed by accounting guidance related to the statement of cash flows.

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(b)	Earnings/Loss Per Common Share

Basic earnings/loss 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 and six months ended June 30, 2013 and 2012:

Table 1.3



	For the Three Months Ended
	June 30, 2013						June 30, 2012
	Net Income		Weighted-Average Shares	$ per Share			Net Loss			Weighted-Average Shares	$ per Share
	(in thousands, except per share amounts)
Basic EPS
Net income/(loss) attributable to common stockholders	$	27,745	10,815	$	2.57		$	(4,291	)	10,468	$	(0.41	)
Effect of dilutive securities (1):
Stock options, SARs and restricted stock	—		383	(0.09		)	—			—	—
Diluted EPS	$	27,745	11,198	$	2.48		$	(4,291	)	10,468	$	(0.41	)

(1)

For the three months ended June 30, 2013 and 2012, stock options and SARs of 89,937 and 1,270,777, 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 June 30, 2013 and 2012, contingent shares of non-vested restricted stock of 44,894 and 146,311, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions were not met.



	For the Six Months Ended
	June 30, 2013						June 30, 2012
	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	$	43,935	10,776	$	4.08		$	17,912	10,417	$	1.72
Effect of dilutive securities (1):
Stock options, SARs and restricted stock	—		403	(0.15		)	—		545	(0.09		)
Diluted EPS	$	43,935	11,179	$	3.93		$	17,912	10,962	$	1.63

(1)

For the six months ended June 30, 2013 and 2012, stock options and SARs of 46,969 and 469,577, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the six months ended June 30, 2013 and 2012, contingent shares of non-vested restricted stock of 35,097 and 92,800, 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 June 30, 2013 and December 31, 2012:

Table 2.1



	June 30, 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	$	—	$	(9,012	)	$	65,088
Floating rate asset-backed securities	158,223		(293		)	157,930		690		(328		)	158,292
Floating rate corporate debt securities	104,345		(11		)	104,334		359		(37		)	104,656
Fixed rate corporate debt securities	65,000		144			65,144		54		(133		)	65,065
Floating rate Government/GSE guaranteed mortgage-backed securities	651,590		5,480			657,070		8,033		(996		)	664,107
Fixed rate GSE guaranteed mortgage-backed securities (1)	1,434		4,178			5,612		221		—			5,833
Floating rate GSE subordinated debt	70,000		—			70,000		—		(6,679		)	63,321
Fixed rate GSE preferred stock	78,500		579			79,079		7,810		—			86,889
Fixed rate taxable municipal bonds	18,635		83			18,718		4		(1		)	18,721
Floating rate senior agency debt	50,000		(1		)	49,999		33		—			50,032
Fixed rate senior agency debt	119,000		369			119,369		102		(4		)	119,467
Fixed rate U.S. Treasuries	1,052,000		2,233			1,054,233		214		(66		)	1,054,381
Total available-for-sale	2,442,827		12,761			2,455,588		17,520		(17,256		)	2,455,852
Trading:
Floating rate asset-backed securities	3,826		—			3,826		—		(2,762		)	1,064
Total investment securities	$	2,446,653	$	12,761		$	2,459,414	$	17,520	$	(20,018	)	$	2,456,916


(1)	Fair value includes $4.3 million of an interest-only security with a notional amount of $152.4 million.

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	December 31, 2012
	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	$	—	$	(10,941	)	$	63,159
Floating rate asset-backed securities	150,519		(372		)	150,147		933		(36		)	151,044
Fixed rate asset-backed securities	6,501		—			6,501		—		—			6,501
Floating rate corporate debt securities	76,345		(32		)	76,313		450		—			76,763
Fixed rate corporate debt securities	51,969		243			52,212		204		—			52,416
Floating rate Government/GSE guaranteed mortgage-backed securities	699,062		5,973			705,035		8,035		(211		)	712,859
Fixed rate GSE guaranteed mortgage-backed securities	1,910		1			1,911		154		—			2,065
Floating rate GSE subordinated debt	70,000		—			70,000		—		(12,569		)	57,431
Fixed rate GSE preferred stock	78,500		784			79,284		7,802		—			87,086
Floating rate senior agency debt	50,000		(6		)	49,994		61		—			50,055
Fixed rate senior agency debt	72,700		287			72,987		128		(1		)	73,114
Fixed rate U.S. Treasuries	1,163,400		2,240			1,165,640		258		(9		)	1,165,889
Total available-for-sale	2,495,006		9,118			2,504,124		18,025		(23,767		)	2,498,382
Trading:
Floating rate asset-backed securities	4,327		—			4,327		—		(3,080		)	1,247
Total investment securities	$	2,499,333	$	9,118		$	2,508,451	$	18,025	$	(26,847	)	$	2,499,629

