| Loans and Allowance for Credit Losses and Concentration Risk Disclosure |
LOANS AND ALLOWANCE FOR LOSSES
Loans
Farmer Mac classifies loans as either held for investment or held for sale. Loans held for investment are recorded at the unpaid principal balance, net of unamortized premium or discount and other cost adjustments. Loans held for sale are reported at the lower of cost or fair value determined on a pooled basis. As of December 31, 2015 and 2014, Farmer Mac had no loans held for sale. The following table displays the composition of the loan balances as of December 31, 2015 and 2014:
Table 8.1
| | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2015 | | As of December 31, 2014 | | Unsecuritized | | In Consolidated Trusts | | Total | | Unsecuritized | | In Consolidated Trusts | | Total | | (in thousands) | Farm & Ranch | $ | 2,249,864 |
| | $ | 708,111 |
| | $ | 2,957,975 |
| | $ | 2,118,867 |
| | $ | 421,355 |
| | $ | 2,540,222 |
| Rural Utilities | 1,008,126 |
| | — |
| | 1,008,126 |
| | 718,213 |
| | 267,396 |
| | 985,609 |
| Total unpaid principal balance(1) | 3,257,990 |
| | 708,111 |
| | 3,966,101 |
| | 2,837,080 |
| | 688,751 |
| | 3,525,831 |
| Unamortized premiums, discounts and other cost basis adjustments | 423 |
| | — |
| | 423 |
| | (3,619 | ) | | 3,727 |
| | 108 |
| Total loans | 3,258,413 |
| | 708,111 |
| | 3,966,524 |
| | 2,833,461 |
| | 692,478 |
| | 3,525,939 |
| Allowance for loan losses | (3,736 | ) | | (744 | ) | | (4,480 | ) | | (5,324 | ) | | (540 | ) | | (5,864 | ) | Total loans, net of allowance | $ | 3,254,677 |
| | $ | 707,367 |
| | $ | 3,962,044 |
| | $ | 2,828,137 |
| | $ | 691,938 |
| | $ | 3,520,075 |
|
| | (1) | Unpaid principal balance is the basis of presentation in disclosures of outstanding balances for Farmer Mac's lines of business. |
Allowance for Losses
Farmer Mac maintains an allowance for losses presented in two components on its consolidated balance sheets: (1) an allowance for loan losses to account for estimated probable losses on loans held, and (2) a reserve for losses to account for estimated probable losses on loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities. As of December 31, 2015 and 2014, Farmer Mac reported total allowances for losses of $6.6 million and $10.1 million, respectively. See Note 5 and Note 12 for more information about off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs.
The following is a summary of the changes in the total allowance for losses for each year in the three-year period ended December 31, 2015:
Table 8.2
| | | | | | | | | | | | | | Allowance
for Loan
Losses | | Reserve
for Losses | | Total
Allowance
for Losses | | (in thousands) | Balance as of January 1, 2013 | $ | 11,351 |
| | $ | 5,539 |
| | $ | 16,890 |
| (Release of)/provision for losses | (481 | ) | | 929 |
| | 448 |
| Charge-offs | (4,004 | ) | | — |
| | (4,004 | ) | Balance as of December 31, 2013 | $ | 6,866 |
| | $ | 6,468 |
| | $ | 13,334 |
| Release of losses | (961 | ) | | (2,205 | ) | | (3,166 | ) | Charge-offs | (86 | ) | | — |
| | (86 | ) | Recoveries | 45 |
| | — |
| | 45 |
| Balance as of December 31, 2014 | $ | 5,864 |
| | $ | 4,263 |
| | $ | 10,127 |
| Provision for/(release of) losses | 2,388 |
| | (2,180 | ) | | 208 |
| Charge-offs | (3,772 | ) | | — |
| | (3,772 | ) | Balance as of December 31, 2015 | $ | 4,480 |
| | $ | 2,083 |
| | $ | 6,563 |
|
During 2015, Farmer Mac recorded provisions to its allowance for loan losses of $2.4 million and releases to its reserve for losses of $2.2 million. The provisions to the allowance for loan losses recorded during 2015 were primarily attributable to the establishment of a specific allowance for two Agricultural Storage and Processing loans that financed one canola facility. Farmer Mac recognized a charge-off of $3.7 million in fourth quarter 2015 on those loans. The provisions were offset by the reduction in the specific allowance for a permanent planting loan based on the updated appraised value of the collateral underlying such loan and releases to the general allowance from the reserve for losses due to substantial paydowns of Agricultural Storage and Processing loans underlying LTSPCs due to repayments of these loans at par.
