Federal Agricultural Mortgage Corp 10-Q 3-31-2007
As
filed with the Securities and Exchange Commission on
May
10,
2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended March 31, 2007
Commission
File Number 0-17440
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)
|
|
|
|
1133
Twenty-First Street, N.W., Suite 600
Washington,
D.C.
|
|
20036
|
(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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o No
x
As
of May
1, 2007, the registrant had 1,030,780 shares of Class A Voting Common
Stock, 500,301 shares of Class B Voting Common Stock and
8,787,947 shares of Class C Non-Voting Common Stock
outstanding.
PART
I - FINANCIAL INFORMATION
Item
1.
|
Condensed
Consolidated Financial
Statements
|
The
following interim unaudited condensed
consolidated financial statements of the Federal Agricultural Mortgage
Corporation (“Farmer Mac” or the “Corporation”) have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (the “SEC”).
These interim unaudited condensed 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 condition and the results
of operations and cash flows of Farmer Mac for the interim periods presented.
Certain information and footnote disclosures normally included in annual
consolidated financial statements have been condensed or omitted as permitted
by
SEC rules and regulations. The December 31, 2006 consolidated balance sheet
presented in this report has been derived from the Corporation’s audited 2006
consolidated financial statements. Management believes that the disclosures
are
adequate to present fairly the condensed consolidated financial position,
condensed consolidated results of operations and condensed consolidated cash
flows as of the dates and for the periods presented. These interim unaudited
condensed consolidated financial statements should be read in conjunction with
the audited 2006 consolidated financial statements of Farmer Mac included in
the
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.
Results for interim periods are not necessarily indicative of those that may
be
expected for the fiscal year.
The
following information concerning Farmer Mac’s interim unaudited condensed
consolidated financial statements is included in this report beginning on the
pages listed below:
Condensed
Consolidated Balance Sheets as of March 31, 2007 and
December 31, 2006
|
3
|
Condensed
Consolidated Statements of Operations for the three months ended
March 31,
2007 and 2006
|
4
|
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31,
2007 and 2006
|
5
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in
thousands, except share data)
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
816,930
|
|
$
|
877,714
|
|
Investment
securities
|
|
|
2,273,679
|
|
|
1,830,904
|
|
Farmer
Mac Guaranteed Securities
|
|
|
1,314,564
|
|
|
1,330,418
|
|
Loans
held for sale
|
|
|
77,990
|
|
|
71,621
|
|
Loans
held for investment
|
|
|
670,417
|
|
|
705,745
|
|
Allowance
for loan losses
|
|
|
(1,730
|
)
|
|
(1,945
|
)
|
Loans
held for investment, net
|
|
|
668,687
|
|
|
703,800
|
|
Real
estate owned
|
|
|
2,097
|
|
|
2,097
|
|
Financial
derivatives
|
|
|
7,382
|
|
|
9,218
|
|
Interest
receivable
|
|
|
56,138
|
|
|
73,545
|
|
Guarantee
and commitment fees receivable
|
|
|
43,198
|
|
|
40,743
|
|
Deferred
tax asset, net
|
|
|
10,090
|
|
|
6,886
|
|
Prepaid
expenses and other assets
|
|
|
5,007
|
|
|
6,727
|
|
Total
Assets
|
|
$
|
5,275,762
|
|
$
|
4,953,673
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
Due
within one year
|
|
$
|
3,533,771
|
|
$
|
3,298,097
|
|
Due
after one year
|
|
|
1,370,667
|
|
|
1,296,691
|
|
Total
notes payable
|
|
|
4,904,438
|
|
|
4,594,788
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
|
25,559
|
|
|
23,474
|
|
Accrued
interest payable
|
|
|
40,489
|
|
|
36,125
|
|
Guarantee
and commitment obligation
|
|
|
39,665
|
|
|
35,359
|
|
Accounts
payable and accrued expenses
|
|
|
15,785
|
|
|
12,828
|
|
Reserve
for losses
|
|
|
2,197
|
|
|
2,610
|
|
Total
Liabilities
|
|
|
5,028,133
|
|
|
4,705,184
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
|
|
|
Series
A, stated at redemption/liquidation value, $50 per share, 700,000
shares
authorized, issued and outstanding
|
|
|
35,000
|
|
|
35,000
|
|
Common
stock:
|
|
|
|
|
|
|
|
Class
A Voting, $1 par value, no maximum authorization, 1,030,780 shares
issued
and outstanding
|
|
|
1,031
|
|
|
1,031
|
|
Class
B Voting, $1 par value, no maximum authorization, 500,301 shares
issued
and outstanding
|
|
|
500
|
|
|
500
|
|
Class
C Non-Voting, $1 par value, no maximum authorization, 8,724,785 and
9,075,862 shares issued and outstanding as of March 31, 2007 and
December
31, 2006, respectively
|
|
|
8,725
|
|
|
9,076
|
|
Additional
paid-in capital
|
|
|
83,364
|
|
|
85,349
|
|
Accumulated
other comprehensive income
|
|
|
9,735
|
|
|
4,956
|
|
Retained
earnings
|
|
|
109,274
|
|
|
112,577
|
|
Total
Stockholders' Equity
|
|
|
247,629
|
|
|
248,489
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
5,275,762
|
|
$
|
4,953,673
|
|
See
accompanying notes to condensed consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
Interest
income:
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$
|
38,992
|
|
$
|
26,698
|
|
Farmer
Mac Guaranteed Securities
|
|
|
19,403
|
|
|
18,037
|
|
Loans
|
|
|
11,319
|
|
|
11,383
|
|
Total
interest income
|
|
|
69,714
|
|
|
56,118
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
|
60,632
|
|
|
45,451
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
9,082
|
|
|
10,667
|
|
Recovery/(provision)
for loan losses
|
|
|
215
|
|
|
1,013
|
|
Net
interest income after recovery/(provision) for loan losses
|
|
|
9,297
|
|
|
11,680
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,858
|
|
|
5,049
|
|
(Losses)/gains
on financial derivatives and trading assets
|
|
|
(4,033
|
)
|
|
11,700
|
|
Gains
on the sale of real estate owned
|
|
|
-
|
|
|
210
|
|
Other
income
|
|
|
409
|
|
|
169
|
|
Non-interest
income
|
|
|
2,234
|
|
|
17,128
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
3,137
|
|
|
2,904
|
|
General
and administrative
|
|
|
2,337
|
|
|
2,758
|
|
Regulatory
fees
|
|
|
550
|
|
|
588
|
|
Real
estate owned operating costs, net
|
|
|
-
|
|
|
115
|
|
Provision/(recovery)
for losses
|
|
|
(413
|
)
|
|
(696
|
)
|
Non-interest
expense
|
|
|
5,611
|
|
|
5,669
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
5,920
|
|
|
23,139
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1,438
|
|
|
7,488
|
|
Net
income
|
|
|
4,482
|
|
|
15,651
|
|
Preferred
stock dividends
|
|
|
(560
|
)
|
|
(560
|
)
|
Net
income available to common stockholders
|
|
$
|
3,922
|
|
$
|
15,091
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.37
|
|
$
|
1.36
|
|
Diluted
earnings per common share
|
|
$
|
0.37
|
|
$
|
1.32
|
|
Common
stock dividends per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
See
accompanying notes to condensed consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands)
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
4,482
|
|
$
|
15,651
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Net
amortization/(accretion) of premiums and discounts on loans and
investments
|
|
|
325
|
|
|
(234
|
)
|
Amortization
of debt premiums, discounts and issuance costs
|
|
|
29,813
|
|
|
26,639
|
|
Proceeds
from repayment of trading investment securities
|
|
|
388
|
|
|
467
|
|
Purchases
of loans held for sale
|
|
|
(15,528
|
)
|
|
(13,328
|
)
|
Proceeds
from repayment of loans held for sale
|
|
|
8,889
|
|
|
3,723
|
|
Net
change in fair value of trading securities and financial
derivatives
|
|
|
3,928
|
|
|
(12,501
|
)
|
Amortization
of SFAS 133 transition adjustment on financial derivatives
|
|
|
91
|
|
|
131
|
|
Gains
on the sale of real estate owned
|
|
|
-
|
|
|
(210
|
)
|
Total
(recovery)/provision for losses
|
|
|
(628
|
)
|
|
(1,709
|
)
|
Deferred
income taxes
|
|
|
(3,014
|
)
|
|
5,112
|
|
Stock-based
compensation expense
|
|
|
729
|
|
|
426
|
|
Decrease
in interest receivable
|
|
|
17,407
|
|
|
24,165
|
|
(Increase)/decrease
in guarantee and commitment fees receivable
|
|
|
(2,455
|
)
|
|
2,031
|
|
(Increase)/decrease in
other assets
|
|
|
(3,269
|
)
|
|
13,855
|
|
Increase/(decrease)
in accrued interest payable
|
|
|
4,364
|
|
|
(6,696
|
)
|
Increase
in other liabilities
|
|
|
5,721
|
|
|
21,172
|
|
Net
cash provided by operating activities
|
|
|
51,243
|
|
|
78,694
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
(1,234,474
|
)
|
|
(899,793
|
)
|
Purchases
of Farmer Mac II Guaranteed Securities and AgVantage Farmer Mac Guaranteed
Securities
|
|
|
(61,098
|
)
|
|
(47,528
|
)
|
Purchases
of loans held for investment
|
|
|
(6,116
|
)
|
|
(16,932
|
)
|
Purchases
of defaulted loans
|
|
|
(833
|
)
|
|
(4,054
|
)
|
Proceeds
from repayment of investment securities
|
|
|
800,052
|
|
|
639,816
|
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
73,495
|
|
|
68,723
|
|
Proceeds
from repayment of loans
|
|
|
47,767
|
|
|
44,582
|
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
200
|
|
|
1,485
|
|
Proceeds
from sale of real estate owned
|
|
|
-
|
|
|
818
|
|
Net
cash used in investing activities
|
|
|
(381,007
|
)
|
|
(212,883
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
23,802,544
|
|
|
15,145,352
|
|
Proceeds
from issuance of medium-term notes
|
|
|
536,000
|
|
|
86,200
|
|
Payments
to redeem discount notes
|
|
|
(23,855,507
|
)
|
|
(15,095,392
|
)
|
Payments
to redeem medium-term notes
|
|
|
(203,200
|
)
|
|
(45,500
|
)
|
Tax
benefit from tax deductions in excess of compensation cost
recognized
|
|
|
13
|
|
|
239
|
|
Proceeds
from common stock issuance
|
|
|
202
|
|
|
815
|
|
Purchases
of common stock
|
|
|
(9,475
|
)
|
|
(1,085
|
)
|
Dividends
paid
|
|
|
(1,597
|
)
|
|
(1,673
|
)
|
Net
cash provided by financing activities
|
|
|
268,980
|
|
|
88,956
|
|
Net
decrease in cash and cash equivalents
|
|
|
(60,784
|
)
|
|
(45,233
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
877,714
|
|
|
458,852
|
|
Cash
and cash equivalents at end of period
|
|
$
|
816,930
|
|
$
|
413,619
|
|
See
accompanying notes to condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1. |
Accounting
Policies
|
|
(a)
|
Cash
and Cash Equivalents
|
Farmer
Mac considers highly liquid investment securities with maturities of three
months or less at the time of purchase to be cash equivalents. Changes in the
balance of cash and cash equivalents are reported in the condensed consolidated
statements of cash flows. The following table sets forth information regarding
certain cash and non-cash transactions for the three months ended March 31,
2007
and 2006.
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
(in
thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
Interest
|
|
$
|
28,529
|
|
$
|
26,119
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
Non-cash
activity:
|
|
|
|
|
|
|
|
Real
estate owned acquired through foreclosure
|
|
|
-
|
|
|
-
|
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
200
|
|
|
1,485
|
|
Loans
previously under LTSPCs exchanged for Farmer Mac Guaranteed
Securities
|
|
|
303,766
|
|
|
-
|
|
As
of
March 31, 2007, Farmer Mac maintained an allowance for losses to cover estimated
probable losses on loans held for investment, real estate owned, and loans
underlying long-term standby purchase commitments (“LTSPCs”) and Farmer Mac I
Guaranteed Securities issued after the Farm Credit System Reform Act of 1996
(the “1996 Act”) in accordance with Statement of Financial Accounting Standards
No. 5, Accounting
for Contingencies (“SFAS 5”)
and Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan,
as
amended (“SFAS 114”).
The
allowance for losses is increased through periodic provisions for loan losses
that are charged against net interest income and provisions for losses that
are
charged to non-interest expense and is reduced by charge-offs for actual losses,
net of recoveries. Negative provisions for loan losses or negative provisions
for losses are recorded in the event that the estimate of probable losses as
of
the end of a period is lower than the estimate at the beginning of the
period.
Farmer
Mac’s methodology for determining its allowance for losses incorporates the
Corporation’s proprietary automated loan classification system. That system
scores loans based on criteria such as historical repayment performance, loan
seasoning, loan size and loan-to-value ratio. For the purposes of the loss
allowance methodology, the loans in Farmer Mac’s portfolio of loans and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs have
been
scored and classified for each calendar quarter since first quarter 2000. The
allowance methodology captures the migration of loan scores across concurrent
and overlapping 3-year time horizons and calculates loss rates separately within
each loan classification for (1) loans underlying LTSPCs and (2) loans held
and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities.
The calculated loss rates are applied to the current classification distribution
of Farmer Mac’s portfolio to estimate inherent losses, on the assumption that
the historical credit losses and trends used to calculate loss rates will
continue in the future. Management evaluates this assumption by taking into
consideration several factors, including:
|
·
|
geographic
and agricultural commodity/product concentrations in the
portfolio;
|
|
·
|
the
credit profile of the portfolio;
|
|
·
|
delinquency
trends of the portfolio; and
|
|
·
|
historical
charge-off and recovery activities of the
portfolio.
|
If,
based
on that evaluation, management concludes that the assumption is not valid due
to
other more compelling indicators, the loss allowance calculation is modified
by
the addition of further assumptions to capture current portfolio trends and
characteristics that differ from historical experience.
As
of
March 31, 2007, Farmer Mac concluded that the credit profile of its portfolio
was consistent with Farmer Mac’s historical credit profile and trends.
Management believes that its use of this methodology produces a reliable
estimate of inherent probable losses, as of the balance sheet date, for all
loans held, real estate owned and loans underlying post-1996 Act Farmer Mac
I
Guaranteed Securities and LTSPCs in accordance with SFAS 5 and
SFAS 114.
The
following table summarizes the changes in Farmer Mac’s allowance for losses for
the three months ended March 31, 2007 and 2006:
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for
Loan
Losses
|
|
REO
Valuation
Allowance
|
|
Reserve
for
Losses
|
|
Total
Allowance
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,945
|
|
$
|
-
|
|
$
|
2,610
|
|
$
|
4,555
|
|
Provision/(recovery)
for losses
|
|
|
(215
|
)
|
|
-
|
|
|
(413
|
)
|
|
(628
|
)
|
Charge-offs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Ending
balance
|
|
$
|
1,730
|
|
$
|
-
|
|
$
|
2,197
|
|
$
|
3,927
|
|
|
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for
Loan
Losses
|
|
REO
Valuation
Allowance
|
|
Reserve
for
Losses
|
|
Total
Allowance
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,876
|
|
$
|
-
|
|
$
|
3,777
|
|
$
|
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,013
|
)
|
|
150
|
|
|
(846
|
)
|
|
(1,709
|
)
|
Charge-offs
|
|
|
-
|
|
|
(150
|
)
|
|
-
|
|
|
(150
|
)
|
Recoveries
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
20
|
|
Ending
balance
|
|
$
|
3,883
|
|
$
|
-
|
|
$
|
2,931
|
|
$
|
6,814
|
|
The
table
below summarizes the components of Farmer Mac’s allowance for losses as of March
31, 2007 and December 31, 2006:
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$
|
1,730
|
|
$
|
1,945
|
|
Real
estate owned valuation allowance
|
|
|
-
|
|
|
-
|
|
Reserve
for losses:
|
|
|
|
|
|
|
|
On-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
857
|
|
|
982
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
599
|
|
|
679
|
|
LTSPCs
|
|
|
741
|
|
|
949
|
|
Total
|
|
$
|
3,927
|
|
$
|
4,555
|
|
No
allowance for losses has been made for loans underlying Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act, AgVantage securities or securities
issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”).
Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are
supported by unguaranteed first loss subordinated interests, which are expected
to exceed the estimated credit losses on those loans. Each
AgVantage security is a general obligation of an issuing institution approved
by
Farmer Mac and is collateralized by eligible mortgage loans. As of March 31,
2007, there were no probable losses inherent in Farmer Mac’s AgVantage
securities due to the high credit quality of the obligors as well as the
underlying collateral. The
guaranteed portions collateralizing Farmer Mac II Guaranteed Securities are
guaranteed by the United States Department of Agriculture (“USDA”). Each USDA
guarantee is an obligation backed by the full faith and credit of the United
States. As of March 31, 2007, Farmer Mac had not experienced any credit losses
on any Farmer Mac I Guaranteed Securities issued prior to the 1996 Act,
AgVantage securities or Farmer Mac II Guaranteed Securities and does not expect
to incur any such losses in the future.
As
of
March 31, 2007, Farmer Mac individually analyzed $16.2 million of its
$55.0 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted values.
Farmer Mac evaluated the remaining $38.8 million of impaired assets for
which updated valuations were not available in the aggregate in consideration
of
their similar risk characteristics and historical statistics. All of the
$16.2 million of assets analyzed individually were adequately
collateralized. Accordingly, Farmer Mac did not record any specific allowances
for under-collateralized assets as of March 31, 2007. Farmer Mac’s non-specific
or general allowances were $3.9 million as of March 31, 2007.
The
balance of impaired assets, both on- and off-balance sheet, and the related
allowance specifically allocated to those impaired assets as of March 31, 2007
and December 31, 2006 are summarized in the following table:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
Balance
|
|
Specific
Allowance
|
|
Net
Balance
|
|
Balance
|
|
Specific
Allowance
|
|
Net
Balance
|
|
|
|
(in
thousands)
|
|
Impaired
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific
allowance for losses
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
No
specific allowance for losses
|
|
|
55,004
|
|
|
-
|
|
|
55,004
|
|
|
56,854
|
|
|
-
|
|
|
56,854
|
|
Total
|
|
$
|
55,004
|
|
$
|
-
|
|
$
|
55,004
|
|
$
|
56,854
|
|
$
|
-
|
|
$
|
56,854
|
|
Farmer
Mac recognized interest income of approximately $0.9 million and $0.8
million on impaired loans during the three months ended March 31, 2007 and
2006,
respectively. During the three months ended March 31, 2007 and 2006, Farmer
Mac’s average investment in impaired loans was $55.9 million and
$70.8 million, respectively.
|
(c)
|
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 and future cash flows or debt issuance, not for trading or
speculative purposes. Farmer Mac enters into interest rate swap contracts
principally to adjust the characteristics of its short-term debt to match more
closely the cash flow and duration characteristics of its longer-term mortgage
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. These transactions
also
may provide an overall lower effective cost of borrowing than would otherwise
be
available in the conventional debt market. Farmer Mac is required also to
recognize certain contracts and commitments as derivatives when the
characteristics of those contracts and commitments meet the definition of a
derivative as promulgated by Statement of Financial Accounting Standards
No. 133, Accounting
for Derivative Instruments and Hedging Activities,
as
amended (“SFAS 133”).
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 mortgage-backed securities and 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 Treasury rates and spreads
on Farmer Mac debt and Farmer Mac Guaranteed Securities. 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 should offset changes in funding costs or Farmer Mac
Guaranteed Securities sale prices that occur during the hedge
period.
All
financial derivatives are recorded on the balance sheet at fair value as a
freestanding asset or liability in accordance with SFAS 133. Farmer Mac does
not
designate its financial derivatives as fair value hedges or cash flow hedges;
therefore, the changes in the fair values of financial derivatives are reported
as gains or losses on financial derivatives and trading assets in the condensed
consolidated statements of operations.
The
following table summarizes information related to Farmer Mac’s financial
derivatives as of March 31, 2007 and December 31, 2006:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
Notional
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$
|
1,163,134
|
|
$
|
(14,228
|
)
|
$
|
803,436
|
|
$
|
(9,982
|
)
|
Receive-fixed
|
|
|
1,075,482
|
|
|
(6,349
|
)
|
|
810,482
|
|
|
(7,111
|
)
|
Basis
|
|
|
240,125
|
|
|
2,206
|
|
|
335,065
|
|
|
2,531
|
|
Treasury
futures
|
|
|
21
|
|
|
8
|
|
|
-
|
|
|
-
|
|
Agency
forwards
|
|
|
42,212
|
|
|
186
|
|
|
71,045
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,520,974
|
|
$
|
(18,177
|
)
|
$
|
2,020,028
|
|
$
|
(14,256
|
)
|
As
of
March 31, 2007, Farmer Mac had approximately $0.8 million of net after-tax
unrealized losses on financial derivatives included in accumulated other
comprehensive income related to the SFAS 133 transition adjustment. These
amounts will be reclassified into earnings in the same period or periods during
which the hedged forecasted transactions (either the payment of interest or
the
issuance of discount notes) affect earnings or immediately when it becomes
probable that the original hedged forecasted transaction will not occur within
two months of the originally specified date. Over the next twelve months, Farmer
Mac estimates that $0.4 million of the amount currently reported in accumulated
other comprehensive income will be reclassified into earnings.
As
of
March 31, 2007, Farmer Mac had outstanding basis swaps with a related party
with
a notional amount of $181.4 million and a fair value of $2.4 million.
Those swaps hedge the interest rate basis risk related to loans Farmer Mac
purchases that pay a Constant Maturity Treasury-based rate and the Discount
Notes Farmer Mac issues to fund the loan purchases. Under the terms of those
basis swaps, which are not in designated hedge relationships, Farmer Mac pays
Constant Maturity Treasury-based rates and receives LIBOR. See Note 3 “Related
Party Transactions” in the Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2006, as filed with the SEC on March 15, 2007, for
additional information on these related party transactions. As of December
31,
2006, these swaps had an outstanding notional amount of $193.0 million and
a
fair value of $2.8 million.
|
(d)
|
Earnings
Per Common Share
|
Basic
earnings per common share are based on the weighted-average number of shares
of
common stock outstanding. Diluted earnings per common share are based on the
weighted-average number of shares of common stock outstanding adjusted to
include all potentially dilutive common stock options. The following schedule
reconciles basic and diluted earnings per common share (“EPS”) for the three
months ended March 31, 2007 and 2006:
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Basic
EPS
|
|
Dilutive
stock
options
|
|
Diluted
EPS
|
|
Basic
EPS
|
|
Dilutive
stock
options
|
|
Diluted
EPS
|
|
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
|
$3,922
|
|
|
|
|
|
$3,922
|
|
|
$15,091
|
|
|
|
|
|
$15,091
|
|
Weighted-average
shares
|
|
|
10,468
|
|
|
178
|
|
|
10,646
|
|
|
11,107
|
|
|
318
|
|
|
11,425
|
|
Earnings
per common share
|
|
|
$0.37
|
|
|
|
|
|
$0.37
|
|
|
$1.36
|
|
|
|
|
|
$1.32
|
|
During
fourth quarter 2005, Farmer Mac established a program to repurchase up to
10 percent, or 958,632 shares, of the Corporation’s outstanding Class C
Non-Voting Common stock. The aggregate number of shares repurchased by Farmer
Mac under that program reached the maximum number of authorized shares during
first quarter 2007, thereby terminating the program according to its terms.
At
that time, Farmer Mac announced the establishment of an additional program
to
repurchase up to one million additional shares of the Corporation’s
outstanding Class C Non-Voting Common Stock. The authority for this new
stock repurchase program expires in November 2008. Repurchases under that
program commenced in accordance with its terms upon termination of the previous
program. During first quarter 2007, Farmer
Mac repurchased 360,482 shares of its Class C Non-Voting Common Stock at an
average price of $26.24
per share pursuant to both of the Corporation’s previously announced stock
repurchase programs. These repurchases reduced the Corporation’s stockholders’
equity by approximately $9.5
million.
All
of
the shares repurchased under Farmer Mac’s stock repurchase programs were
purchased in open market transactions and were retired to become authorized
but
unissued shares available for future issuance.
|
(e)
|
Stock-Based
Compensation
|
In
1997,
Farmer Mac adopted a stock option plan for directors, officers and other
employees to acquire shares of Class C Non-Voting Common Stock. Upon stock
option exercise, new shares are issued by the Corporation. Under the plan,
stock
options awarded vest annually in thirds, with the first third vesting one year
after the date of grant. If not exercised, any options granted under the 1997
plan expire 10 years from the date of grant, except that options issued to
directors since June 1, 1998, if not exercised, expire five years from the
date
of grant. Of the 3,750,000 shares authorized to be issued under the plan,
456,426 remain available for future issuance as of March 31, 2007. For all
stock
options granted, the exercise price is equal to the closing price of the Class
C
Non-Voting Common Stock on or immediately preceding the date of
grant.
Farmer
Mac recognized $0.4 million and $0.4 million of compensation expense during
the
three-month periods ended March 31, 2007 and 2006, respectively, related to
the
non-vested portion of stock option awards that were outstanding as of December
31, 2005. Additionally, Farmer Mac recognized $0.3 million
of compensation expense related to stock options awarded subsequent to December
31, 2005, for the three-month period ended March 31, 2007, compared to no
such compensation expense recognized for the three-month period ended March
31,
2006. The effect of the recognition of compensation expense related to stock
options on diluted EPS for first quarter 2007 was a reduction of $0.04 per
diluted share, compared to $0.02 per diluted share for first quarter 2006.
As
of
March 31, 2007, there was $1.5 million of total unrecognized compensation cost
related to stock options outstanding and unvested as of December 31, 2005.
Of
that cost, $1.0 million and $0.5 million is expected to be recognized in
the remainder of 2007 and 2008, respectively.
The
following table summarizes stock option activity for the three months ended
March 31, 2007 and 2006:
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,145,705
|
|
$
|
23.83
|
|
|
2,153,008
|
|
$
|
22.41
|
|
Granted
|
|
|
1,000
|
|
|
27.77
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
(9,405
|
)
|
|
21.54
|
|
|
(61,800
|
)
|
|
13.14
|
|
Forfeited
|
|
|
(3,335
|
)
|
|
23.53
|
|
|
-
|
|
|
-
|
|
Outstanding,
end of period
|
|
|
2,133,965
|
|
|
23.85
|
|
|
2,091,208
|
|
|
22.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,318,998
|
|
$
|
24.05
|
|
|
1,390,475
|
|
$
|
23.58
|
|
The
cancellations of stock options during first quarter 2007 were due either to
unvested options terminating in accordance with the provisions of the applicable
stock option plans upon directors’ or employees’ departures from Farmer Mac or
vested options terminating unexercised on their expiration date. There were
no
cancellations of stock options during first quarter 2006. For first quarter
2007
and first quarter 2006, the additional paid-in capital received from the
exercise of stock options was $193 thousand and $750 thousand, respectively.
During first quarter 2007 and first quarter 2006, the reduction of income taxes
to be paid as a result of the deduction for the exercise of stock options was
$20 thousand and $375 thousand, respectively.
The
following table summarizes information regarding options outstanding as of
March 31, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of
Exercise
Prices
|
|
Number
of
Shares
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Number
of
Shares
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.00
- $19.99
|
|
|
248,897
|
|
|
6.8
years
|
|
|
172,568
|
|
|
6.6
years
|
|
|
20.00
- 24.99
|
|
|
1,082,801
|
|
|
5.3
years
|
|
|
719,341
|
|
|
4.5
years
|
|
|
25.00
- 29.99
|
|
|
612,099
|
|
|
6.6
years
|
|
|
236,921
|
|
|
4.4
years
|
|
|
30.00
- 34.99
|
|
|
189,668
|
|
|
4.2
years
|
|
|
189,668
|
|
|
4.2
years
|
|
|
35.00
- 39.99
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
40.00
- 44.99
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45.00
- 50.00
|
|
|
500
|
|
|
5.0
years
|
|
|
500
|
|
|
5.0
years
|
|
|
|
|
|
2,133,965
|
|
|
|
|
|
1,318,998
|
|
|
|
|
The
weighted-average grant date fair values of options granted in 2007 and 2006
were
$9.69 and $9.91 per share, respectively. The fair values were estimated using
the Black-Scholes option pricing model based on the following
assumptions:
|
|
2007
|
|
2006
|
|
Risk-free
interest rate
|
|
|
4.9%
|
|
|
5.0%
|
|
Expected
years until exercise
|
|
|
5
years
|
|
|
6
years
|
|
Expected
stock volatility
|
|
|
36.3%
|
|
|
36.9%
|
|
Dividend
yield
|
|
|
1.4%
|
|
|
1.6%
|
|
Certain
reclassifications of prior period information were made to conform to the
current period presentation.
|
(g)
|
New
Accounting Standards
|
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 155, Accounting
for Certain Hybrid Financial Instruments - an Amendment of FASB Statements
No.
133 and 140
(“SFAS
155”), which resolves issues addressed in Statement 133 Implementation Issue
No. D1, Application
of Statement 133 to Beneficial Interests in Securitized Financial
Assets.
SFAS 155, among other things, permits the fair value re-measurement of any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation; clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS 133; and
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation.
SFAS 155 was effective for all financial instruments acquired or issued in
a
fiscal year beginning after September 15, 2006. Farmer Mac’s adoption of
SFAS 155 on January 1, 2007 did not have a material effect on Farmer Mac’s
results of operations and financial position.
In
March
2006, FASB issued Statement of Financial Accounting Standards No. 156,
Accounting
for Servicing of Financial Assets
(“SFAS 156”), which requires that all separately recognized servicing
assets and servicing liabilities be initially measured at fair value, if
practicable, and permits the entities to elect either fair value measurement
with changes in fair value reflected in earnings or the amortization and
impairment requirements of Statement of Financial Accounting Standards No.
140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,
for
subsequent measurement. SFAS 156 was effective on January 1, 2007. Farmer
Mac’s adoption of SFAS 156 on January 1, 2007 did not have a material effect on
Farmer Mac’s results of operations or financial position.
Farmer
Mac adopted FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109
(“FIN 48”) on January 1, 2007. As part of the implementation of FIN 48,
Farmer Mac evaluated its tax positions for its open tax years, 2003 through
2006, to identify and recognize any liabilities related to uncertain tax
positions in its federal income tax returns. As of January 1, 2007, Farmer
Mac
recorded a liability for uncertain tax positions of $1.5 million with a
corresponding $1.5 million increase in deferred tax assets. There were no
significant changes in the components of the liability in first quarter 2007.
Farmer
Mac’s policy for recording interest and penalties associated with uncertain tax
positions is to record them as a component of income tax expense and the FIN
48
liability. Under the provisions of FIN 48, Farmer Mac will continue to evaluate
its tax positions for potential liabilities related to unrecognized tax benefits
at least quarterly, but does not expect any significant changes to its
unrecognized tax benefits during the next 12 months. There are no income tax
examinations of Farmer Mac in process.
In
September 2006, FASB issued Statement of Financial Accounting
Standards No. 157, Fair
Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value under other accounting pronouncements that permit or
require fair value measurements, changes the methods used to measure fair value
and expands disclosures about fair value measurements. In particular,
disclosures are required to provide information on the extent to which fair
value is used to measure assets and liabilities, the inputs used to develop
measurements and the effects of certain of the measurements on earnings or
changes in net assets. SFAS 157 requires that costs related to acquiring
financial instruments carried at fair value should not be capitalized, but
rather should be expensed as incurred. SFAS 157 also clarifies that an
issuer’s credit standing should be considered when measuring liabilities at fair
value. SFAS 157 is effective for fiscal years beginning after November 15,
2007
and interim periods within those fiscal years. Early adoption, as of the
beginning of an entity’s fiscal year, is also permitted, provided interim
financial statements have not yet been issued. Farmer Mac is currently
evaluating the potential impact, if any, that the adoption of SFAS 157 will
have
on its financial statements.