During the three months ended June 30, 2013, Farmer Mac received proceeds of $155.6 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $3.1 million. During the three months ended June 30, 2012, Farmer Mac did not sell any securities from its available-for-sale investment portfolio. During the six months ended June 30, 2013, Farmer Mac received proceeds of $170.6 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $3.1 million, compared to proceeds of $5.0 million for the six months ended June 30, 2012, resulting in gross realized gains of $28,000.

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As of June 30, 2013 and December 31, 2012, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2



	June 30, 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	$	—	$	—		$	65,088	$	(9,012	)
Floating rate asset-backed securities	38,412		(227		)	9,721		(101		)
Floating rate corporate debt securities	19,973		(37		)	—		—
Fixed rate corporate debt securities	45,050		(133		)	—		—
Floating rate Government/GSE guaranteed mortgage-backed securities	208,198		(996		)	—		—
Floating rate GSE subordinated debt	—		—			63,321		(6,679		)
Fixed rate taxable municipal bonds	10,141		(1		)	—		—
Fixed rate senior agency debt	24,986		(4		)	—		—
Fixed rate U.S. Treasuries	280,954		(66		)	—		—
Total	$	627,714	$	(1,464	)	$	138,130	$	(15,792	)



	December 31, 2012
	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	$	—	$	—		$	63,159	$	(10,941	)
Floating rate asset-backed securities	21,648		(27		)	3,619		(9		)
Floating rate Government/GSE guaranteed mortgage-backed securities	174,352		(209		)	829		(2		)
Floating rate GSE subordinated debt	—		—			57,431		(12,569		)
Fixed rate senior agency debt	50,088		(1		)	—		—
Fixed rate U.S. Treasuries	136,194		(9		)	—		—
Total	$	382,282	$	(246	)	$	125,038	$	(23,521	)

The unrealized losses presented above are principally due to a general widening of credit spreads from the dates of acquisition to June 30, 2013 and December 31, 2012, 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 June 30, 2013, all of the investment securities in an unrealized loss position had credit ratings of at least "AA+" except three that were rated "A-", one that was rated "A", and one that was rated "BBB*-" (credit watch negative with possible multi-notch downgrade). As of June 30, 2013, the unrealized loss on this last security was $22,000, and the security matures in April 2014. As of December 31, 2012, all of the investment securities in an unrealized loss position had credit ratings of at least "AA+" except one that

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was rated "A-". The unrealized losses were on 40 and 17 individual investment securities as of June 30, 2013 and December 31, 2012, respectively.

As of June 30, 2013, 8 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, 2012, 9 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $23.5 million. Securities in unrealized loss positions 12 months or more have a fair value as of June 30, 2013 that is, on average, approximately 89.7 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 June 30, 2013 and December 31, 2012. 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 June 30, 2013 and December 31, 2012. As of June 30, 2013, Farmer Mac owned trading investment securities with an amortized cost of $3.8 million, a fair value of $1.1 million, and a weighted average yield of 4.28 percent. As of December 31, 2012, Farmer Mac owned trading investment securities with an amortized cost of $4.3 million, a fair value of $1.2 million, and a weighted average yield of 4.29 percent.

The amortized cost, fair value, and weighted average yield of available-for-sale investment securities by remaining contractual maturity as of June 30, 2013 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



	June 30, 2013
	Available-for-Sale Securities
	Amortized Cost		Fair Value		Weighted- Average Yield
	(dollars in thousands)
Due within one year	$	1,285,008	$	1,285,325	0.53%
Due after one year through five years	168,884		169,169		0.95%
Due after five years through ten years	396,588		392,000		1.03%
Due after ten years	605,108		609,358		2.35%
Total	$	2,455,588	$	2,455,852	1.09%

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3.	FARMER MAC GUARANTEED SECURITIES AND USDA GUARANTEED SECURITIES

The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Guaranteed Securities as of June 30, 2013 and December 31, 2012:

Table 3.1



	June 30, 2013
	Unpaid Principal Balance		Unamortized Premium/(Discount)			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Available-for-sale:
Farm & Ranch	$	3,438,000	$	143		$	3,438,143	$	74,898	$	(14,567	)	$	3,498,474
USDA Guarantees	25,339		(452		)	24,887		907		—			25,794
Rural Utilities	1,540,271		—			1,540,271		11,382		(17,068		)	1,534,585
Total Farmer Mac Guaranteed Securities	5,003,610		(309		)	5,003,301		87,187		(31,635		)	5,058,853
USDA Guaranteed Securities	1,549,502		5,174			1,554,676		5,172		(16,084		)	1,543,764
Total available-for-sale	6,553,112		4,865			6,557,977		92,359		(47,719		)	6,602,617
Trading:
USDA Guaranteed Securities	69,358		5,395			74,753		438		(1,599		)	73,592
Total Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	$	6,622,470	$	10,260		$	6,632,730	$	92,797	$	(49,318	)	$	6,676,209



	December 31, 2012
	Unpaid Principal Balance		Unamortized Premium/(Discount)			Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Available-for-sale:
Farm & Ranch	$	3,339,200	$	160		$	3,339,360	$	92,223	$	(5,094	)	$	3,426,489
USDA Guarantees	26,238		(452		)	25,786		909		(14		)	26,681
Rural Utilities	1,298,506		—			1,298,506		18,530		(3,948		)	1,313,088
Total Farmer Mac Guaranteed Securities	4,663,944		(292		)	4,663,652		111,662		(9,056		)	4,766,258
USDA Guaranteed Securities	1,461,184		5,975			1,467,159		19,605		(169		)	1,486,595
Total available-for-sale	6,125,128		5,683			6,130,811		131,267		(9,225		)	6,252,853
Trading:
USDA Guaranteed Securities	98,499		6,415			104,914		624		(1,350		)	104,188
Total Farmer Mac Guaranteed Securities and USDA Guaranteed Securities	$	6,223,627	$	12,098		$	6,235,725	$	131,891	$	(10,575	)	$	6,357,041

The unrealized losses presented above are principally due to higher interest rates from the date of acquisition to June 30, 2013 and December 31, 2012, as applicable. The unrealized losses related to Farmer Mac's USDA Guarantees line of business are backed by the full faith and credit of the United States. As of June 30, 2013, 9 AgVantage securities in loss positions in the Farm & Ranch line of business had been in a loss position for more than 12 months with a total unrealized loss of $2.7 million. Each Farm & Ranch AgVantage security requires some level of overcollateralization and is secured by eligible loans of the issuing institution. Thus, Farmer Mac does not believe it will realize any of those losses. None of the Rural Utilities Guaranteed Securities has been in an unrealized loss position for greater than

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12 months. Farmer Mac has concluded that none of the unrealized losses on its available-for-sale Farmer Mac Guaranteed Securities and USDA Guaranteed Securities represents an other-than-temporary impairment as of June 30, 2013 and December 31, 2012. 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 and six months ended June 30, 2013 and 2012, Farmer Mac realized no gains or losses from the sale of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities.

The amortized cost, fair value, and weighted average yield of available-for-sale Farmer Mac Guaranteed Securities and USDA Guaranteed Securities by remaining contractual maturity as of June 30, 2013 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



	June 30, 2013
	Available-for-Sale Securities
	Amortized Cost		Fair Value		Weighted- Average Yield
	(dollars in thousands)
Due within one year	$	1,079,313	$	1,085,114	1.87	%
Due after one year through five years	2,828,532		2,883,105		2.40	%
Due after five years through ten years	805,834		815,863		2.50	%
Due after ten years	1,844,298		1,818,535		2.59	%
Total	$	6,557,977	$	6,602,617	2.38	%

Farmer Mac did not own any held-to-maturity Farmer Mac Guaranteed Securities or USDA Guaranteed Securities as of June 30, 2013 and December 31, 2012. As of June 30, 2013, Farmer Mac owned trading USDA Guaranteed Securities with an amortized cost of $74.8 million, a fair value of $73.6 million, and a weighted average yield of 5.69 percent. As of December 31, 2012, Farmer Mac owned trading USDA Guaranteed Securities with an amortized cost of $104.9 million, a fair value of $104.2 million, and a weighted average yield of 5.77 percent.


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, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk and often times deriving an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market. 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).

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Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet purchased and permanently funded, through the use of forward sale contracts on the debt of other government-sponsored enterprises ("GSEs") and futures contracts involving U.S. Treasury securities. Farmer Mac uses forward sale contracts on GSE securities to reduce its interest rate exposure to changes in both U.S. Treasury rates and spreads on Farmer Mac debt. The notional amounts of these contracts are determined based on a duration-matched hedge ratio between the hedged item and the hedge instrument. Gains or losses generated by these hedge transactions are expected to offset changes in funding costs.