During 2014, Farmer Mac recorded releases from its allowance for loan losses of $1.0 million and releases from its reserve for losses of $2.2 million, primarily related to a decrease in the balance of its ethanol loans as well as a general improvement in the quality of the ethanol loans held and loans underlying LTSPCs. Farmer Mac recorded $0.1 million of charge-offs and recoveries of $45,000 to its allowance for loan losses during 2014.
During 2013, Farmer Mac recorded releases from its allowance for loan losses of $0.5 million and provisions to its reserve for losses of $0.9 million. Farmer Mac also recorded $4.0 million in charge-offs to its allowance for loan losses during 2013. Charge-offs recorded during 2013 included a $3.6 million charge-off related to one ethanol loan that transitioned to real estate owned ("REO") for which Farmer Mac had previously provided a specific allowance.
The following tables present the changes in the total allowance for losses for the years ended December 31, 2015 and 2014 by commodity type:
Table 8.3
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2015 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | For the Year Ended: | | | | | | | | | | | | | | Beginning Balance | $ | 2,519 |
| | $ | 2,159 |
| | $ | 1,423 |
| | $ | 467 |
| | $ | 3,552 |
| | $ | 7 |
| | $ | 10,127 |
| Provision for/(release of) losses | 272 |
| | (1,228 | ) | | 358 |
| | 52 |
| | 758 |
| | (4 | ) | | 208 |
| Charge-offs | — |
| | — |
| | — |
| | (111 | ) | | (3,661 | ) | | — |
| | (3,772 | ) | Ending Balance | $ | 2,791 |
| | $ | 931 |
| | $ | 1,781 |
| | $ | 408 |
|
| $ | 649 |
|
| $ | 3 |
|
| $ | 6,563 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2014 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | | | | | | | | | | | | | | | For the Year Ended: | | | | | | | | | | | | | | Beginning Balance | $ | 2,124 |
| | $ | 2,186 |
| | $ | 1,271 |
| | $ | 454 |
| | $ | 7,292 |
| | $ | 7 |
| | $ | 13,334 |
| Provision for/(release of) losses | 395 |
| | (72 | ) | | 209 |
| | 42 |
| | (3,740 | ) | | — |
| | (3,166 | ) | Charge-offs | — |
| | — |
| | (57 | ) | | (29 | ) | | — |
| | — |
| | (86 | ) | Recoveries | — |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | 45 |
| Ending Balance | $ | 2,519 |
| | $ | 2,159 |
| | $ | 1,423 |
| | $ | 467 |
| | $ | 3,552 |
| | $ | 7 |
| | $ | 10,127 |
|
The following tables present the unpaid principal balances of loans held and loans underlying LTSPCs and off-balance sheet Farmer Mac Guaranteed Securities and the related total allowance for losses by impairment method and commodity type as of December 31, 2015 and 2014:
Table 8.4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2015 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Ending Balance: | | | | | | | | | | | | | | Collectively evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 1,911,039 |
| | $ | 433,654 |
| | $ | 444,320 |
| | $ | 92,712 |
| | $ | 15,944 |
| | $ | 3,199 |
| | $ | 2,900,868 |
| Off-balance sheet | 1,313,872 |
| | 483,473 |
| | 777,663 |
| | 110,378 |
| | 56,208 |
| | 7,142 |
| | 2,748,736 |
| Total | $ | 3,224,911 |
| | $ | 917,127 |
| | $ | 1,221,983 |
| | $ | 203,090 |
| | $ | 72,152 |
| | $ | 10,341 |
| | $ | 5,649,604 |
| Individually evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 12,803 |
| | $ | 21,247 |
| | $ | 5,958 |
| | $ | 7,261 |
| | $ | 9,838 |
| | $ | — |
| | $ | 57,107 |
| Off-balance sheet | 5,937 |
| | 3,037 |
| | 8,840 |
| | 774 |
| | — |
| | — |
| | 18,588 |
| Total | $ | 18,740 |
| | $ | 24,284 |
| | $ | 14,798 |
| | $ | 8,035 |
| | $ | 9,838 |
| | $ | — |
| | $ | 75,695 |
| Total Farm & Ranch loans: | | | | | | | | | | | | | | On-balance sheet | $ | 1,923,842 |
| | $ | 454,901 |
| | $ | 450,278 |
| | $ | 99,973 |