In
February 2007, FASB issued Statement of Financial Accounting
Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115
(“SFAS 159”). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. Early adoption is also permitted as of the beginning of
an entity’s fiscal year that begins on or before November 15, 2007, provided the
entity also elects to apply the provisions of SFAS 157. Farmer Mac is currently
evaluating the potential impact that the adoption of SFAS 159 would have on
its financial statements.
Note
2.
|
Farmer
Mac Guaranteed Securities
|
The
following table sets forth information about on-balance sheet Farmer Mac
Guaranteed Securities as of March 31, 2007 and December 31, 2006.
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
Available-
for-Sale
|
|
Held-to-
Maturity
|
|
Total
|
|
Available-
for-Sale
|
|
Held-to-
Maturity
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$
|
378,416
|
|
$
|
27,931
|
|
$
|
406,347
|
|
$
|
404,938
|
|
$
|
28,489
|
|
$
|
433,427
|
|
Farmer
Mac II
|
|
|
-
|
|
|
908,217
|
|
|
908,217
|
|
|
-
|
|
|
896,991
|
|
|
896,991
|
|
Total
|
|
$
|
378,416
|
|
$
|
936,148
|
|
$
|
1,314,564
|
|
$
|
404,938
|
|
$
|
925,480
|
|
$
|
1,330,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$
|
370,581
|
|
$
|
936,148
|
|
$
|
1,306,729
|
|
$
|
395,786
|
|
$
|
925,480
|
|
$
|
1,321,266
|
|
Unrealized
gains
|
|
|
10,391
|
|
|
264
|
|
|
10,655
|
|
|
11,980
|
|
|
214
|
|
|
12,194
|
|
Unrealized
losses
|
|
|
(2,556
|
)
|
|
(4,901
|
)
|
|
(7,457
|
)
|
|
(2,828
|
)
|
|
(6,715
|
)
|
|
(9,543
|
)
|
Fair
value
|
|
$
|
378,416
|
|
$
|
931,511
|
|
$
|
1,309,927
|
|
$
|
404,938
|
|
$
|
918,979
|
|
$
|
1,323,917
|
|
The
temporary unrealized losses presented above are principally due to changes
in
interest rates from the date of acquisition to March 31, 2007 and December
31,
2006, as applicable. The available-for-sale unrealized losses were on 10 and
12
individual securities as of March 31, 2007 and December 31, 2006,
respectively.
As
of
March 31, 2007, 7 of the available-for-sale Farmer Mac Guaranteed Securities
in
loss positions had been in loss positions for more than 12 months. Those
securities had a total unrealized loss of $2.5 million as of March 31,
2007, compared to an unrealized loss of $2.8 million as of
December 31, 2006. The unrealized losses on those securities are due to
overall increases in market interest rates and not due to any underlying credit
deterioration of the issuers. All of the available-for-sale securities with
unrealized losses aged greater than 12 months have losses that are less
than 2 percent of the security cost. All aged unrealized losses are recoverable
within a reasonable period of time by way of changes in market interest rates.
Accordingly, Farmer Mac has concluded that none of the unrealized losses on
its
available-for-sale Farmer Mac Guaranteed Securities represent
other-than-temporary impairment as of March 31, 2007. Farmer Mac has the
intent and ability to hold its on-balance sheet Farmer Mac Guaranteed Securities
until either the market value recovers or the securities mature.
The
table
below presents a sensitivity analysis for the Corporation’s on-balance sheet
Farmer Mac Guaranteed Securities as of March 31, 2007.
|
|
March
31, 2007
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Fair
value of beneficial interests retained
in
Farmer Mac Guaranteed Securities
|
|
$
|
1,309,927
|
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
4.7
|
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
10.9
|
%
|
Effect
on fair value of a 10% adverse change
|
|
$
|
(390
|
)
|
Effect
on fair value of a 20% adverse change
|
|
$
|
(727
|
)
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
5.8
|
%
|
Effect
on fair value of a 10% adverse change
|
|
$
|
(20,515
|
)
|
Effect
on fair value of a 20% adverse change
|
|
$
|
(41,557
|
)
|
These
sensitivities are hypothetical. Changes in fair value based on 10 percent
or 20 percent variations in assumptions generally cannot be extrapolated
because the relationship of the change in assumptions to the change in fair
value may not be linear. Also, the effect of a variation in a particular
assumption on the fair value of the retained interest is calculated without
changing any other assumption. In fact, changes in one factor may result in
changes in another (for example, increases in market interest rates may result
in lower prepayments), which might amplify or counteract the
sensitivities.
The
table
below presents the outstanding principal balances as of the periods indicated
for Farmer Mac Guaranteed Securities, loans, and LTSPCs.
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
Loans
|
|
$
|
740,304
|
|
$
|
770,236
|
|
Guaranteed
Securities
|
|
|
397,581
|
|
|
423,624
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
903,939
|
|
|
892,667
|
|
Total
on-balance sheet
|
|
$
|
2,041,824
|
|
$
|
2,086,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
LTSPCs
|
|
$
|
1,920,848
|
|
$
|
1,969,734
|
|
AgVantage
|
|
|
1,500,000
|
|
|
1,500,000
|
|
Guaranteed
Securities
|
|
|
1,874,458
|
|
|
1,649,895
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
28,117
|
|
|
33,132
|
|
Total
off-balance sheet
|
|
$
|
5,323,423
|
|
$
|
5,152,761
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,365,247
|
|
$
|
7,239,288
|
|
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 these loans at their fair values in the consolidated
financial statements during the period in which Farmer Mac becomes entitled
to
purchase the loans and therefore regains effective control over the transferred
loans. Fair values are determined by current collateral valuations or
management’s estimate of discounted collateral values, and represent the cash
flows expected to be collected. Farmer Mac records, at acquisition, the
difference between each loan’s acquisition cost and its fair value, if any, as a
charge-off to the reserve for losses. Subsequent to the purchase, such 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. No impairment was recognized during the three months ended March
31,
2007 and 2006. The following table presents information related to Farmer Mac’s
acquisition of defaulted loans for the three months ended March 31, 2007 and
2006 and the outstanding balances and carrying amounts of all such loans as
of
March 31, 2007 and December 31, 2006, respectively.
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
March
31,
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Fair
value at acquistion date
|
|
$
|
833
|
|
$
|
4,054
|
|
Contractually
required payments
receivable
|
|
|
871
|
|
|
4,120
|
|
|
|
As
of
|
|
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$
|
45,650
|
|
$
|
45,330
|
|
Carrying
amount
|
|
|
41,617
|
|
|
42,687
|
|
Net
credit losses and 90-day delinquencies as of and for the periods indicated
for
Farmer Mac Guaranteed Securities, loans and LTSPCs are presented in the table
below. Information is not presented for loans underlying Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act, AgVantage securities or Farmer Mac
II Guaranteed Securities. Farmer Mac I Guaranteed Securities issued prior
to the 1996 Act are supported by unguaranteed first loss subordinated interests,
which are expected to exceed the estimated credit losses on those loans. Each
AgVantage security is a general obligation of an issuing institution approved
by
Farmer Mac and is collateralized by eligible mortgage loans. As of March 31,
2007, there were no probable losses inherent in Farmer Mac’s AgVantage
securities due to the high credit quality of the obligors, as well as the
underlying collateral. The guaranteed portions collateralizing Farmer Mac II
Guaranteed Securities are guaranteed by the USDA. Each USDA guarantee is an
obligation backed by the full faith and credit of the United States. As of
March 31, 2007, Farmer Mac had not experienced any credit losses on any
Farmer Mac I Guaranteed Securities issued prior to the 1996 Act, AgVantage
securities or Farmer Mac II Guaranteed Securities and does not expect to incur
any such losses in the future.
|
|
90-Day
Delinquencies
(1)
|
|
Net
Credit
Losses/(Recoveries)
|
|
|
|
As
of
March
31,
|
|
As
of
December
31,
|
|
As
of
March
31,
|
|
For
the Three Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
22,864
|
|
$
|
18,457
|
|
$
|
25,535
|
|
$
|
-
|
|
$
|
(20
|
)
|
Total
on-balance sheet
|
|
$
|
22,864
|
|
$
|
18,457
|
|
$
|
25,535
|
|
$
|
-
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$
|
5,477
|
|
$
|
1,198
|
|
$
|
3,227
|
|
$
|
-
|
|
$
|
-
|
|
Total
off-balance sheet
|
|
$
|
5,477
|
|
$
|
1,198
|
|
$
|
3,227
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,341
|
|
$
|
19,655
|
|
$
|
28,762
|
|
$
|
-
|
|
$
|
(20
|
)
|
(1)
|
Includes
loans and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs that are 90 days or more past due, in foreclosure,
restructured after delinquency, and in bankruptcy, excluding loans
performing under either their original loan terms or a court-approved
bankruptcy plan.
|
Note
3.
|
Off-Balance
Sheet Guarantees and Long-Term Standby Purchase
Commitments
|
Overview
Farmer
Mac offers approved agricultural and rural residential mortgage lenders two
credit enhancement alternatives to increase their liquidity or lending capacity
while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed
Securities, which are available through either the Farmer Mac I program or
the
Farmer Mac II program; and (2) LTSPCs, which are available only through the
Farmer Mac I program. Both of these alternatives result in the creation of
off-balance sheet obligations for Farmer Mac in the ordinary course of its
business.
Off-Balance
Sheet Farmer Mac Guaranteed Securities
Agricultural
mortgage loans and other mortgage assets may be placed into trusts that are
used
as vehicles for the securitization of the transferred assets and the Farmer
Mac-guaranteed beneficial interests in the trusts are sold to investors. The
following table summarizes cash flows received from and paid to these
trusts:
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
(in
thousands)
|
|
Proceeds
from new securitizations
|
|
$
|
200
|
|
$
|
1,485
|
|
Guarantee
fees received
|
|
|
2,748
|
|
|
1,408
|
|
Purchases
of assets from the trusts
|
|
|
-
|
|
|
506
|
|
Servicing
advances
|
|
|
36
|
|
|
1
|
|
Repayment
of servicing advances
|
|
|
67
|
|
|
4
|
|
The
following table presents the maximum principal amount of potential undiscounted
future payments that Farmer Mac could be required to make under off-balance
sheet Farmer Mac Guaranteed Securities as of March 31, 2007 and December 31,
2006, not including offsets provided by any recourse provisions, recoveries
from
third parties or collateral for the underlying loans.
Outstanding
Balance of Off-Balance Sheet
Farmer
Mac Guaranteed Securities
|
|
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Post-1996
Act Farmer Mac I Guaranteed Securities
|
|
$
|
3,374,458
|
|
$
|
3,149,895
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
28,117
|
|
|
33,132
|
|
Total
Farmer Mac I and II
|
|
$
|
3,402,575
|
|
$
|
3,183,027
|
|
As
of
March 31, 2007, the weighted-average remaining maturity of all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage
securities, was 14.2 years. For those securities issued or modified on or
after January 1, 2003, Farmer Mac has recorded a liability for its
obligation to stand ready under the guarantee in the guarantee and commitment
obligation on the condensed consolidated balance sheet. This liability
approximated $21.6 million as of March 31, 2007 and $13.6 million as of
December 31, 2006.
Long-Term
Standby Purchase Commitments
(“LTSPCs”)
An
LTSPC
is a commitment by Farmer Mac to purchase eligible loans from a segregated
pool
of loans, either for cash or in exchange for Farmer Mac I Guaranteed Securities,
on one or more undetermined future dates. As consideration for its assumption
of
the credit risk on loans underlying an LTSPC, Farmer Mac receives a commitment
fee payable monthly in arrears in an amount approximating what would have been
the guarantee fee if the transaction were structured as a swap for Farmer Mac
Guaranteed Securities.
As
of
March 31, 2007 and December 31, 2006, the maximum principal amount of potential
undiscounted future payments that Farmer Mac could be requested to make under
LTSPCs, not including offsets provided by any recourse provisions, recoveries
from third parties or collateral for the underlying loans, was $1.9 billion
and
$2.0 billion, respectively.
As
of
March 31, 2007, the weighted-average remaining maturity of all loans underlying
LTSPCs was 15.4 years. For those LTSPCs issued or modified on or after
January 1, 2003, Farmer Mac has recorded a liability for its obligation to
stand ready under the commitment in the guarantee and commitment obligation
on
the condensed consolidated balance sheet. This liability approximated $18.1
million as of March 31, 2007 and $21.8 million as of December 31,
2006.
Note
4.
|
Comprehensive
Income
|
Comprehensive
income represents all changes in stockholders’ equity except those resulting
from investments by or distributions to stockholders, and is comprised primarily
of net income and unrealized gains and losses on securities available-for-sale
net of related taxes. The following table sets forth Farmer Mac’s comprehensive
income for the three months ended March 31, 2007 and 2006:
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
March
31,
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,482
|
|
$
|
15,651
|
|
|
|
|
|
|
|
|
|
Unrealized
gains/(losses) on available for sale securities, net of
tax
|
|
|
4,688
|
|
|
(9,042
|
)
|
Amortization
of SFAS 133 transition adjustment on
financial derivatives, net of tax
|
|
|
91
|
|
|
131
|
|
|
|
|
|
|
|
|
|
Change
in accumulated other comprehensive
income/(loss), net of tax
|
|
|
4,779
|
|
|
(8,911
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
9,261
|
|
$
|
6,740
|
|
The
following table presents Farmer Mac’s accumulated other comprehensive income as
of and for the three months ended March 31, 2007 and December 31, 2006.
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(in
thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
5,802
|
|
$
|
16,637
|
|
Net
unrealized gains/(losses), net of tax
|
|
|
4,688
|
|
|
(10,835
|
)
|
Ending
balance
|
|
$
|
10,490
|
|
$
|
5,802
|
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
(846
|
)
|
$
|
(1,390
|
)
|
Amortization
of SFAS 133 transition adjustment on financial derivatives, net of
tax
|
|
|
91
|
|
|
544
|
|
Ending
balance
|
|
$
|
(755
|
)
|
$
|
(846
|
)
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income, net of tax
|
|
$
|
9,735
|
|
$
|
4,956
|
|
The
following table presents the amortized cost and estimated fair values of Farmer
Mac’s investments as of March 31, 2007 and December 31, 2006.
|
|
As
of March 31, 2007
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
$
|
366,471
|
|
$
|
-
|
|
$
|
(6
|
)
|
$
|
366,465
|
|
Fixed
rate asset-backed securities
|
|
|
365,650
|
|
|
2,894
|
|
|
-
|
|
|
368,544
|
|
Floating
rate corporate debt securities
|
|
|
436,383
|
|
|
432
|
|
|
(180
|
)
|
|
436,635
|
|
Fixed
rate corporate debt securities
|
|
|
545,072
|
|
|
-
|
|
|
(2,718
|
)
|
|
542,354
|
|
Fixed
rate preferred stock
|
|
|
236,173
|
|
|
7,646
|
|
|
(86
|
)
|
|
243,733
|
|
Floating
rate commercial paper
|
|
|
50,140
|
|
|
-
|
|
|
-
|
|
|
50,140
|
|
Fixed
rate commercial paper
|
|
|
101,862
|
|
|
-
|
|
|
-
|
|
|
101,862
|
|
Floating
rate mortgage-backed securities
|
|
|
149,752
|
|
|
546
|
|
|
(78
|
)
|
|
150,220
|
|
Fixed
rate mortgage-backed securities
|
|
|
9,115
|
|
|
-
|
|
|
(147
|
)
|
|
8,968
|
|
Total
available-for-sale
|
|
|
2,260,618
|
|
|
11,518
|
|
|
(3,215
|
)
|
|
2,268,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
rate mortgage-backed securities
|
|
|
4,702
|
|
|
56
|
|
|
-
|
|
|
4,758
|
|
Total
trading
|
|
|
4,702
|
|
|
56
|
|
|
-
|
|
|
4,758
|
|
Total
investment securities
|
|
$
|
2,265,320
|
|
$
|
11,574
|
|
$
|
(3,215
|
)
|
$
|
2,273,679
|
|
|
|
As
of December 31, 2006
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
$
|
361,822
|
|
$
|
-
|
|
$
|
-
|
|
$
|
361,822
|
|
Floating
rate corporate debt securities
|
|
|
406,374
|
|
|
527
|
|
|
(6
|
)
|
|
406,895
|
|
Fixed
rate corporate debt securities
|
|
|
579,389
|
|
|
17
|
|
|
(4,153
|
)
|
|
575,253
|
|
Fixed
rate preferred stock
|
|
|
236,771
|
|
|
3,628
|
|
|
(284
|
)
|
|
240,115
|
|
Fixed
rate commercial paper
|
|
|
73,371
|
|
|
-
|
|
|
-
|
|
|
73,371
|
|
Floating
rate mortgage-backed securities
|
|
|
158,521
|
|
|
552
|
|
|
(45
|
)
|
|
159,028
|
|
Fixed
rate mortgage-backed securities
|
|
|
9,444
|
|
|
-
|
|
|
(177
|
)
|
|
9,267
|
|
Total
available-for-sale
|
|
|
1,825,692
|
|
|
4,724
|
|
|
(4,665
|
)
|
|
1,825,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
rate mortgage-backed securities
|
|
|
5,091
|
|
|
62
|
|
|
-
|
|
|
5,153
|
|
Total
trading
|
|
|
5,091
|
|
|
62
|
|
|
-
|
|
|
5,153
|
|
Total
investment securities
|
|
$
|
1,830,783
|
|
$
|
4,786
|
|
$
|
(4,665
|
)
|
$
|
1,830,904
|
|
The
temporary unrealized losses presented above are principally due to changes
in
interest rates from the date of acquisition to March 31, 2007 and December
31,
2006, as applicable. All investment securities in an unrealized loss position
are at least “A” rated and have not experienced any decline in credit rating
during 2007 or 2006. The unrealized losses were on 31 and 21 individual
investment securities as of March 31, 2007 and December 31, 2006, respectively.