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 are reported in "Gains/(losses) 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 "Gains/(losses) on financial derivatives and hedging activities" in the consolidated statements of operations. Farmer Mac currently has no financial derivatives designated in cash flow hedging relationships.

Market Risk:

Market risk is the risk of an adverse effect resulting from changes in interest rates or spreads on the value of a financial instrument. Farmer Mac manages market risk associated with financial derivatives by establishing and monitoring limits as to the degree of risk that may be undertaken. This risk is periodically measured as part of Farmer Mac's overall risk monitoring processes, which include market value of equity measurements, net interest income modeling, and other measures.

Credit Risk:

Credit risk is the risk that a counterparty will fail to perform according to the terms of a financial contract in which Farmer Mac has an unrealized gain. Credit losses could occur in the event of non-performance by counterparties to the financial derivative contracts. Farmer Mac mitigates this counterparty credit risk by contracting only with counterparties that have investment grade credit ratings (i.e., at least BBB), establishing and maintaining collateral requirements based upon credit ratings, and entering into netting agreements. Netting agreements provide for the calculation of the net amount of all receivables and payables under all transactions covered by the netting agreement between Farmer Mac and a single counterparty. Farmer Mac's exposure to credit risk related to its financial derivatives is represented by those counterparties for which Farmer Mac has a net receivable, including the effect of any netting arrangements. As of June 30, 2013 and December 31, 2012, Farmer Mac's credit exposure to interest rate swap counterparties, excluding netting arrangements and any adjustment for nonperformance risk, but including accrued interest, was $28.3 million and $37.1 million, respectively; however, including netting arrangements and accrued interest, Farmer Mac's credit exposure was $3.6 million and $2.4 million as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013 and December 31, 2012, Farmer Mac held cash of $1.4 million and $1.7 million, respectively, as collateral for its derivatives in net asset positions, resulting in uncollateralized net asset positions of $2.3 million and $0.8 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.

In the normal course of business, collateral requirements contained in Farmer Mac's derivative contracts are enforced by Farmer Mac and its counterparties. Upon enforcement of the collateral requirements, the amount of collateral posted is typically based on the net fair value of all derivative contracts with the

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counterparty, i.e., derivative assets net of derivative liabilities at the counterparty level. If an event of default were to occur with respect to Farmer Mac under the derivative contracts, such as the failure to pay amounts when due, any other material breach of the agreements that remains unremedied, a material default under another of Farmer Mac's credit agreements, or bankruptcy, insolvency or receivership, the related counterparty could request payment or full collateralization on the derivative contracts. In addition, if Farmer Mac ceases to be a federally chartered instrumentality of the United States, the related counterparty could request full collateralization on the derivative contracts. As of June 30, 2013 and December 31, 2012, 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 $116.0 million and $168.0 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 $92.7 million and $135.8 million as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013 and December 31, 2012, Farmer Mac posted cash of $20.3 million and $60.3 million, respectively, 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. If Farmer Mac had breached certain provisions of the derivative contracts as of June 30, 2013 and December 31, 2012, it could have been required to settle its obligations under the agreements or post additional collateral of $72.4 million and $75.5 million, respectively. As of June 30, 2013 and December 31, 2012, 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.

Interest Rate Risk:

Farmer Mac uses financial derivatives to manage its interest rate risk exposure by effectively modifying the interest rate reset or maturity characteristics of certain assets and liabilities and by locking in the rates for certain forecasted issuances of liabilities. The primary financial derivatives Farmer Mac uses include interest rate swaps and forward sale contracts. Farmer Mac uses interest rate swaps to assume fixed rate interest payments in exchange for floating rate interest payments and vice versa. Depending on the economic hedging relationship, the effects of these agreements are (a) the conversion of variable rate liabilities to longer-term fixed rate liabilities, (b) the conversion of long-term fixed rate assets to shorter-term floating rate assets, or (c) the reduction of the variability of future changes in interest rates on forecasted issuances of liabilities. The accrual of the contractual amounts due on these agreements that are not designated in hedging relationships is recorded as "Gains/(losses) on financial derivatives and hedging activities" in the consolidated statements of operations.

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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 June 30, 2013 and December 31, 2012 and the effects of financial derivatives on the consolidated statements of operations for the three and six months ended June 30, 2013 and 2012:

Table 4.1

June 30, 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

—

(35,202

)

2.25%

0.27%