| | $ | 25,782 |
| | $ | 3,199 |
| | $ | 2,957,975 |
| Off-balance sheet | 1,319,809 |
| | 486,510 |
| | 786,503 |
| | 111,152 |
| | 56,208 |
| | 7,142 |
| | 2,767,324 |
| Total | $ | 3,243,651 |
| | $ | 941,411 |
| | $ | 1,236,781 |
| | $ | 211,125 |
| | $ | 81,990 |
| | $ | 10,341 |
| | $ | 5,725,299 |
| Allowance for Losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Collectively evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 1,968 |
| | $ | 434 |
| | $ | 702 |
| | $ | 116 |
| | $ | 167 |
| | $ | — |
| | $ | 3,387 |
| Off-balance sheet | 347 |
| | 137 |
| | 292 |
| | 65 |
| | 482 |
| | 3 |
| | 1,326 |
| Total | $ | 2,315 |
| | $ | 571 |
| | $ | 994 |
| | $ | 181 |
| | $ | 649 |
| | $ | 3 |
| | $ | 4,713 |
| Individually evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 290 |
| | $ | 218 |
| | $ | 384 |
| | $ | 201 |
| | $ | — |
| | $ | — |
| | $ | 1,093 |
| Off-balance sheet | 186 |
| | 142 |
| | 403 |
| | 26 |
| | — |
| | — |
| | 757 |
| Total | $ | 476 |
| | $ | 360 |
| | $ | 787 |
| | $ | 227 |
| | $ | — |
| | $ | — |
| | $ | 1,850 |
| Total Farm & Ranch loans: | | | | | | | | | | | | | | On-balance sheet | $ | 2,258 |
| | $ | 652 |
| | $ | 1,086 |
| | $ | 317 |
| | $ | 167 |
| | $ | — |
| | $ | 4,480 |
| Off-balance sheet | 533 |
| | 279 |
| | 695 |
| | 91 |
| | 482 |
| | 3 |
| | 2,083 |
| Total | $ | 2,791 |
| | $ | 931 |
| | $ | 1,781 |
| | $ | 408 |
| | $ | 649 |
| | $ | 3 |
| | $ | 6,563 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2014 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Ending Balance: | | | | | | | | | | | | | | Collectively evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 1,621,360 |
| | $ | 359,517 |
| | $ | 406,049 |
| | $ | 57,851 |
| | $ | 29,003 |
| | $ | — |
| | $ | 2,473,780 |
| Off-balance sheet | 1,305,141 |
| | 521,535 |
| | 839,286 |
| | 102,857 |
| | 85,357 |
| | 6,781 |
| | 2,860,957 |
| Total | $ | 2,926,501 |
| | $ | 881,052 |
| | $ | 1,245,335 |
| | $ | 160,708 |
| | $ | 114,360 |
| | $ | 6,781 |
| | $ | 5,334,737 |
| Individually evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 12,307 |
| | $ | 35,904 |
| | $ | 6,571 |
| | $ | 11,660 |
| | $ | — |
| | $ | — |
| | $ | 66,442 |
| Off-balance sheet | 2,458 |
| | 3,239 |
| | 8,712 |
| | 1,586 |
| | — |
| | — |
| | 15,995 |
| Total | $ | 14,765 |
| | $ | 39,143 |
| | $ | 15,283 |
| | $ | 13,246 |
| | $ | — |
| | $ | — |
| | $ | 82,437 |
| Total Farm & Ranch loans: | | | | | | | | | | | | | | On-balance sheet | $ | 1,633,667 |
| | $ | 395,421 |
| | $ | 412,620 |
| | $ | 69,511 |
| | $ | 29,003 |
| | $ | — |
| | $ | 2,540,222 |
| Off-balance sheet | 1,307,599 |
| | 524,774 |
| | 847,998 |
| | 104,443 |
| | 85,357 |
| | 6,781 |
| | 2,876,952 |
| Total | $ | 2,941,266 |
| | $ | 920,195 |
| | $ | 1,260,618 |
| | $ | 173,954 |
| | $ | 114,360 |
| | $ | 6,781 |
| | $ | 5,417,174 |
| Allowance for Losses: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Collectively evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 1,824 |
| | $ | 495 |
| | $ | 658 |
| | $ | 51 |
| | $ | 503 |
| | $ | — |
| | $ | 3,531 |
| Off-balance sheet | 298 |
| | 149 |
| | 404 |
| | 52 |
| | 3,049 |
| | 7 |
| | 3,959 |
| Total | $ | 2,122 |
| | $ | 644 |
| | $ | 1,062 |
| | $ | 103 |
| | $ | 3,552 |
| | $ | 7 |
| | $ | 7,490 |
| Individually evaluated for impairment: | | | | | | | | | | | | | | On-balance sheet | $ | 283 |
| | $ | 1,410 |
| | $ | 328 |
| | $ | 312 |
| | $ | — |
| | $ | — |
| | $ | 2,333 |
| Off-balance sheet | 114 |
| | 105 |
| | 33 |
| | 52 |
| | — |
| | — |
| | 304 |
| Total | $ | 397 |
| | $ | 1,515 |
| | $ | 361 |
| | $ | 364 |
| | $ | — |
| | $ | — |
| | $ | 2,637 |
| Total Farm & Ranch loans: | | | | | | | | | | | | | | On-balance sheet | $ | 2,107 |
| | $ | 1,905 |