As
of
March 31, 2007, 13 of the securities in loss positions had been in loss
positions for more than 12 months. Those securities had a total unrealized
loss
of $3.0 million as of March 31, 2007, compared to an unrealized loss of
$4.4 million as of December 31, 2006. The unrealized losses on those
securities are due to overall increases in market interest rates and not due
to
any underlying credit deterioration of the issuers. All of the securities with
unrealized losses aged greater than 12 months have losses that are less
than 3 percent of the security cost. All aged unrealized losses are recoverable
within a reasonable period of time by way of changes in market interest rates.
Accordingly, Farmer Mac has concluded that none of the unrealized losses on
our
investment securities represent other-than-temporary impairment as of March
31,
2007. Farmer Mac has the intent and ability to hold its investment securities
in
loss positions until either the market value recovers or the securities
mature.
As
of
March 31, 2007, Farmer Mac did not own any held-to-maturity investments and
owned trading investment securities that mature in less than one year with
an
amortized cost of $4.7 million, a fair value of $4.8 million, and a
weighted average yield of 5.38 percent. The amortized cost, fair value and
yield of investments by remaining contractual maturity for available-for-sale
investment securities as of March 31, 2007 are set forth below. Asset- and
mortgage-backed securities are included based on their final maturities,
although the actual maturities may differ due to prepayments of the underlying
assets or mortgages.
|
|
Investment
Securities
Available-for-Sale
as
of March 31, 2007
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
Due
within one year
|
|
$
|
286,681
|
|
$
|
286,567
|
|
|
4.22
|
%
|
Due
after one year
through five years
|
|
|
991,676
|
|
|
990,697
|
|
|
5.30
|
%
|
Due
after five years
through ten years
|
|
|
567,709
|
|
|
576,979
|
|
|
5.50
|
%
|
Due
after ten years
|
|
|
414,552
|
|
|
414,678
|
|
|
4.37
|
%
|
Total
|
|
$
|
2,260,618
|
|
$
|
2,268,921
|
|
|
5.06
|
%
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Financial
information is consolidated to include the accounts of Farmer Mac and its
wholly-owned subsidiary, Farmer Mac Mortgage Securities
Corporation.
This
discussion and analysis of financial condition and results of operations should
be read together with: (1) the interim unaudited condensed consolidated
financial statements and the related notes that appear elsewhere in this report;
and (2) Farmer Mac’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2006.
The
discussion below is not necessarily indicative of future results.
Special
Note Regarding Forward-Looking Statements
Some
statements made in this report are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 pertaining
to
management’s current expectations as to Farmer Mac’s future financial results,
business prospects and business developments. Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and typically are
accompanied by, and identified with, such terms as “anticipates,” “believes,”
“expects,” “intends,” “should” and similar phrases. The following management’s
discussion and analysis includes forward-looking statements addressing Farmer
Mac’s:
|
·
|
prospects
for earnings;
|
|
·
|
prospects
for growth in loan purchase, guarantee, securitization and LTSPC
volume;
|
|
·
|
trends
in net interest income;
|
|
·
|
trends
in provisions for losses;
|
|
·
|
changes
in capital position; and
|
|
·
|
other
business and financial matters.
|
Management’s
expectations for Farmer Mac’s future necessarily involve a number of assumptions
and estimates and the evaluation of risks and uncertainties. Various factors
or
events could cause Farmer Mac’s actual results to differ materially from the
expectations as expressed or implied by the forward-looking statements,
including the factors discussed under “Risk Factors” in Part I, Item 1A of
Farmer Mac’s Annual Report on Form 10-K for the year ended
December 31, 2006, as filed with the SEC on March 15, 2007, and
uncertainties regarding:
|
·
|
lender
interest in Farmer Mac credit products and the Farmer Mac secondary
market;
|
|
·
|
increases
in general and administrative expenses attributable to growth of
the
business and regulatory environment, including the hiring of additional
personnel with expertise in key functional areas;
|
|
·
|
the
rate and direction of development of the secondary market for agricultural
mortgage loans;
|
|
·
|
the
general rate of growth in agricultural mortgage
indebtedness;
|
|
·
|
borrower
preferences for fixed-rate agricultural mortgage
indebtedness;
|
|
·
|
the
willingness of investors to invest in Farmer Mac Guaranteed Securities;
and
|
|
·
|
possible
reaction in the financial markets to events involving GSEs other
than
Farmer Mac.
|
In
light
of these potential risks and uncertainties, no undue reliance should be placed
on any forward-looking statements expressed in this report. Furthermore, Farmer
Mac undertakes no obligation to release publicly the results of revisions to
any
forward-looking statements that may be made to reflect new information or any
future events or circumstances, except as otherwise mandated by the
SEC.
Critical
Accounting Policy and Estimates
The
critical accounting policy that is both important to the portrayal of Farmer
Mac’s financial condition and results of operations and requires complex,
subjective judgments is the accounting policy for the allowance for losses.
For
a discussion of Farmer Mac’s critical accounting policy, as well as Farmer Mac’s
use of estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and related notes for the periods
presented, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Critical Accounting Policy and Estimates” in the
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006,
as filed with the SEC on March 15, 2007.
Results
of Operations
Overview.
Net
income available to common stockholders for first quarter 2007 was
$3.9 million or $0.37 per diluted common share, compared to
$15.1 million or $1.32 per diluted common share for first quarter 2006.
These decreases were due principally to the effects of losses on financial
derivatives used to
manage
interest rate risk. During
first quarter 2007, Farmer Mac recorded losses of $4.0 million on financial
derivatives due to market value changes caused by decreases in long-term
interest rates. By comparison, Farmer Mac recorded gains of $11.7 million
on financial derivatives for first quarter 2006 due to market value changes
caused by increases in long-term interest rates. Although Farmer
Mac’s financial derivatives provided highly effective economic hedges of
interest rate risk, accounting under SFAS 133 caused the losses on the
financial derivatives to be reflected in net income for first quarter 2007
while
the offsetting economic gains on the hedged items were not. Similarly, under
SFAS 133 the gains on financial derivatives for first quarter 2006 were
reflected in net income, while the offsetting economic losses on the hedged
items were not. As a result of Farmer
Mac’s classification of its financial derivatives as undesignated hedges under
SFAS 133, factors unrelated to the performance of the Corporation’s business,
such as changes in interest rates, may cause the Corporation’s earnings under
accounting principles generally accepted in the United States of America
(“GAAP”) to be more volatile than - and even counter-directional to - the
underlying economics of its business operations. Notwithstanding that increased
volatility, the Corporation intends to continue to use financial derivatives
to
manage interest rate risk and optimize its cost of funds. Consistent with that
strategy, the Board and management of Farmer Mac focus on the long-term growth
of its business and its overall economic return to stockholders, rather than
the
short-term volatility of GAAP net income.
During
first quarter 2007, Farmer Mac:
|
·
|
added
$396.3 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchased
$21.6 million of newly originated and current seasoned Farmer Mac
I loans;
|
|
·
|
purchased
$53.5 million of Farmer Mac II USDA-guaranteed portions of loans;
and
|
|
·
|
converted
$303.8 million of pre-existing LTSPCs into Farmer Mac I Guaranteed
Securities in swap transactions.
|
As
of
March 31, 2007, Farmer Mac’s outstanding program volume was $7.4 billion, which
represented approximately 14.9 percent of management’s estimate of a $49.7
billion market of eligible agricultural mortgage loans. In addition, on April
19, 2007 Farmer Mac guaranteed $1.0 billion of AgVantage securities,
increasing Farmer Mac’s outstanding program volume above $8.0 billion for the
first time.
As
part
of Farmer Mac’s continuing evaluation of the overall credit quality of its
portfolio, the state of the U.S. agricultural economy, the continued upward
trends in agricultural land values, and the level of Farmer Mac’s outstanding
guarantees and commitments, Farmer Mac determined that the appropriate allowance
for losses as of March 31, 2007 was $3.9 million. This resulted in the
release of approximately $0.6 million from the allowance for losses in
first quarter 2007. As of March 31, 2007, the allowance for losses was
$3.9 million and 8 basis points relative to the outstanding post-1996
Act Farmer Mac I portfolio (excluding AgVantage securities), compared to $4.6
million and 10 basis points as of December 31, 2006 and $6.8 million
and 16 basis points as of March 31, 2006.
As
of
March 31, 2007, Farmer Mac’s 90-day delinquencies (Farmer Mac I loans purchased
or placed under Farmer Mac I Guaranteed Securities or LTSPCs
after enactment of the 1996 Act that were 90 days or more past
due, in foreclosure, restructured after delinquency, or in bankruptcy, excluding
loans performing under either their original loan terms or a court-approved
bankruptcy plan) were $28.3 million, representing 0.58 percent of the
principal balance of the outstanding post-1996 Act Farmer Mac I portfolio
(excluding AgVantage securities), compared to $28.8 million
(0.68 percent) as of March 31, 2006.
Set
forth
below is a more detailed discussion of Farmer Mac’s results of
operations.
Net
Interest Income.
Net
interest income was $9.1 million for first quarter 2007, compared to
$10.7 million for first quarter 2006. The net interest yield was 73 basis
points for the three months ended March 31, 2007, compared to 100 basis
points for the three months ended March 31, 2006.
Net
interest income includes guarantee fees for loans purchased after April 1,
2001
(the effective date of Statement of Financial Accounting Standards No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
(“SFAS 140”)), but not for loans purchased prior to that date. The effect
of SFAS 140 was a reclassification of approximately $0.8 million
(7 basis points) of guarantee fee income as interest income for first
quarter 2007, compared to $0.9 million (8 basis points) for first
quarter 2006.
As
discussed in Note 1(c) to the condensed consolidated financial statements,
Farmer Mac accounts for its financial derivatives as undesignated financial
derivatives. Accordingly, the Corporation classifies the net interest income
and
expense realized on financial derivatives as gains and losses on financial
derivatives and trading assets. For the three months ended March 31, 2007
and 2006, this classification resulted in the increase of the net interest
yield
of 1 basis point and 19 basis points, respectively.
The
net
interest yields for the three months ended March 31, 2007 and 2006 included
the
benefits of yield maintenance payments of 10 basis points and 9 basis points,
respectively. Yield maintenance payments represent the present value of expected
future interest income streams and accelerate the recognition of interest income
from the related loans. Because the timing and size of these payments vary
greatly, variations do not necessarily indicate positive or negative trends
to
gauge future financial results. For the three months ended March 31, 2007 and
2006, the after-tax effects of yield maintenance payments on net income and
diluted earnings per share were $0.8 million or $0.08 per diluted share and
$0.7 million or $0.06 per diluted share, respectively.
The
following table provides information regarding interest-earning assets and
funding for the three months ended March 31, 2007 and 2006. The balance of
non-accruing loans is included in the average balance of interest-earning loans
presented, though no related income is included in the income figures presented.
Therefore, as the balance of non-accruing loans increases or decreases, the
net
interest yield will decrease or increase accordingly. Net interest income and
the yield will also fluctuate due to the uncertainty of the timing and size
of
yield maintenance payments. The average rate earned on cash and cash equivalents
reflects the increase in short-term market rates from first quarter 2006 through
first quarter 2007. The increase in the average rate for investments reflects
the increase in short-term rates from first quarter 2006 through first quarter
2007 and the short-term or floating rate nature of most investments acquired
or
reset during first quarter 2007. The higher average rate on loans and Farmer
Mac
Guaranteed Securities during first quarter 2007 reflects the increase in market
rates during 2006, which affected the rates on loans acquired or reset during
that period and outstanding during first quarter 2007. The higher average rate
on Farmer Mac’s notes payable due within one year is consistent with general
trends in average short-term rates during the periods presented. The upward
trend in the average rate on notes payable due after one year reflects the
retirement of older debt and the issuance of new debt at higher market rates
during 2006.
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2006
|
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Average
Rate
|
|
Average
Balance
|
|
Income/
Expense
|
|
Average
Rate
|
|
|
|
(dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,028,376
|
|
$
|
13,563
|
|
|
5.28
|
%
|
$
|
593,615
|
|
$
|
6,664
|
|
|
4.49
|
%
|
Investments
|
|
|
1,892,787
|
|
|
25,430
|
|
|
5.37
|
%
|
|
1,616,628
|
|
|
20,034
|
|
|
4.96
|
%
|
Loans
and Farmer Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
2,023,941
|
|
|
30,721
|
|
|
6.07
|
%
|
|
2,060,797
|
|
|
29,420
|
|
|
5.71
|
%
|
Total
interest-earning assets
|
|
|
4,945,104
|
|
|
69,714
|
|
|
5.64
|
%
|
|
4,271,040
|
|
|
56,118
|
|
|
5.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
2,246,940
|
|
|
28,837
|
|
|
5.13
|
%
|
|
2,372,349
|
|
|
25,742
|
|
|
4.34
|
%
|
Notes
payable due after one year
|
|
|
2,494,288
|
|
|
31,795
|
|
|
5.10
|
%
|
|
1,654,704
|
|
|
19,709
|
|
|
4.76
|
%
|
Total
interest-bearing liabilities
|
|
|
4,741,228
|
|
|
60,632
|
|
|
5.12
|
%
|
|
4,027,053
|
|
|
45,451
|
|
|
4.51
|
%
|
Net
non-interest-bearing funding
|
|
|
203,876
|
|
|
|
|
|
|
|
|
243,987
|
|
|
|
|
|
|
|
Total
funding
|
|
$
|
4,945,104
|
|
|
60,632
|
|
|
4.90
|
%
|
$
|
4,271,040
|
|
|
45,451
|
|
|
4.26
|
%
|
Net
interest income/yield
|
|
|
|
|
$
|
9,082
|
|
|
0.73
|
%
|
|
|
|
$
|
10,667
|
|
|
1.00
|
%
|
The
following table sets forth information regarding the changes in the components
of Farmer Mac’s net interest income for the periods indicated. For each
category, information is provided on changes attributable to changes in volume
(change in volume multiplied by old rate) and changes in rate (change in rate
multiplied by old volume). Combined rate/volume variances, the third element
of
the calculation, are allocated based on their relative size. The increases
in
income due to changes in rate reflect the reset of variable-rate investments
and
adjustable-rate mortgages to higher rates and the acquisition of new
higher-yielding investments, loans and Farmer Mac Guaranteed Securities, as
described above. The increases in expense reflect the increased cost of
short-term or floating rate funding due to the increase in short-term interest
rates.
|
|
Three
Months Ended March 31, 2007
Compared
to Three Months Ended
March
31, 2006
|
|
|
|
Increase/(Decrease)
Due to
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
|
|
(in
thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,329
|
|
$
|
5,569
|
|
$
|
6,898
|
|
Investments
|
|
|
1,781
|
|
|
3,615
|
|
|
5,396
|
|
Loans
and Farmer Mac Guaranteed Securities
|
|
|
4,296
|
|
|
(2,995
|
)
|
|
1,301
|
|
Total
|
|
|
7,406
|
|
|
6,189
|
|
|
13,595
|
|
Expense
from interest-bearing liabilities
|
|
|
6,508
|
|
|
8,672
|
|
|
15,180
|
|
Change
in net interest income
|
|
$
|
898
|
|
$
|
(2,483
|
)
|
$
|
(1,585
|
)
|
Guarantee
and Commitment Fees.
Guarantee and commitment fees, which compensate Farmer Mac for assuming the
credit risk on loans underlying Farmer Mac Guaranteed Securities and LTSPCs,
were $5.9 million for first quarter 2007 compared to $5.0 million for first
quarter 2006. The increase in guarantee and commitment fee income reflect the
increase in the average balance of outstanding guarantees and LTSPCs. The
effects of SFAS 140 classified guarantee fees of $0.8 million as
interest income for first quarter 2007 compared to $0.9 million for first
quarter 2006, although management considers the amounts to have been earned
in
consideration for the assumption of credit risk. That portion of the difference
or “spread” between the cost of Farmer Mac’s debt funding for loans and the
yield on post-1996 Act Farmer Mac I Guaranteed Securities held on its books
compensates for credit risk. When a post-1996 Act Farmer Mac I Guaranteed
Security is sold to a third party, Farmer Mac continues to receive the guarantee
fee component of that spread, which continues to compensate Farmer Mac for
its
assumption of credit risk. The portion of the spread that compensates for
interest rate risk would not typically continue to be received by Farmer Mac
if
the asset were sold, except to the extent attributable to any retained
interest-only strip.
Expenses.
General
and administrative expenses were $2.3 million for first quarter 2007
compared to $2.8 million for first quarter 2006. The decrease was largely
attributable to reduced legal fees from those in first quarter 2006 which
included fees for a $500.0 million AgVantage transaction and compliance
matters. Compensation and employee benefits were $3.1 million for first quarter
2007, compared to $2.9 million for first quarter 2006. Farmer Mac
recognized compensation expense related to stock options of $0.7 million for
first quarter 2007, compared to $0.4 million for first quarter 2006. For more
information on stock option expense, see Note 1(e).
Regulatory
fee expense for each of first quarter 2007 and 2006 were $0.6 million and
$0.6 million, respectively. The Farm Credit Administration (“FCA”) has
advised the Corporation that its estimated fees for the federal fiscal year
ended September 30, 2007 will be $2.2 million compared to $2.4 million for
the federal fiscal year ended September 30, 2006. After the end of a federal
government fiscal year, FCA may revise its prior year estimated assessments
to
reflect actual costs incurred, and has issued both additional assessments and
refunds in the past. Farmer Mac expects all of the above-mentioned expenses
and
regulatory fees to continue at approximately the same levels through
2007.
During
first quarter 2007, Farmer Mac released $0.6 million from the allowance for
losses, compared to a release of $1.7 million for first quarter 2006. See
“—Quantitative and Qualitative Disclosures About Market Risk Management—Credit
Risk” for additional information regarding Farmer Mac’s provision for losses,
provision for loan losses and Farmer Mac’s methodology for determining its
allowance for losses. As of March 31, 2007, Farmer Mac’s total allowance for
losses was $3.9 million, or 0.08 percent relative to the outstanding
post-1996 Act Farmer Mac I portfolio (excluding AgVantage securities), compared
to $4.6 million and 0.10 percent as of December 31, 2006.
Gains
and Losses on Financial Derivatives and Trading Assets. SFAS
133
requires the change in the fair values of financial derivatives to be reflected
in a company’s net income or accumulated other comprehensive income. As
discussed in Note 1(c) to the condensed consolidated financial statements,
the
Corporation accounts for its financial derivatives as undesignated financial
derivatives. The pre-tax net effect of gains and losses on financial
derivatives, and trading assets recorded in Farmer Mac’s consolidated statements
of operations was a net loss of $4.0 million for first quarter 2007 due to
market value changes caused by decreases in interest rates compared to a net
gain of $11.7 million for first quarter 2006 due to market value changes
caused by increases in interest rates.
Farmer
Mac records financial derivatives at fair value on its balance sheet with the
related changes in fair value recognized in the condensed consolidated statement
of operations. Although the Corporation’s use of financial derivatives achieves
its economic and risk management objectives, its classification of financial
derivatives as undesignated hedges under SFAS 133 allows factors unrelated
to
the economic performance of the Corporation’s business, such as changes in
interest rates, to increase the volatility - or even change the direction -
of
the Corporation’s earnings under GAAP.
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 mortgage 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 also to derive an overall lower
effective fixed-rate cost of borrowing than would otherwise be available to
Farmer Mac in the conventional debt market. Specifically, interest rate swaps
convert economically the variable cash flows related to the forecasted issuance
of short-term debt to effectively fixed-rate medium-term and long-term notes
that match the anticipated duration, repricing and interest rate characteristics
of the corresponding assets. Since this strategy provides Farmer Mac with
approximately the same cash flows as those that are inherent in the issuance
of
medium-term notes, Farmer Mac uses either the bond market or the swap market
based upon their relative pricing efficiencies.
Farmer
Mac uses callable interest rate swaps (in conjunction with the issuance of
short-term debt) as an alternative to callable medium-term notes with
equivalently structured maturities and call options. The call options on the
swaps are designed to match the implicit prepayment options on those mortgage
assets without prepayment protection. The blended durations of the swaps are
also designed to match the duration of the related mortgages over their
estimated lives. If the mortgages prepay, the swaps can be called and the
short-term debt repaid; if the mortgages do not prepay, the swaps remain
outstanding and the short-term debt is rolled over, effectively providing
fixed-rate callable funding over the lives of the related mortgages. Thus,
the
economics of the assets are closely matched to the economics of the interest
rate swap and funding combination.
Business
Volume.
New
business volume for first quarter 2007 was $471.5 million, compared to $396.2
million in fourth quarter 2006 and $648.5 million in first quarter 2006. Much
of
Farmer Mac’s recent business volume has been a product of the Corporation’s
ongoing efforts to diversify its marketing focus to include large program
transactions that emphasize high asset quality, with greater protection against
adverse credit performance and commensurately lower compensation for the
assumption of credit risk and administrative costs, resulting in projected
risk-adjusted marginal returns on equity approximately equal to those of other
Farmer Mac program transactions. During first quarter 2007, those efforts
resulted in $396.3 million of LTSPCs and in April 2007, the guarantee of a
$1
billion AgVantage security.
While
Farmer Mac achieved a dramatic increase in new business volume during 2006
and
continuing into 2007, its future business with agricultural mortgage lenders
may
still be constrained by:
|
·
|
high
levels of available capital and liquidity of agricultural
lenders;
|
|
·
|
changes
in the capital, liquidity or funding needs of major business
partners;
|
|
·
|
alternative
sources of funding and credit enhancement for agricultural lenders;
and
|
|
·
|
increased
competition in the secondary market for agricultural mortgage
loans.
|
Looking
ahead, Farmer Mac remains confident of opportunities for increased business
volume and income growth as a result of the Corporation’s product development
and marketing efforts. Farmer Mac’s marketing initiatives are generating
business opportunities for 2007 and, it believes, beyond. Current initiatives
include:
|
·
|
expanded
use of AgVantage transactions, targeting highly-rated financial
institutions with large agricultural mortgage
portfolios;
|
|
·
|
agribusiness
and rural development loans associated with agriculture, in fulfillment
of
Farmer Mac’s Congressional mission;
and
|
|
·
|
an
ongoing alliance with the American Bankers Association (“ABA”), under
which Farmer Mac facilitates access and offers improved pricing to
ABA
member institutions and the ABA promotes member participation in
the
Farmer Mac I program.
|
Some
of
the agribusiness and rural development initiatives will require Farmer Mac
to
consider credit risks that expand upon or differ from those the Corporation
has
accepted previously. Farmer Mac will use underwriting standards appropriate
to
those credit risks, and likely will draw upon outside expertise to analyze
and
evaluate the credit and funding aspects of loans submitted pursuant to those
initiatives. While Farmer Mac is seeking to expand its mix of loan types within
the scope of its Congressional charter, it is too early to assess the
probability of success of these efforts. Farmer Mac believes that prospects
for
large portfolio transactions, similar to those that have accounted for a
significant portion of Farmer Mac’s previous growth, continue to exist. No
assurance can be given at this time as to the certainty or timing of similar
transactions in the future.
Management
believes that legislative or regulatory developments or interpretations of
Farmer Mac’s statutory charter could adversely affect Farmer Mac, its ability to
offer new products, the ability or motivation of certain lenders to participate
in its programs or the terms of any such participation, or increase the cost
of
regulation and related corporate activities. See “Risk Factors” in Part I, Item
1A of Farmer Mac’s Annual Report on Form 10-K for the year ended December 31,
2006, as filed with the SEC on March 15, 2007.
For
a
more detailed discussion of the above factors and the related effects on Farmer
Mac’s business volume, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Outlook for 2007” in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2006, as filed
with the SEC on March 15, 2007.
The
following tables set forth the amount of all Farmer Mac I and Farmer Mac II
loan
purchase and guarantee activities for newly originated and current seasoned
loans during the periods indicated:
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
March
31,
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Loan
purchase and guarantee and
commitment activity:
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
Loans
|
|
$
|
21,644
|
|
$
|
30,260
|
|
LTSPCs
|
|
|
396,322
|
|
|
73,155
|
|
AgVantage
|
|
|
-
|
|
|
500,000
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
53,548
|
|
|
45,127
|
|
Total
purchases, guarantees and commitments
|
|
$
|
471,514
|
|
$
|
648,542
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities issuances:
|
|
|
|
|
|
|
|
Sold
|
|
$
|
200
|
|
$
|
1,485
|
|
Retained
|
|
|
-
|
|
|
-
|
|
Loans
previously under LTSPCs
exchanged for Farmer Mac
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
303,766
|
|
|
-
|
|
Total
|
|
$
|
303,966
|
|
$
|
1,485
|
|
As
part
of fulfilling its guarantee obligations for Farmer Mac I Guaranteed Securities
and commitments to purchase eligible loans underlying LTSPCs, Farmer Mac
purchases defaulted loans, all of which are at least 90 days delinquent at
the time of purchase, out of the loan pools underlying those securities and
LTSPCs, and records the purchased loans as such on its balance sheet. The
purchase price for defaulted loans purchased out of Farmer Mac I Guaranteed
Securities is the current outstanding principal balance of the loan plus accrued
and unpaid interest. The purchase price for defaulted loans purchased under
an
LTSPC is the then-current outstanding principal balance of the loan, with
accrued and unpaid interest on the defaulted loans payable out of any future
loan payments or liquidation proceeds as received. The purchase price of a
defaulted loan is not an indicator of the expected loss on that loan; many
other
factors affect expected loss, if any, on loans so purchased. See “—Risk
Management—Credit Risk - Loans” in the Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2006, as filed with the SEC on March 15,
2007.
The
following table presents Farmer Mac’s loan purchases of newly originated and
current seasoned loans and defaulted loans purchased underlying Farmer Mac
I
Guaranteed Securities and LTSPCs:
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
March
31,
2006
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I newly originated
and current seasoned loan purchases
|
|
$
|
21,644
|
|
$
|
30,260
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying
off-balance sheet Farmer Mac I Guaranteed Securities
|
|
|
-
|
|
|
506
|
|
|
|
|
|
|
|
|
|
Defaulted
loans underlying on-balance
sheet Farmer Mac I Guaranteed Securities transferred to
loans
|
|
|
833
|
|
|
599
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying LTSPCs
|
|
|
-
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
Total
loan purchases
|
|
$
|
22,477
|
|
$
|
34,313
|
|
The
weighted-average age of the Farmer Mac I newly originated and current seasoned
loans purchased during each of first quarter 2007 and first quarter 2006 was
less than one month. Of
the
Farmer Mac I newly originated and current seasoned loans purchased during first
quarter 2007 and first quarter 2006, 38 percent and 75 percent,
respectively, had principal amortization periods longer than the maturity date,
resulting in balloon payments at maturity,
with a
weighted-average remaining term to maturity of 15.2 years and 15.0 years,
respectively. The weighted-average age of delinquent loans purchased out of
securitized pools and LTSPCs during first quarter 2007 and first quarter 2006
was 8.4 years and 5.5 years, respectively.
USDA’s
most recent publications (as available on USDA’s website as of May 1, 2007)
forecast:
|
·
|
2007
net cash farm income to be $67.2 billion, an increase of half a billion
dollars from 2006 and an increase of $2.6 billion over the 10 year
average.
|
|
·
|
2007
net farm income to be $66.6 billion which is 16 percent above its
10 year
average, and an increase of $6.0 billion over
2006.
|
|
·
|
Total
direct U.S. government payments to be $12.4 billion in 2007, down
from
$16.3 billion for 2006, and 24.7 percent below the 5 year average.
Direct payment rates are fixed in legislation and are not affected
by the
level of program crop prices.
|
|
·
|
Countercyclical
payments are forecast to decrease to $1.6 billion in 2007 from
$4.1 billion in 2006.
|
|
·
|
Marketing
loan benefits—which include loan deficiency payments, marketing loan
gains, and certificate exchange gains—are projected to be down to $0.8
billion in 2007 from $2.0 billion in
2006.
|
|
·
|
The
value of U.S. farm real estate is forecast to increase 4.5 percent
in 2007
to $1.7 trillion from the current projection of $1.6 trillion for
2006, and the general economy to continue improvement supporting
further
growth in farmland values.
|
|
·
|
The
amount of farm real estate debt to increase by 3.7 percent in 2007
to
$124.5 billion, compared to the current projection of $119.9 billion
in 2006.
|
The
USDA
forecasts referenced above relate to U.S. agriculture generally, but should
be
favorable for Farmer Mac’s financial condition relative to its exposure to
outstanding guarantees and commitments, as they indicate above-average borrower
cash flows and generally increased values in U.S. farm real estate.
Balance
Sheet Review
As
of
March 31, 2007, Farmer Mac had $816.9 million of cash and cash equivalents
and
$2.3 billion of investment securities, compared to $877.7 million of cash
and cash equivalents and $1.8 billion of investment securities as of December
31, 2006. The increase in investment securities during first quarter 2007 was
due primarily to Farmer Mac’s mission-related purchase of $365.6 million of
asset-backed securities representing beneficial ownership interests in electric
distribution cooperative loans made by the National Rural Utilities Cooperative
Finance Corporation (“CFC”). The transaction improves CFC’s pricing to its rural
electric cooperative members and advances Farmer Mac’s role in financing rural
America.
During
the three months ended March 31, 2007, there was a $44.6 million decrease
in program assets (Farmer Mac Guaranteed Securities, loans and real estate
owned) which is the net result of on-balance sheet new business volume offset
by
principal paydowns on program assets.
Consistent
with the net increase in total assets of $322.1 million during first quarter
2007, total liabilities increased $322.9 million from December 31,
2006 to March 31, 2007. This increase in liabilities was primarily due to the
$309.7 million increase in notes payable, the proceeds of which were used to
fund the purchase of assets. For
further information regarding off-balance sheet program activities, see
“—Off-Balance Sheet Program Activities” below.
During
the three months ended March 31, 2007, accumulated other comprehensive income
increased $4.8 million, which was primarily the result of a $4.7 million
increase in after-tax unrealized gains on securities available for sale.
Accumulated other comprehensive income is not a component of Farmer Mac’s core
capital or regulatory capital.
Farmer
Mac is required to hold capital at the higher of the statutory minimum capital
requirement or the amount required by the risk-based capital stress test.
As
of
March 31, 2007, Farmer Mac’s core capital totaled $237.9
million,
compared to $243.5 million as of December 31, 2006. As of March 31,
2007, core capital exceeded Farmer Mac’s statutory minimum capital requirement
of $184.6
million
by $53.3
million.