| | $ | 986 |
| | $ | 363 |
| | $ | 503 |
| | $ | — |
| | $ | 5,864 |
| Off-balance sheet | 412 |
| | 254 |
| | 437 |
| | 104 |
| | 3,049 |
| | 7 |
| | 4,263 |
| Total | $ | 2,519 |
| | $ | 2,159 |
| | $ | 1,423 |
| | $ | 467 |
| | $ | 3,552 |
| | $ | 7 |
| | $ | 10,127 |
|
The following tables present by commodity type the unpaid principal balances, recorded investment, and specific allowance for losses related to impaired loans and the recorded investment in loans on nonaccrual status as of December 31, 2015 and 2014:
Table 8.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2015 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Impaired Loans: | | | | | | | | | | | | | | With no specific allowance: | | | | | | | | | | | | | | Recorded investment | $ | 3,772 |
| | $ | 12,340 |
| | $ | 5,644 |
| | $ | 1,851 |
| | $ | — |
| | $ | — |
| | $ | 23,607 |
| Unpaid principal balance | 3,720 |
| | 12,346 |
| | 5,645 |
| | 1,851 |
| | — |
| | — |
| | 23,562 |
| With a specific allowance: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Recorded investment(1) | 15,103 |
| | 11,939 |
| | 9,050 |
| | 6,185 |
| | 9,838 |
| | — |
| | 52,115 |
| Unpaid principal balance | 15,020 |
| | 11,938 |
| | 9,153 |
| | 6,184 |
| | 9,838 |
| | — |
| | 52,133 |
| Associated allowance | 476 |
| | 360 |
| | 787 |
| | 227 |
| | — |
| | — |
| | 1,850 |
| Total: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Recorded investment | 18,875 |
| | 24,279 |
| | 14,694 |
| | 8,036 |
| | 9,838 |
| | — |
| | 75,722 |
| Unpaid principal balance | 18,740 |
| | 24,284 |
| | 14,798 |
| | 8,035 |
| | 9,838 |
| | — |
| | 75,695 |
| Associated allowance | 476 |
| | 360 |
| | 787 |
| | 227 |
| | — |
| | — |
| | 1,850 |
| | | | | | | | | | | | | | | Recorded investment of loans on nonaccrual status(2) | $ | 5,105 |
| | $ | 16,546 |
| | $ | 4,313 |
| | $ | 5,870 |
| | $ | 9,838 |
| | $ | — |
| | $ | 41,672 |
|
| | (1) | Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $46.4 million (61 percent) of impaired loans as of December 31, 2015, which resulted in a specific reserve of $1.0 million. |
| | (2) | Includes $14.7 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2014 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Impaired Loans: | | | | | | | | | | | | | | With no specific allowance: | | | | | | | | | | | | | | Recorded investment | $ | 4,877 |
| | $ | 5,837 |
| | $ | 9,576 |
| | $ | 2,001 |
| | $ | — |
| | $ | — |
| | $ | 22,291 |
| Unpaid principal balance | 4,723 |
| | 5,750 |
| | 9,386 |
| | 1,981 |
| | — |
| | — |
| | 21,840 |
| With a specific allowance: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Recorded investment(1) | 10,753 |
| | 33,690 |
| | 5,979 |
| | 11,350 |
| | — |
| | — |
| | 61,772 |
| Unpaid principal balance | 10,042 |
| | 33,393 |
| | 5,897 |
| | 11,265 |
| | — |
| | — |
| | 60,597 |
| Associated allowance | 397 |
| | 1,515 |
| | 361 |
| | 364 |
| | — |
| | — |
| | 2,637 |
| Total: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Recorded investment | 15,630 |
| | 39,527 |
| | 15,555 |
| | 13,351 |
| | — |
| | — |
| | 84,063 |
| Unpaid principal balance | 14,765 |
| | 39,143 |
| | 15,283 |
| | 13,246 |
| | — |
| | — |
| | 82,437 |
| Associated allowance | 397 |
| | 1,515 |
| | 361 |
| | 364 |
| | — |
| | — |
| | 2,637 |
| | | | | | | | | | | | | | | Recorded investment of loans on nonaccrual status(2) | $ | 5,168 |
| | $ | 14,413 |
| | $ | 4,438 |
| | $ | 6,133 |
| | $ | — |
| | $ | — |
| | $ | 30,152 |
|
| | (1) | Impairment analysis was performed in the aggregate in consideration of similar risk characteristics of the assets and historical statistics on $54.4 million (65 percent) of impaired loans as of December 31, 2014, which resulted in a specific reserve of $1.2 million. |