Farmer
Mac was in compliance with its risk-based capital standards as of March 31,
2007. As of March 31, 2007, the risk-based capital stress test generated a
regulatory capital requirement of $80.8 million, an increase from the $42.9
million requirement as of December 31, 2006. As of March 31, 2007, Farmer
Mac’s regulatory capital of $241.8 million exceeded the risk-based capital
requirement by approximately $161.0 million. The increase in the
risk-based capital requirement from December 31, 2006 to March 31, 2007 was
primarily attributable to changes in the risk-based capital stress test by
which
the regulatory capital requirement is calculated. The stress test changes
were adopted in a final rule published by FCA in the Federal Register on
December 26, 2006. That rule became effective as of March 31, 2007.
Had the new risk-based capital stress test been in effect on December 31,
2006, the regulatory capital requirement would have been $89.6 million at that
time.
Off-Balance
Sheet Program Activities
Farmer
Mac offers approved agricultural and rural residential mortgage lenders two
credit enhancement alternatives to increase their liquidity or lending capacity
while retaining the cash flow benefits of their loans: (1) Farmer Mac
Guaranteed Securities, which are available through either the Farmer Mac I
program or the Farmer Mac II program, and (2) LTSPCs, which are available
only through the Farmer Mac I program. Both of these alternatives result in
the
creation of off-balance sheet obligations for Farmer Mac in the ordinary course
of its business. See Note 3 to the interim unaudited condensed consolidated
financial statements for further information regarding Farmer Mac’s off-balance
sheet program activities.
Quantitative
and Qualitative Disclosures About Market Risk
Management
Interest
Rate Risk.
Farmer
Mac is subject to interest rate risk on all assets held for investment because
of possible timing differences in the cash flows of the assets and related
liabilities. This risk is primarily related to loans held and on-balance sheet
Farmer Mac Guaranteed Securities due to the ability of borrowers to prepay
their
mortgages before the scheduled maturities, thereby increasing the risk of asset
and liability cash flow mismatches. Cash flow mismatches in a changing interest
rate environment can reduce the earnings of the Corporation if assets repay
sooner than expected and the resulting cash flows must be reinvested in
lower-yielding investments when Farmer Mac’s funding costs cannot be
correspondingly reduced, or if assets repay more slowly than expected and the
associated debt must be replaced by higher-cost debt.
Yield
maintenance provisions and other prepayment penalties contained in many
agricultural mortgage loans reduce, but do not eliminate, prepayment risk,
particularly in the case of a defaulted loan where yield maintenance may not
be
collected. Those provisions require borrowers to make an additional payment
when
they prepay their loans so that, when reinvested with the prepaid principal,
yield maintenance payments generate substantially the same cash flows that
would
have been generated had the loan not prepaid. Those provisions create a
disincentive to prepayment and compensate the Corporation for its interest
rate
risks to a large degree. As
of
March 31, 2007, 53 percent of the outstanding balance of all loans held and
loans underlying on-balance sheet Farmer Mac I Guaranteed Securities (including
79 percent of all loans with fixed interest rates) were covered by yield
maintenance provisions and other prepayment penalties. Of
the
Farmer Mac I fixed rate loans purchased in first quarter 2007, 17 percent
had yield maintenance or another form of prepayment protection. As of March
31,
2007, none of the USDA-guaranteed portions underlying Farmer Mac II Guaranteed
Securities had yield maintenance provisions; however, 21.7 percent contained
prepayment penalties. Of the USDA-guaranteed portions purchased in first quarter
2007, 3.3 percent contained other forms of prepayment penalties.
Taking
into consideration the prepayment provisions and the default probabilities
associated with its mortgage assets, Farmer Mac uses prepayment models to
project and value cash flows associated with these assets. Because borrowers’
behavior in various interest rate environments may change over time, Farmer
Mac
periodically evaluates the effectiveness of these models compared to actual
prepayment experience and adjusts and refines the models as necessary to improve
the precision of subsequent prepayment forecasts. In addition, Farmer Mac
consults with independent prepayment experts as part of the model development
process.
Cash
equivalents and investment securities pose only limited interest rate risk
to
Farmer Mac, due to their closely matched funding. Farmer Mac’s cash equivalents
mature within three months and are match-funded with discount notes having
similar maturities. As of March 31, 2007, $1.2 billion of the $2.3 billion
of investment securities (52 percent) were floating rate securities with rates
that adjust within one year or fixed rate securities with original maturities
between three months and one year.
The
goal
of interest rate risk management at Farmer Mac is to create and maintain a
portfolio that generates stable earnings and value across a variety of interest
rate environments. Farmer Mac’s primary strategy for managing interest rate risk
is to fund asset purchases with liabilities that have similar durations so
that
they will perform similarly as interest rates change. To achieve this match,
Farmer Mac issues discount notes and both callable and non-callable medium-term
notes across a spectrum of maturities. Farmer Mac issues callable debt to offset
the prepayment risk associated with some mortgage assets. By using a blend
of
liabilities that includes callable debt, the interest rate sensitivities of
the
liabilities tend to increase or decrease as interest rates change in a manner
similar to changes in the interest rate sensitivities of the assets.
Farmer
Mac also uses financial derivatives to alter the duration of its assets and
liabilities to better match their durations, thereby reducing overall interest
rate sensitivity.
An
important “stress test” of Farmer Mac’s exposure to long-term interest rate risk
is the measurement of the sensitivity of its market value of equity (“MVE”) to
yield curve shocks. MVE represents the present value of all future cash flows
from on- and off-balance sheet assets, liabilities and financial derivatives,
discounted at current interest rates and spreads. The following schedule
summarizes the results of Farmer Mac’s MVE sensitivity analysis as of
March 31, 2007 and December 31, 2006 to an immediate and instantaneous
parallel shift in the yield curve.
|
|
Percentage
Change in MVE from Base Case
|
Interest
Rate
Scenario
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
|
|
+
300 bp
|
|
-8.8%
|
|
-7.9%
|
+
200 bp
|
|
-5.1%
|
|
-4.7%
|
+
100 bp
|
|
-2.0%
|
|
-1.9%
|
-
100 bp
|
|
0.0%
|
|
0.0%
|
-
200 bp
|
|
-1.1%
|
|
-1.1%
|
-
300 bp
|
|
-2.2%
|
|
-2.1%
|
During
first quarter 2007, Farmer Mac maintained a low level of interest rate
sensitivity through ongoing asset and liability management activities. As of
March 31, 2007, a uniform or “parallel” increase of 100 basis points would
have increased Farmer Mac’s net interest income (“NII”), a shorter-term measure
of interest rate risk, by 1.1 percent, while a parallel decrease of
100 basis points would have decreased NII by 1.9 percent. Farmer Mac also
measures the sensitivity of both MVE and NII to a variety of non-parallel
interest rate shocks, including flattening and steepening yield curve scenarios.
As of March 31, 2007, both MVE and NII showed similar or lesser sensitivity
to
non-parallel shocks than to the parallel shocks. As of March 31, 2007,
Farmer Mac’s effective duration gap, another standard measure of interest rate
risk that measures the difference between the sensitivities of assets compared
to that of liabilities, was plus 0.7 months, compared to
plus 0.7 months as of December 31, 2006. Duration matching helps
to maintain the correlation of cash flows and stable portfolio earnings even
when interest rates are not stable. Farmer Mac believes the relative
insensitivity of its MVE and NII to both parallel and non-parallel interest
rate
shocks, and its duration gap, indicate that Farmer Mac’s approach to managing
its interest rate risk exposures is effective.
As
of
March 31, 2007, Farmer Mac had $2.5 billion combined notional amount of interest
rate swaps with terms ranging from 1 to 15 years. Of those interest rate swaps,
$1.2 billion were floating-to-fixed rate interest rate swaps, $1.1 billion
were fixed-to-floating interest rate swaps and $0.2 billion were basis
swaps.
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. As discussed in Note 1(c) to the condensed
consolidated financial statements, Farmer Mac accounts for its financial
derivatives as undesignated financial derivatives. All of Farmer Mac’s financial
derivative transactions are conducted under standard collateralized agreements
that limit Farmer Mac’s potential credit exposure to any counterparty. As of
March 31, 2007, Farmer Mac had uncollateralized net exposure of $1.1 million
to
one counterparty.
Credit
Risk.
Farmer
Mac’s primary exposure to credit risk is the risk of loss resulting from the
inability of borrowers to repay their mortgages in conjunction with a deficiency
in the value of the collateral relative to the amount outstanding on the
mortgage and the costs of liquidation. Farmer Mac has established underwriting,
appraisal and documentation standards for agricultural mortgage loans to
mitigate the risk of loss from borrower defaults and to provide guidance
concerning the management, administration and conduct of underwriting and
appraisals to all participating sellers and potential sellers in its
programs.
Farmer
Mac’s allowance for losses is presented in three components on its condensed
consolidated balance sheet:
|
·
|
an
“Allowance for loan losses” on loans held for
investment;
|
|
·
|
a
valuation allowance on real estate owned, which is included in the
balance
sheet under “Real estate owned”;
|
|
·
|
an
allowance for losses on loans underlying post-1996 Act Farmer Mac
I
Guaranteed Securities and LTSPCs, which is included in the balance
sheet
under “Reserve for losses.”
|
Farmer
Mac’s provision for losses is presented in two components on its consolidated
statement of operations:
|
·
|
a
“Provision for loan losses,” which represents losses on Farmer Mac’s loans
held for investment; and
|
|
·
|
a
“Provision for losses,” which represents losses on loans underlying
post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs and real
estate owned.
|
Farmer
Mac’s methodology for determining its allowance for losses incorporates the
Corporation’s proprietary automated loan classification system. That system
scores loans based on criteria such as historical repayment performance, loan
seasoning, loan size and loan-to-value ratio. For the purposes of the loss
allowance methodology, the loans in Farmer Mac’s portfolio of loans and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs have
been
scored and classified for each calendar quarter since first quarter 2000. The
allowance methodology captures the migration of loan scores across concurrent
and overlapping 3-year time horizons and calculates loss rates separately within
each loan classification for (1) loans underlying LTSPCs and (2) loans held
and
loans underlying post-1996 Act Farmer Mac I Guaranteed Securities. The
calculated loss rates are applied to the current classification distribution
of
Farmer Mac’s portfolio to estimate inherent losses, on the assumption that the
historical credit losses and trends used to calculate loss rates will continue
in the future. Management evaluates this assumption by taking into consideration
several factors, including:
|
·
|
geographic
and agricultural commodity/product concentrations in the
portfolio;
|
|
·
|
the
credit profile of the portfolio;
|
|
·
|
delinquency
trends of the portfolio; and
|
|
·
|
historical
charge-off and recovery activities of the
portfolio.
|
If,
based
on that evaluation, management concludes that the assumption is not valid due
to
other more compelling indicators, the loss allowance calculation is modified
by
the addition of further assumptions to capture current portfolio trends and
characteristics that differ from historical experience.
As
of
March 31, 2007, Farmer Mac concluded that the credit profile of its portfolio
was consistent with Farmer Mac’s historical credit profile and trends.
Management believes that its use of this methodology produces a reliable
estimate of inherent probable losses, as of the balance sheet date, for all
loans held, real estate owned and loans underlying post-1996 Act Farmer Mac
I
Guaranteed Securities and LTSPCs in accordance with Statement of Financial
Accounting Standards No. 5, Accounting
for Contingencies
and
Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan,
as
amended.
No
allowance for losses has been made for loans underlying Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act, AgVantage securities or Farmer Mac
II
Guaranteed Securities. Farmer Mac I Guaranteed Securities issued prior to
the 1996 Act are supported by unguaranteed first loss subordinated interests,
which are expected to exceed the estimated credit losses on those loans. Each
AgVantage security is a general obligation of an issuing institution approved
by
Farmer Mac and is collateralized by eligible mortgage loans. As of March 31,
2007, there were no probable losses inherent in Farmer Mac’s AgVantage
securities due to the high credit quality of the obligors, as well as the
underlying collateral. The guaranteed portions collateralizing Farmer Mac II
Guaranteed Securities are guaranteed by the USDA. Each USDA guarantee is an
obligation backed by the full faith and credit of the United States. As of
March 31, 2007, Farmer Mac had not experienced any credit losses on any
Farmer Mac I Guaranteed Securities issued prior to the 1996 Act, AgVantage
securities or Farmer Mac II Guaranteed Securities and does not expect to incur
any such losses in the future.
The
following table summarizes the changes in the components of Farmer Mac’s
allowance for losses for the three months ended March 31, 2007 and
2006:
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for
Loan
Losses
|
|
REO
Valuation
Allowance
|
|
Reserve
for
Losses
|
|
Total
Allowance
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,945
|
|
$
|
-
|
|
$
|
2,610
|
|
$
|
4,555
|
|
Provision/(recovery)
for losses
|
|
|
(215
|
)
|
|
-
|
|
|
(413
|
)
|
|
(628
|
)
|
Charge-offs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Recoveries
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Ending
balance
|
|
$
|
1,730
|
|
$
|
-
|
|
$
|
2,197
|
|
$
|
3,927
|
|
|
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for
Loan
Losses
|
|
REO
Valuation
Allowance
|
|
Reserve
for
Losses
|
|
Total
Allowance
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,876
|
|
$
|
-
|
|
$
|
3,777
|
|
$
|
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,013
|
)
|
|
150
|
|
|
(846
|
)
|
|
(1,709
|
)
|
Charge-offs
|
|
|
-
|
|
|
(150
|
)
|
|
-
|
|
|
(150
|
)
|
Recoveries
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
20
|
|
Ending
balance
|
|
$
|
3,883
|
|
$
|
-
|
|
$
|
2,931
|
|
$
|
6,814
|
|
During
first quarter 2007, Farmer Mac released $0.6 million from the allowance for
losses, compared to the release of $1.7 million in first quarter 2006. During
first quarter 2007, Farmer Mac did not charge off any losses against the
allowance for losses and did not record any recoveries. During first quarter
2006, Farmer Mac charged off $150,000 in losses against the allowance for losses
and had $20,000 in recoveries for net charge-offs of $130,000. There was no
previously accrued or advanced interest on loans or Farmer Mac I Guaranteed
Securities that was charged off in first quarter 2007 or first quarter 2006.
As
of March 31, 2007, Farmer Mac’s allowance for losses totaled $3.9 million,
or 8 basis points of the outstanding principal balance of loans held and
loans underlying post-1996 Act Farmer Mac I Guaranteed Securities
(excluding AgVantage securities) and LTSPCs, compared to $4.6 million
(10 basis points) as of December 31, 2006.
As
of
March 31, 2007, Farmer Mac’s 90-day delinquencies totaled $28.3 million and
represented 0.58 percent of the principal balance of all loans held and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities (excluding AgVantage
securities) and LTSPCs, compared to $28.8 million (0.68 percent) as of
March 31, 2006. As of March 31, 2007, Farmer
Mac’s non-performing assets (which includes 90-day delinquencies, loans
performing under either their original loan terms or a court-approved bankruptcy
plan, and real estate owned) totaled $50.0 million and represented
1.02 percent of the principal balance of all loans held and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities (excluding AgVantage
securities) and LTSPCs, compared to $49.5 million (1.17 percent) as of
March 31, 2006. Loans
that have been restructured after delinquency were insignificant and are
included within the reported 90-day delinquency and non-performing asset
disclosures. From
quarter to quarter, Farmer Mac anticipates that 90-day delinquencies and
non-performing assets will fluctuate, both in dollars and as a percentage of
the
outstanding portfolio, with higher levels likely at the end of the first and
third quarters of each year corresponding to the semi-annual (January
1st
and
July 1st)
payment
characteristics of most Farmer Mac I loans.