| | (2) | Includes $11.7 million of loans that are less than 90 days delinquent but which have not met Farmer Mac's performance criteria for returning to accrual status. |
The following table presents by commodity type the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2015 and 2014:
Table 8.6
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2015 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | For the Year Ended: | | | | | | | | | | | | | | Average recorded investment in impaired loans | $ | 22,315 |
| | $ | 36,326 |
| | $ | 14,077 |
| | $ | 10,605 |
| | $ | 7,368 |
| | $ | — |
| | $ | 90,691 |
| Income recognized on impaired loans | 381 |
| | 472 |
| | 353 |
| | 308 |
| | — |
| | — |
| | 1,514 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2014 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | For the Year Ended: | | | | | | | | | | | | | | Average recorded investment in impaired loans | $ | 20,625 |
| | $ | 43,221 |
| | $ | 13,543 |
| | $ | 12,596 |
| | $ | — |
| | $ | 24 |
| | $ | 90,009 |
| Income recognized on impaired loans | 373 |
| | 474 |
| | 327 |
| | 359 |
| | — |
| | — |
| | 1,533 |
|
A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a troubled debt restructuring ("TDR"). Farmer Mac has granted a concession when, as a result of the restructuring, it does not expect to collect all amounts due in a timely manner, including interest accrued at the original contract rate. In making its determination of whether a borrower is experiencing financial difficulties, Farmer Mac considers several factors, including whether (1) the borrower has declared or is in the process of declaring bankruptcy, (2) there is substantial doubt as to whether the borrower will continue to be a going concern, and (3) the borrower can obtain funds from other sources at an effective interest rate at or near a current market interest rate for debt with similar risk characteristics. Farmer Mac evaluates TDRs similarly to other impaired loans for purposes of the allowance for losses. For the year ended December 31, 2015, the recorded investment of loans determined to be TDRs was $1.1 million both before and after restructuring. For the year ended December 31, 2014, the recorded investment of loans determined to be TDRs was $5.3 million before restructuring and $6.0 million after restructuring. For the year ended December 31, 2013, the recorded investment of loans determined to be TDRs was $1.1 million both before and after restructuring. As of December 31, 2015 and 2014, there were no TDRs identified during the previous 12 months that were in default under the modified terms. The impact of TDRs on Farmer Mac's allowance for loan losses was immaterial for the year ended December 31, 2015 and 2014. The impact of TDRs on Farmer Mac's allowance for loan losses for the year ended December 31, 2013 was a provision of $0.1 million.
When particular criteria are met, such as the default of the borrower, Farmer Mac becomes entitled to purchase the defaulted loans underlying Farmer Mac Guaranteed Securities (commonly referred to as "removal-of-account" provisions). Farmer Mac records all such defaulted loans at their unpaid principal balance during the period in which Farmer Mac becomes entitled to purchase the loans and therefore regains effective control over the transferred loans. In accordance with the terms of all LTSPCs, Farmer Mac acquires loans that are either 90 days or 120 days delinquent (depending on the provisions of the applicable agreement) upon the request of the counterparty. Subsequent to the purchase, these defaulted loans are treated as nonaccrual loans and, therefore, interest is accounted for on the cash basis. Any decreases in expected cash flows are recognized as impairment.