The
following table presents historical information regarding Farmer Mac’s
non-performing assets and 90-day delinquencies:
|
|
Outstanding
Post-1996
Act
Loans,
Guarantees
(1),
LTSPCs,
and
REO
|
|
Non-
performing
Assets
|
|
Percentage
|
|
Less:
REO
and
Performing
Bankruptcies
|
|
90-Day
Delinquencies
|
|
Percentage
|
|
|
|
(dollars
in thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
$
|
4,905,244
|
|
$
|
50,026
|
|
|
1.02%
|
|
$
|
21,685
|
|
$
|
28,341
|
|
|
0.58%
|
|
December
31, 2006
|
|
|
4,784,983
|
|
|
39,232
|
|
|
0.82%
|
|
|
19,577
|
|
|
19,655
|
|
|
0.41%
|
|
September
30, 2006
|
|
|
4,621,083
|
|
|
44,862
|
|
|
0.97%
|
|
|
16,425
|
|
|
28,437
|
|
|
0.62%
|
|
June
30, 2006
|
|
|
4,633,841
|
|
|
40,083
|
|
|
0.87%
|
|
|
19,075
|
|
|
21,008
|
|
|
0.46%
|
|
March
31, 2006
|
|
|
4,224,669
|
|
|
49,475
|
|
|
1.17%
|
|
|
20,713
|
|
|
28,762
|
|
|
0.68%
|
|
December
31, 2005
|
|
|
4,399,189
|
|
|
48,764
|
|
|
1.11%
|
|
|
23,303
|
|
|
25,461
|
|
|
0.58%
|
|
September
30, 2005
|
|
|
4,273,268
|
|
|
64,186
|
|
|
1.50%
|
|
|
23,602
|
|
|
40,584
|
|
|
0.95%
|
|
June
30, 2005
|
|
|
4,360,670
|
|
|
60,696
|
|
|
1.39%
|
|
|
23,925
|
|
|
36,771
|
|
|
0.85%
|
|
March
31, 2005
|
|
|
4,433,087
|
|
|
70,349
|
|
|
1.59%
|
|
|
24,561
|
|
|
45,788
|
|
|
1.04%
|
|
(1)
Excludes loans underlying AgVantage securities.
As
of
March 31, 2007, approximately $1.5 billion (30.7 percent) of Farmer Mac’s
outstanding loans held and loans underlying post-1996 Act Farmer Mac I
Guaranteed Securities (excluding AgVantage securities) and LTSPCs were in their
peak delinquency and default years (approximately years three through five
after
origination), compared to $1.2 billion (29.2 percent) as of March 31,
2006.
As
of
March 31, 2007, Farmer Mac individually analyzed $16.2 million of its
$55.0 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted values.
Farmer Mac evaluated the remaining $38.8 million of impaired assets for
which updated valuations were not available in the aggregate in consideration
of
their similar risk characteristics and historical statistics. All of the
$16.2 million of assets analyzed individually were adequately
collateralized. Accordingly, Farmer Mac did not record any specific allowances
for under-collateralized assets as of March 31, 2007. Farmer Mac’s non-specific
or general allowances were $3.9 million as of March 31, 2007.
As
of
March 31, 2007, the weighted-average original loan-to-value (“LTV”) ratio for
all loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs was 49.7 percent, and the weighted-average original LTV
ratio for all post-1996 Act non-performing assets was 55.6 percent. The
following table summarizes the post-1996 Act non-performing assets by original
LTV ratio:
Distribution
of Post-1996 Act Non-performing
Assets
by Original LTV Ratio
as
of March 31, 2007
|
|
(dollars
in thousands)
|
|
Original
LTV Ratio
|
|
Post-1996
Act
Non-performing
Assets
|
|
Percentage
|
|
0.00% to 40.00%
|
|
$
|
4,206
|
|
|
8%
|
|
40.01%
to 50.00%
|
|
|
9,988
|
|
|
20%
|
|
50.01%
to 60.00%
|
|
|
19,963
|
|
|
40%
|
|
60.01%
to 70.00%
|
|
|
15,016
|
|
|
30%
|
|
70.01%
to 80.00%
|
|
|
539
|
|
|
1%
|
|
80.01%
+
|
|
|
314
|
|
|
1%
|
|
Total
|
|
$
|
50,026
|
|
|
100%
|
|
The
following table presents outstanding loans held and loans underlying post-1996
Act Farmer Mac I Guaranteed Securities and LTSPCs, post-1996 Act non-performing
assets as of March 31, 2007 by year of origination, geographic region and
commodity/collateral type:
Farmer
Mac I Post-1996 Act Non-performing Assets
|
|
|
|
Distribution
of
Outstanding
Loans,
Guarantees
and
LTSPCs
|
|
Outstanding
Loans,
Guarantees
and
LTSPCs
(1)
|
|
Post-1996
Act
Non-
performing
Assets
(2)
|
|
Non-
performing
Asset
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
|
14
|
%
|
$
|
660,985
|
|
$
|
9,574
|
|
|
1.45
|
%
|
1997
|
|
|
5
|
%
|
|
239,506
|
|
|
6,418
|
|
|
2.68
|
%
|
1998
|
|
|
8
|
%
|
|
406,669
|
|
|
10,153
|
|
|
2.50
|
%
|
1999
|
|
|
9
|
%
|
|
439,707
|
|
|
12,836
|
|
|
2.92
|
%
|
2000
|
|
|
5
|
%
|
|
241,473
|
|
|
4,950
|
|
|
2.05
|
%
|
2001
|
|
|
9
|
%
|
|
430,726
|
|
|
3,321
|
|
|
0.77
|
%
|
2002
|
|
|
10
|
%
|
|
506,537
|
|
|
939
|
|
|
0.19
|
%
|
2003
|
|
|
11
|
%
|
|
546,059
|
|
|
1,572
|
|
|
0.29
|
%
|
2004
|
|
|
8
|
%
|
|
390,367
|
|
|
-
|
|
|
0.00
|
%
|
2005
|
|
|
11
|
%
|
|
547,089
|
|
|
137
|
|
|
0.03
|
%
|
2006
|
|
|
9
|
%
|
|
433,722
|
|
|
126
|
|
|
0.03
|
%
|
2007
|
|
|
1
|
%
|
|
62,404
|
|
|
-
|
|
|
0.00
|
%
|
Total
|
|
|
100
|
%
|
$
|
4,905,244
|
|
$
|
50,026
|
|
|
1.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
17
|
%
|
$
|
831,322
|
|
$
|
26,051
|
|
|
3.13
|
%
|
Southwest
|
|
|
42
|
%
|
|
2,081,299
|
|
|
12,354
|
|
|
0.59
|
%
|
Mid-North
|
|
|
22
|
%
|
|
1,077,336
|
|
|
1,867
|
|
|
0.17
|
%
|
Mid-South
|
|
|
8
|
%
|
|
394,024
|
|
|
4,135
|
|
|
1.05
|
%
|
Northeast
|
|
|
7
|
%
|
|
330,527
|
|
|
2,116
|
|
|
0.64
|
%
|
Southeast
|
|
|
4
|
%
|
|
190,736
|
|
|
3,503
|
|
|
1.84
|
%
|
Total
|
|
|
100
|
%
|
$
|
4,905,244
|
|
$
|
50,026
|
|
|
1.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
42
|
%
|
$
|
2,071,880
|
|
$
|
20,564
|
|
|
0.99
|
%
|
Permanent
plantings
|
|
|
22
|
%
|
|
1,071,851
|
|
|
21,046
|
|
|
1.96
|
%
|
Livestock
|
|
|
26
|
%
|
|
1,264,236
|
|
|
5,267
|
|
|
0.42
|
%
|
Part-time
farm/rural housing
|
|
|
6
|
%
|
|
290,652
|
|
|
3,149
|
|
|
1.08
|
%
|
Ag
storage and processing
|
|
|
3
|
%
|
|
148,139
|
|
|
-
|
|
|
0.00
|
%
|
Other
|
|
|
1
|
%
|
|
58,486
|
|
|
-
|
|
|
0.00
|
%
|
Total
|
|
|
100
|
%
|
$
|
4,905,244
|
|
$
|
50,026
|
|
|
1.02
|
%
|
(1)
|
Excludes
loans underlying AgVantage
securities.
|
(2)
|
Includes
loans 90 days or more past due, in foreclosure, restructured after
delinquency, in bankruptcy (including loans performing under either
their
original loan terms or a court-approved bankruptcy plan), and real
estate
owned.
|
(3)
|
Geographic
regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA, WY); Southwest
(AZ,
CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI);
Mid-South
(KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY,
OH, PA,
RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS,
SC).
|
The
following table presents Farmer Mac’s cumulative net credit losses relative to
the cumulative original balance for all loans purchased and loans underlying
post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs as of
March 31, 2007, by year of origination, geographic region and
commodity/collateral type. The purpose of this table is to present information
regarding losses relative to original guarantees and commitments.
Farmer
Mac I Post-1996 Act Credit Losses Relative to all
Cumulative
Original Loans, Guarantees and LTSPCs
|
|
|
|
Cumulative
Original
Loans,
Guarantees
and
LTSPCs (1)
|
|
Cumulative
Net
Credit
Losses
|
|
Cumulative
Loss
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
Before
1997
|
|
$
|
3,401,297
|
|
$
|
1,589
|
|
|
0.05
|
%
|
1997
|
|
|
744,162
|
|
|
2,513
|
|
|
0.34
|
%
|
1998
|
|
|
1,112,192
|
|
|
3,895
|
|
|
0.35
|
%
|
1999
|
|
|
1,126,671
|
|
|
1,323
|
|
|
0.12
|
%
|
2000
|
|
|
725,433
|
|
|
2,283
|
|
|
0.31
|
%
|
2001
|
|
|
1,034,417
|
|
|
651
|
|
|
0.06
|
%
|
2002
|
|
|
1,014,479
|
|
|
-
|
|
|
0.00
|
%
|
2003
|
|
|
857,942
|
|
|
-
|
|
|
0.00
|
%
|
2004
|
|
|
588,424
|
|
|
-
|
|
|
0.00
|
%
|
2005
|
|
|
694,096
|
|
|
-
|
|
|
0.00
|
%
|
2006
|
|
|
596,129
|
|
|
-
|
|
|
0.00
|
%
|
2007
|
|
|
70,678
|
|
|
-
|
|
|
0.00
|
%
|
Total
|
|
$
|
11,965,920
|
|
$
|
12,254
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (2):
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$
|
2,287,983
|
|
$
|
6,949
|
|
|
0.30
|
%
|
Southwest
|
|
|
5,001,781
|
|
|
4,732
|
|
|
0.09
|
%
|
Mid-North
|
|
|
2,095,681
|
|
|
18
|
|
|
0.00
|
%
|
Mid-South
|
|
|
789,889
|
|
|
336
|
|
|
0.04
|
%
|
Northeast
|
|
|
931,513
|
|
|
1
|
|
|
0.00
|
%
|
Southeast
|
|
|
859,073
|
|
|
218
|
|
|
0.03
|
%
|
Total
|
|
$
|
11,965,920
|
|
$
|
12,254
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$
|
4,896,224
|
|
$
|
(19
|
)
|
|
0.00
|
%
|
Permanent
plantings
|
|
|
2,802,285
|
|
|
9,358
|
|
|
0.33
|
%
|
Livestock
|
|
|
2,974,410
|
|
|
2,709
|
|
|
0.09
|
%
|
Part-time
farm/rural housing
|
|
|
804,919
|
|
|
206
|
|
|
0.03
|
%
|
Ag
storage and processing
|
|
|
336,865
|
(3)
|
|
-
|
|
|
0.00
|
%
|
Other
|
|
|
151,217
|
|
|
-
|
|
|
0.00
|
%
|
Total
|
|
$
|
11,965,920
|
|
$
|
12,254
|
|
|
0.10
|
%
|
(1)
|
Excludes
loans underlying AgVantage
securities.
|
(2)
|
Geographic
regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA, WY); Southwest
(AZ,
CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI);
Mid-South
(KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY,
OH, PA,
RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS,
SC).
|
(3)
|
Several
of the loans underlying agricultural storage and processing LTSPCs
are for
facilities under construction, and as of March 31, 2007, approximately
$184.5 million of the loans were not yet disbursed by the lender.
|
Liquidity
and Capital Resources
Farmer
Mac has sufficient liquidity and capital resources to support its operations
for
the next twelve months and has a contingency funding plan to handle
unanticipated disruptions in its access to the capital markets.
Debt
Issuance.
Section
8.6(e) of Farmer Mac’s statutory charter (12 U.S.C. § 2279aa-6(e))
authorizes Farmer Mac to issue debt obligations to purchase eligible mortgage
loans and Farmer Mac Guaranteed Securities and to maintain reasonable available
cash and cash equivalents for business operations, including adequate liquidity.
Farmer Mac funds its purchases of program (loans and Farmer Mac Guaranteed
Securities), mission-related and non-program assets primarily by issuing debt
obligations of various maturities in the public capital markets. Debt
obligations issued by Farmer Mac include discount notes and fixed and floating
rate medium-term notes, including callable notes. Farmer Mac also issues
discount notes and medium-term notes to obtain funds to finance its investments,
transaction costs, guarantee payments and LTSPC purchase
obligations.
The
interest and principal on Farmer Mac’s debt are not guaranteed by and do not
constitute debts or obligations of FCA or the United States or any agency or
instrumentality of the United States other than Farmer Mac. Farmer Mac is an
institution
of the FCS,
but is
not liable for any debt or obligation of any other institution of the FCS.
Likewise, neither the FCS nor any other individual institution of the FCS is
liable for any debt or obligation of Farmer Mac. Income to the purchaser of
a
Farmer Mac discount note or medium-term note is not exempt under federal law
from federal, state or local taxation. The Corporation’s discount notes and
medium-term notes are not currently rated by a nationally recognized statistical
rating organization.
Farmer
Mac’s board of directors has authorized the issuance of up to $7.0 billion
of discount notes and medium-term notes (of which $4.9 billion was
outstanding as of March 31, 2007), subject to periodic review of the
adequacy of that level relative to Farmer Mac’s borrowing requirements. Farmer
Mac invests the proceeds of such issuances in loans, Farmer Mac Guaranteed
Securities, mission-related assets and non-program investment assets in
accordance with policies established by its board of directors.
Liquidity.
The
funding and liquidity needs of Farmer Mac’s business programs are driven by the
purchase and retention of eligible loans, Farmer Mac Guaranteed Securities
and
mission-related assets; the maturities of Farmer Mac’s discount notes and
medium-term notes; and payment of principal and interest on Farmer Mac
Guaranteed Securities. Farmer Mac’s primary sources of funds to meet these needs
are:
|
·
|
principal
and interest payments and ongoing guarantee and commitment fees received
on loans, Farmer Mac Guaranteed Securities, LTSPCs and mission-related
assets;
|
|
·
|
principal
and interest payments received from investment securities;
and
|
|
·
|
the
issuance of new discount notes and medium-term
notes.
|
As
a
result of Farmer Mac’s regular issuance of discount notes and medium-term notes
and its status as a federally chartered instrumentality of the United States,
Farmer Mac has been able to access the capital markets at favorable rates.
Farmer Mac has also used floating-to-fixed interest rate swaps, combined with
discount note issuances, as a source of fixed-rate funding. While the swap
market may provide favorable fixed rates, swap transactions expose Farmer Mac
to
the risk of future widening of its own issuance spreads versus corresponding
LIBOR rates. If the spreads on the Farmer Mac discount notes were to increase
relative to LIBOR, Farmer Mac would be exposed to a commensurate reduction
on
its net interest yield on the notional amount of its floating-to-fixed interest
rate swaps and other LIBOR-based floating rate assets.
Farmer
Mac maintains cash and liquidity investments in cash equivalents (including
commercial paper and other short-term money market instruments) and liquid
investment securities that can be drawn upon for liquidity needs. As of March
31, 2007, Farmer Mac’s cash and cash equivalents and liquidity investment
securities were $816.9 million and $1.4 billion, respectively. In addition,
as
of March 31, 2007, Farmer Mac held: (1) $865.6 million of mission-related
non-program investment securities issued by the National Rural Utilities
Cooperative Finance Corporation, and (2) $908.2 million of Farmer Mac II
Guaranteed Securities backed by USDA-guaranteed portions that carry the full
faith and credit of the U.S. government. Both types of assets could be drawn
upon as an additional source of liquidity. As of March 31, 2007, the aggregate
of the Farmer Mac II Guaranteed Securities, mission-related non-program
investments, cash and liquidity investments represented 80 percent of
Farmer Mac’s total liabilities. Farmer Mac has a policy of maintaining a minimum
of 60 days of liquidity and a target of 90 days of liquidity. For first
quarter 2007, Farmer Mac maintained an average of greater than 90 days of
liquidity.