During 2015, Farmer Mac purchased six defaulted loans having an unpaid principal balance of $16.9 million from pools underlying Farm & Ranch Guaranteed Securities and LTSPCs. During 2014, Farmer Mac purchased two defaulted loans having an unpaid principal balance of $0.7 million from a pool underlying an LTSPC. During 2013, Farmer Mac purchased 11 defaulted loans having an unpaid principal balance of $6.7 million from pools underlying Farm & Ranch Guaranteed Securities and LTSPCs. The following tables present information related to Farmer Mac's acquisition of defaulted loans for the years ended December 31, 2015, 2014, and 2013 and the outstanding balances and carrying amounts of all such loans as of December 31, 2015, 2014, and 2013:
Table 8.7
| | | | | | | | | | | | | | For the Year Ended December 31, | | 2015 | | 2014 | | 2013 | | (in thousands) | Unpaid principal balance at acquisition date: | | | | | | Loans underlying LTSPCs | $ | 13,500 |
| | $ | 705 |
| | $ | 37 |
| Loans underlying off-balance sheet Farmer Mac Guaranteed Securities | 3,407 |
| | — |
| | 6,667 |
| Total unpaid principal balance at acquisition date | 16,907 |
| | 705 |
| | 6,704 |
| Contractually required payments receivable | 17,036 |
| | 705 |
| | 6,907 |
| Impairment recognized subsequent to acquisition | 3,772 |
| | 69 |
| | 477 |
| Recovery/release of allowance for defaulted loans | 1,019 |
| | 233 |
| | 949 |
|
| | | | | | | | | | | | | | As of December 31, | | 2015 | | 2014 | | 2013 | | (in thousands) | Outstanding balance | $ | 36,195 |
| | $ | 24,921 |
| | $ | 32,838 |
| Carrying amount | 34,015 |
| | 22,149 |
| | 29,613 |
|
Net credit losses and 90-day delinquencies as of and for the periods indicated for loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs are presented in the table below. As of December 31, 2015, there were no delinquencies and no probable losses inherent in Farmer Mac's Rural Utilities loan portfolio and Farmer Mac had not experienced credit losses on any Rural Utilities loans.
Table 8.8
| | | | | | | | | | | | | | | | | | | | | | 90-Day Delinquencies(1) | | Net Credit Losses | | As of December 31, | | For the Year Ended December 31, | | 2015 | | 2014 | | 2015 | | 2014 | | 2013 | | (in thousands) | On-balance sheet assets: | | | | | | | | | | Farm & Ranch: | | | | | | | | | | Loans | $ | 26,935 |
| | $ | 18,427 |
| | $ | 3,853 |
| | $ | (6 | ) | | $ | 2,975 |
| Total on-balance sheet | $ | 26,935 |
| | $ | 18,427 |
| | $ | 3,853 |
| | $ | (6 | ) | | $ | 2,975 |
| Off-balance sheet assets: | |
| | | | |
| | |
| | | Farm & Ranch: | |
| | | | |
| | |
| | | LTSPCs | $ | 5,201 |
| | $ | 490 |
| | $ | — |
| | $ | — |
| | $ | — |
| Total off-balance sheet | $ | 5,201 |
| | $ | 490 |
| | $ | — |
| | $ | — |
| | $ | — |
| Total | $ | 32,136 |
| | $ | 18,917 |
| | $ | 3,853 |
| | $ | (6 | ) | | $ | 2,975 |
|
| | (1) | Includes loans and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. |
Of the $26.9 million and $18.4 million of on-balance sheet loans reported as 90-day delinquencies as of December 31, 2015 and 2014, respectively, none and $1.8 million, respectively,were loans subject to "removal-of-account" provisions.
Credit Quality Indicators
Farmer Mac analyzes credit risk related to loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities based on internally assigned loan scores (i.e., risk ratings) that are derived by taking into consideration such factors as historical repayment performance, indicators of current financial condition, loan seasoning, loan size, and loan-to-value ratio. Loans are then classified into one of the following asset categories based on their underlying risk rating: acceptable; other assets especially mentioned; and substandard. Farmer Mac believes this analysis provides meaningful information regarding the credit risk profile of its Farm & Ranch portfolio as of each quarterly reporting period end date.
Farmer Mac also uses 90-day delinquency information to evaluate its credit risk exposure on these assets because historically it has been the best measure of borrower credit quality deterioration. Most of the loans held and underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities have annual (January 1) or semi-annual (January 1 and July 1) payment dates and are supported by less frequent and less predictable revenue sources, such as the cash flows generated from the maturation of crops, sales of livestock, and government farm support programs. Taking into account the reduced frequency of payment due dates and revenue sources, Farmer Mac considers 90-day delinquency to be the most significant observation point when evaluating delinquency information.
The following tables present credit quality indicators related to Farm & Ranch loans held and loans underlying LTSPCs and off-balance sheet Farm & Ranch Guaranteed Securities as of December 31, 2015 and 2014:
Table 8.9
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2015 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Credit risk profile by internally assigned grade(1) | | | | | | | | | | | | | | On-balance sheet: | | | | | | | | | | | | | | Acceptable | $ | 1,888,762 |
| | $ | 431,038 |
| | $ | 409,003 |
| | $ | 89,541 |
| | $ | 15,944 |
| | $ | 3,199 |
| | $ | 2,837,487 |
| Special mention(2) | 22,255 |
| | 2,616 |
| | 35,317 |
| | 2,918 |
| | — |
| | — |
| | 63,106 |
| Substandard(3) | 12,825 |
| | 21,247 |
| | 5,958 |
| | 7,514 |
| | 9,838 |
| | — |
| | 57,382 |
| Total on-balance sheet | $ | 1,923,842 |
| | $ | 454,901 |
| | $ | 450,278 |
| | $ | 99,973 |
| | $ | 25,782 |
| | $ | 3,199 |
| | $ | 2,957,975 |
| Off-Balance Sheet: | | | | | | | | | | | | | | Acceptable | $ | 1,279,454 |
| | $ | 473,335 |
| | $ | 753,472 |
| | $ | 102,990 |
| | $ | 56,208 |
| | $ | 6,517 |
| | $ | 2,671,976 |
| Special mention(2) | 24,422 |
| | 7,226 |
| | 13,121 |
| | 2,938 |
| | — |
| | 523 |
| | 48,230 |
| Substandard(3) | 15,933 |
| | 5,949 |
| | 19,910 |
| | 5,224 |
| | — |
| | 102 |
| | 47,118 |
| Total off-balance sheet | $ | 1,319,809 |
| | $ | 486,510 |
| | $ | 786,503 |
| | $ | 111,152 |
| | $ | 56,208 |
| | $ | 7,142 |
| | $ | 2,767,324 |
| Total Ending Balance: | | | | | | | | | | | | | | Acceptable | $ | 3,168,216 |
| | $ | 904,373 |
| | $ | 1,162,475 |
| | $ | 192,531 |
| | $ | 72,152 |
| | $ | 9,716 |
| | $ | 5,509,463 |
| Special mention(2) | 46,677 |
| | 9,842 |
| | 48,438 |
| | 5,856 |
| | — |
| | 523 |
| | 111,336 |
| Substandard(3) | 28,758 |
| | 27,196 |
| | 25,868 |
| | 12,738 |
| | 9,838 |
| | 102 |
| | 104,500 |
| Total | $ | 3,243,651 |
| | $ | 941,411 |
| | $ | 1,236,781 |
| | $ | 211,125 |
| | $ | 81,990 |
| | $ | 10,341 |
| | $ | 5,725,299 |
| | | | | | | | | | | | | | | Commodity analysis of past due loans(1) | |
| | |
| | |
| | |
| | |
| | |
| | |
| On-balance sheet | $ | 4,656 |
| | $ | 7,405 |
| | $ | 2,517 |
| | $ | 2,519 |
| | $ | 9,838 |
| | $ | — |
| | $ | 26,935 |
| Off-balance sheet | 511 |
| | — |
| | 4,542 |
| | 148 |
| | — |
| | — |
| | 5,201 |
| 90 days or more past due | $ | 5,167 |
| | $ | 7,405 |
| | $ | 7,059 |
| | $ | 2,667 |
| | $ | 9,838 |
| | $ | — |
| | $ | 32,136 |
|
| | (1) | Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. |
| | (2) | Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. |
| | (3) | Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2014 | | Crops | | Permanent
Plantings | | Livestock | | Part-time
Farm | | Ag. Storage and
Processing | | Other | | Total | | (in thousands) | Credit risk profile by internally assigned grade(1) | | | | | | | | | | | | | | On-balance sheet: | | | | | | | | | | | | | | Acceptable | $ | 1,604,546 |
| | $ | 353,487 |
| | $ | 375,010 |
| | $ | 57,239 |
| | $ | 29,003 |
| | $ | — |
| | $ | 2,419,285 |
| Special mention(2) | 16,814 |
| | 6,030 |
| | 31,039 |
| | 612 |
| | — |
| | — |
| | 54,495 |
| Substandard(3) | 12,307 |
| | 35,904 |
| | 6,571 |
| | 11,660 |
| | — |
| | — |
| | 66,442 |
| Total on-balance sheet | $ | 1,633,667 |
| | $ | 395,421 |
| | $ | 412,620 |
| | $ | 69,511 |
| | $ | 29,003 |
| | $ | — |
| | $ | 2,540,222 |
| Off-Balance Sheet | | | | | | | | | | | | | | Acceptable | $ | 1,282,773 |
| | $ | 503,414 |
| | $ | 799,047 |
| | $ | 97,692 |
| | $ | 64,363 |
| | $ | 6,117 |
| | $ | 2,753,406 |
| Special mention(2) | 13,603 |
| | 12,150 |
| | 30,281 |
| | 1,351 |
| | — |
| | 8 |
| | 57,393 |
| Substandard(3) | 11,223 |
| | 9,210 |
| | 18,670 |
| | 5,400 |
| | 20,994 |
| | 656 |
| | 66,153 |
| Total off-balance sheet | $ | 1,307,599 |
| | $ | 524,774 |
| | $ | 847,998 |
| | $ | 104,443 |
| | $ | 85,357 |
| | $ | 6,781 |
| | $ | 2,876,952 |
| Total Ending Balance: | | | | | | | | | | | | | | Acceptable | $ | 2,887,319 |
| | $ | 856,901 |
| | $ | 1,174,057 |
| | $ | 154,931 |
| | $ | 93,366 |
| | $ | 6,117 |
| | $ | 5,172,691 |
| Special mention(2) | 30,417 |
| | 18,180 |
| | 61,320 |
| | 1,963 |
| | — |
| | 8 |
| | 111,888 |
| Substandard(3) | 23,530 |
| | 45,114 |
| | 25,241 |
| | 17,060 |
| | 20,994 |
| | 656 |
| | 132,595 |
| Total | $ | 2,941,266 |
| | $ | 920,195 |
| | $ | 1,260,618 |
| | $ | 173,954 |
| | $ | 114,360 |
| | $ | 6,781 |
| | $ | 5,417,174 |
| | | | | | | | | | | | | | | Commodity analysis of past due loans(1) | |
| | |
| | |
| | |
| | |
| | |
| | |
| On-balance sheet | $ | 4,175 |
| | $ | 6,869 |
| | $ | 4,555 |
| | $ | 2,828 |
| | $ | — |
| | $ | — |
| | $ | 18,427 |
| Off-balance sheet | — |
| | — |
| | 490 |
| | — |
| | — |
| | — |
| | 490 |
| 90 days or more past due | $ | 4,175 |
| | $ | 6,869 |
| | $ | 5,045 |
| | $ | 2,828 |
| | $ | — |
| | $ | — |
| | $ | 18,917 |
|
| | (1) | Amounts represent unpaid principal balance of risk-rated loans, which is the basis Farmer Mac uses to analyze its portfolio, and recorded investment of past due loans. |
| | (2) | Assets in the "Special mention" category generally have potential weaknesses due to performance issues but are currently considered to be adequately secured. |
| | (3) | Substandard assets have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. |
Concentrations of Credit Risk
The following table sets forth the geographic and commodity/collateral diversification, as well as the range of original loan-to-value ratios, for all Farm & Ranch loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs as of December 31, 2015 and December 31, 2014:
Table 8.10
| | | | | | | | | | As of | | December 31, 2015 | | December 31, 2014 | | (in thousands) | By commodity/collateral type: | | | | Crops | $ | 3,243,651 |
| | $ | 2,941,266 |
| Permanent plantings | 941,411 |
| | 920,195 |
| Livestock | 1,236,781 |
| | 1,260,618 |
| Part-time farm | 211,125 |
| | 173,954 |
| Ag. Storage and Processing | 81,990 |
| | 114,360 |
| Other | 10,341 |
| | 6,781 |
| Total | $ | 5,725,299 |
| | $ | 5,417,174 |
| By geographic region(1): | |
| | |
| Northwest | $ | 582,127 |
| | $ | 573,135 |
| Southwest | 1,726,927 |
| | 1,753,606 |
| Mid-North | 2,009,654 |
| | 1,873,041 |
| Mid-South | 769,831 |
| | 627,615 |
| Northeast | 215,883 |
| | 214,402 |
| Southeast | 420,877 |
| | 375,375 |
| Total | $ | 5,725,299 |
| | $ | 5,417,174 |
| By original loan-to-value ratio: | |
| | |
| 0.00% to 40.00% | $ | 1,594,818 |
| | $ | 1,503,076 |
| 40.01% to 50.00% | 1,279,321 |
| | 1,191,804 |
| 50.01% to 60.00% | 1,593,025 |
| | 1,491,502 |
| 60.01% to 70.00% | 1,107,710 |
| | 1,091,759 |
| 70.01% to 80.00% | 126,860 |
| | 115,645 |
| 80.01% to 90.00% | 23,565 |
| | 23,388 |
| Total | $ | 5,725,299 |
| | $ | 5,417,174 |
|
| | (1) | Geographic regions: Northwest (AK, ID, MT, OR, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, NE, ND, SD, WI); Mid-South (AR, KS, LA, MO, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NH, NJ, NY, OH, PA, RI, VA, VT, WV); Southeast (AL, FL, GA, MS, NC, SC, TN). |
The original loan-to-value ratio is calculated by dividing the loan principal balance at the time of guarantee, purchase, or commitment by the appraised value at the date of loan origination or, when available, the updated appraised value at the time of guarantee, purchase, or commitment. Current loan-to-value ratios may be higher or lower than the original loan-to-value ratios. |