Capital.
During
fourth quarter 2005, Farmer Mac established a program to repurchase up to
10 percent, or 958,632 shares, of the Corporation’s outstanding Class C
Non-Voting Common Stock. During first quarter 2007, the aggregate number of
shares repurchased by Farmer Mac under that program reached the maximum number
of authorized shares, thereby terminating the program according to its terms.
At
that time, Farmer Mac announced the establishment of an additional program
to
repurchase up to one million additional shares of the Corporation’s
outstanding Class C Non-Voting Common Stock. The authority for this new
stock repurchase program expires in November 2008. Repurchases under that
program commenced in accordance with its terms, upon termination of the previous
program. During first quarter 2007, Farmer
Mac repurchased 360,482 shares of its Class C Non-Voting Common Stock at an
average price of $26.24
per share pursuant to both of the Corporation’s previously announced stock
repurchase programs. These repurchases reduced the Corporation’s stockholders’
equity by approximately $9.5
million.
During
first quarter 2006, Farmer Mac repurchased 38,950 shares of its Class C
Non-Voting Common Stock at an average price of $27.81, which reduced the
Corporation’s stockholders’ equity by approximately $1.1 million. All of the
repurchased shares were purchased in open market transactions and were retired
to become authorized but unissued shares available for future
issuance.
Other
Matters
Since
fourth quarter 2004, Farmer Mac has paid quarterly dividends of $0.10 per share
on each of the Corporation’s three classes of common stock - Class A Voting
Common Stock, Class B Voting Common Stock, and Class C Non-Voting
Common Stock. Each dividend was paid on the last business day of each quarter
to
holders of record as of the 15th
day of
the month in which the dividend was paid. On April 5, 2007, Farmer Mac’s board
of directors declared a quarterly dividend of $0.10 per share on the
Corporation’s three classes of common stock payable on June 29, 2007 to
holders of record as of June 15, 2007. Farmer Mac expects to continue to
pay comparable quarterly cash dividends for the foreseeable future, subject
to
the outlook and indicated capital needs of the Corporation and the determination
of the board of directors. Farmer Mac’s ability to declare and pay dividends
could be restricted if it were to fail to comply with the applicable regulatory
capital requirements. See “Business—Government Regulation of Farmer
Mac—Regulation—Capital Standards—Enforcement levels” in Farmer Mac’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, as filed
with the SEC on March 15, 2007. Farmer Mac’s ability to pay dividends on its
common stock is also subject to the payment of dividends on its outstanding
preferred stock.
Supplemental
Information
The
following tables present quarterly and annual information regarding loan
purchases, guarantees and LTSPCs and outstanding guarantees and
LTSPCs.
Farmer
Mac Purchases, Guarantees and LTSPCs
|
|
|
|
Farmer
Mac I
|
|
|
|
|
|
|
|
Loans
and
Guaranteed
Securities
|
|
LTSPCs
|
|
Farmer
Mac II
|
|
Total
|
|
|
|
(in
thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
$
|
21,644
|
|
$
|
396,322
|
(1)
|
$
|
53,548
|
|
$
|
471,514
|
|
December
31, 2006
|
|
|
24,046
|
|
|
318,064
|
|
|
54,136
|
|
|
396,246
|
|
September
30, 2006
|
|
|
1,018,253
|
|
|
177,885
|
|
|
74,217
|
|
|
1,270,355
|
|
June
30, 2006
|
|
|
26,114
|
|
|
570,595
|
|
|
61,204
|
|
|
657,913
|
|
March
31, 2006
|
|
|
530,260
|
|
|
73,155
|
|
|
45,127
|
|
|
648,542
|
|
December
31, 2005
|
|
|
31,313
|
|
|
239,957
|
|
|
59,230
|
|
|
330,500
|
|
September
30, 2005
|
|
|
39,821
|
|
|
91,783
|
|
|
52,181
|
|
|
183,785
|
|
June
30, 2005
|
|
|
20,382
|
|
|
96,419
|
|
|
45,123
|
|
|
161,924
|
|
March
31, 2005
|
|
|
18,540
|
|
|
33,282
|
|
|
43,634
|
|
|
95,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
1,598,673
|
|
|
1,139,699
|
(2)
|
|
234,684
|
|
|
2,973,056
|
|
December
31, 2005
|
|
|
110,056
|
|
|
461,441
|
(3)
|
|
200,168
|
|
|
771,665
|
|
(1)
|
$67.5
million of the LTSPCs during first quarter were for agricultural
storage
and processing facilities. Several of the loans underlying those
LTSPCs
are for facilities under construction, and as of March 31, 2007,
approximately $55.5 million of the loans were not yet disbursed by
the
lender.
|
(2)
|
$139.9
million of the LTSPCs during 2006 were for agricultural storage and
processing facilities. Several of the loans underlying those LTSPCs
are
for facilities under construction, and as of March 31, 2007, approximately
$74.5 million of the loans were not yet disbursed by the
lender.
|
(3)
|
126.9
million of the LTSPCs during 2005 were for agricultural storage and
processing facilities. Several of the loans underlying those LTSPCs
are
for facilities under construction, and as of March 31, 2007, approximately
$22.4 million of the loans were not yet disbursed by the lender.
|
Outstanding
Balance of Farmer Mac Loans,
Guarantees
and LTSPCs
|
|
|
|
Farmer
Mac I
|
|
|
|
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
|
|
|
Loans
and
Guaranteed
Securities
|
|
LTSPCs
|
|
Pre-1996
Act
|
|
Farmer
Mac II
|
|
Total
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007 (1)
|
|
$
|
4,508,595
|
|
$
|
1,920,848
|
|
$
|
3,748
|
|
$
|
932,056
|
|
$
|
7,365,247
|
|
December
31, 2006 (2)
|
|
|
4,338,698
|
|
|
1,969,734
|
|
|
5,057
|
|
|
925,799
|
|
|
7,239,288
|
|
September
30, 2006 (3)
|
|
|
4,267,309
|
|
|
1,884,223
|
|
|
5,802
|
|
|
900,835
|
|
|
7,058,169
|
|
June
30, 2006 (4)
|
|
|
3,014,614
|
|
|
2,149,677
|
|
|
9,922
|
|
|
863,778
|
|
|
6,037,991
|
|
March
31, 2006
|
|
|
2,509,306
|
|
|
2,243,259
|
|
|
11,337
|
|
|
842,363
|
|
|
5,606,265
|
|
December
31, 2005
|
|
|
2,094,411
|
|
|
2,329,798
|
|
|
13,046
|
|
|
835,732
|
|
|
5,272,987
|
|
September
30, 2005
|
|
|
2,116,680
|
|
|
2,183,058
|
|
|
14,209
|
|
|
810,686
|
|
|
5,124,633
|
|
June
30, 2005
|
|
|
2,199,508
|
|
|
2,181,896
|
|
|
16,333
|
|
|
786,671
|
|
|
5,184,408
|
|
March
31, 2005
|
|
|
2,243,357
|
|
|
2,209,792
|
|
|
17,236
|
|
|
777,465
|
|
|
5,247,850
|
|
|
(1)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $303.8 million of existing LTSPCs to Farmer Mac I Guaranteed
Securities during first quarter 2007 at the request of program
participants.
|
|
(2)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $129.0 million of existing LTSPCs to Farmer Mac I Guaranteed Securities
during fourth quarter 2006 at the request of a program
participant.
|
|
(3)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $341.2 million of existing LTSPCs to Farmer Mac I Guaranteed
Securities during third quarter 2006 at the request of a program
participant.
|
|
(4)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $550.1 million of existing LTSPCs to Farmer Mac I Guaranteed Securities
during second quarter 2006 at the request of a program
participant.
|
Outstanding
Balance of Loans Held and Loans Underlying
On-Balance
Sheet Farmer Mac Guaranteed Securities
|
|
|
|
Fixed
Rate
|
|
5-to-10-Year
ARMs
& Resets
|
|
1-Month-to-3-Year
ARMs
|
|
Total
Held
in
Portfolio
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
$
|
899,628
|
|
$
|
743,891
|
|
$
|
417,722
|
|
$
|
2,061,241
|
|
December
31, 2006
|
|
|
891,429
|
|
|
761,754
|
|
|
452,656
|
|
|
2,105,839
|
|
September
30, 2006
|
|
|
863,000
|
|
|
744,903
|
|
|
459,604
|
|
|
2,067,507
|
|
June
30, 2006
|
|
|
885,875
|
|
|
749,289
|
|
|
441,063
|
|
|
2,076,227
|
|
March
31, 2006
|
|
|
871,054
|
|
|
729,992
|
|
|
464,032
|
|
|
2,065,078
|
|
December
31, 2005
|
|
|
866,362
|
|
|
752,885
|
|
|
479,649
|
|
|
2,098,896
|
|
September
30, 2005
|
|
|
840,330
|
|
|
785,387
|
|
|
477,345
|
|
|
2,103,062
|
|
June
30, 2005
|
|
|
838,872
|
|
|
803,377
|
|
|
488,555
|
|
|
2,130,804
|
|
March
31, 2005
|
|
|
828,985
|
|
|
822,275
|
|
|
492,358
|
|
|
2,143,618
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Farmer
Mac is exposed to market risk attributable to changes in interest rates. Farmer
Mac manages this market risk by entering into various financial transactions,
including financial derivatives, and by monitoring its exposure to changes
in
interest rates. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Quantitative and Qualitative Disclosures About Market
Risk Management—Interest Rate Risk” for more information about Farmer Mac’s
exposure to interest rate risk and strategies to manage such risk. For
information regarding Farmer Mac’s use of and accounting policies for financial
derivatives, see Note 1(c) to the interim unaudited condensed consolidated
financial statements contained in this report. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources” for further information regarding Farmer Mac’s debt issuance and
liquidity risks.
Item
4.
|
Controls
and Procedures
|
(a)
Management’s Evaluation of Disclosure Controls and Procedures.
Farmer
Mac maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in the Corporation’s periodic filings under
the Securities Exchange Act of 1934 (the “Exchange Act”), including this report,
is recorded, processed, summarized and reported on a timely basis. These
disclosure controls and procedures include controls and procedures designed
to
ensure that information required to be disclosed under the Exchange Act is
accumulated and communicated to the Corporation’s management on a timely basis
to allow decisions regarding required disclosure. Management, including Farmer
Mac’s Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Corporation’s disclosure
controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of
the
Exchange Act) as of March 31,
2007.
Based
on management’s assessment, the Chief Executive Officer and the Chief Financial
Officer have concluded that Farmer Mac’s disclosure controls and procedures were
effective as of March 31, 2007.
(b)
Changes in Internal Control Over Financial Reporting.
There
were no changes in Farmer Mac’s internal control over financial reporting during
the quarter ended March 31, 2007 that has materially affected, or is reasonably
likely to materially affect, Farmer Mac’s internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
Farmer
Mac is not a party to any material pending legal proceedings.
There
were no material changes from the risk factors previously disclosed in Farmer
Mac’s Annual Report on Form 10-K for the year ended December 31, 2006, as filed
with the SEC on March 15, 2007.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
|
(a)
|
Farmer
Mac is a federally chartered instrumentality of the United States
and its
Common Stock is exempt from registration pursuant to Section 3(a)(2)
of the Securities Act of 1933.
|
On
January 17, 2007, pursuant to Farmer Mac’s policy that permits directors of
Farmer Mac to elect to receive shares of Class C Non-Voting Common Stock in
lieu
of their annual cash retainers, Farmer Mac issued an aggregate of
544 shares of its Class C Non-Voting Common Stock, at an issue price of
$27.13 per share, to the seven directors who elected to receive such stock
in
lieu of their cash retainers.
On
January 31, 2007, Farmer Mac granted options under its 1997 Incentive Plan
to
purchase 1,000 shares of Class C Non-Voting Common Stock, at an exercise price
of $27.77 per share, to a non-officer employee in connection with the employee’s
commencement of employment.
|
(c)
|
As
shown in the table below, Farmer Mac repurchased 360,482 shares of
its
Class C Non-Voting Common Stock during first quarter 2007 at an
average price of $26.24 per share. All of the repurchased shares
were
purchased in open market transactions and were retired to become
authorized but unissued shares available for future
issuance.
|
Issuer
Purchases of Equity Securities
|
|
Period
|
|
Total
Number
of
Class C
Shares
Purchased
|
|
Average
Price
Paid
per
Class
C
Share
|
|
Total
Number of
Class
C Shares
Purchased
as Part
of
Publicly
Announced
Program1
|
|
Maximum
Number
of
Class C Shares
that
May Yet Be
Purchased
Under
the
Program
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2007 - January 31, 2007
|
|
|
135,332
|
2 |
$
|
26.13
|
|
|
135,332
|
2 |
|
982,900
|
|
February
1, 2007 - February 28, 2007
|
|
|
62,900
|
|
$
|
27.34
|
|
|
62,900
|
|
|
920,000
|
|
March
1, 2007 - March 31, 2007
|
|
|
162,250
|
|
$
|
25.91
|
|
|
162,250
|
|
|
757,750
|
|
Total
|
|
|
360,482
|
|
$
|
26.24
|
|
|
360,482
|
|
|
|
|
1
|
On
November 17, 2005, Farmer Mac publicly announced the establishment
of a
program to repurchase up to 10 percent of the Corporation’s outstanding
Class C Non-Voting Common Stock (958,632 shares). During first quarter
2007, the aggregate number of shares repurchased by Farmer Mac under
that
program reached the maximum number of authorized shares, thereby
terminating the program according to its terms. On February 5, 2007,
Farmer Mac announced the establishment of a new program to repurchase
up
to one million additional shares of the Corporation’s outstanding Class C
Non-Voting Common Stock. The authority for this new stock repurchase
program expires in November 2008. Repurchases under that program
commenced
in accordance with its terms, upon termination of the previous
program.
|
2
|
Includes
118,232 shares purchased under the program announced in 2005 and
17,100
shares purchased under the program announced in
2007.
|
Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
Item
5.
|
Other
Information
|
*
|
3.1
|
-
|
Title
VIII of the Farm Credit Act of 1971, as most recently amended by
the Farm
Credit System Reform Act of 1996, P.L. 104-105 (Form 10-K filed March
29,
1996).
|
|
|
|
|
*
|
3.2
|
-
|
Amended
and restated By-Laws of the Registrant (Form 10-Q filed
August 9, 2004).
|
|
|
|
|
*
|
4.1
|
-
|
Specimen
Certificate for Farmer Mac Class A Voting Common Stock (Form 10-Q
filed May 15, 2003).
|
|
|
|
|
*
|
4.2
|
-
|
Specimen
Certificate for Farmer Mac Class B Voting Common Stock (Form 10-Q
filed May 15, 2003).
|
|
|
|
|
*
|
4.3
|
-
|
Specimen
Certificate for Farmer Mac Class C Non-Voting Common Stock (Form 10-Q
filed May 15, 2003).
|
|
|
|
|
*
|
4.4
|
-
|
Certificate
of Designation of Terms and Conditions of Farmer Mac 6.40% Cumulative
Preferred Stock, Series A (Form 10-Q filed May 15,
2003).
|
|
|
|
|
*
|
4.5.1
|
-
|
Master
Terms Agreement for Farmer Mac’s Universal Debt Facility dated as of July
28, 2005 (Previously filed as Exhibit 4.3 to Form 8-A filed
August 4, 2005).
|
|
|
|
|
*
|
4.5.2
|
-
|
Supplemental
Agreement for 4.25% Fixed Rate Global Notes Due July 29, 2008
(Previously filed as Exhibit 4.4 to Form 8-A filed August 4,
2005).
|
|
|
|
|
†*
|
10.1
|
-
|
Amended
and Restated 1997 Incentive Plan (Previously filed as Exhibit 10.1.3
to Form 10-Q filed November 14, 2003).
|
|
|
|
|
†*
|
10.1.1
|
-
|
Form
of stock option award agreement under 1997 Incentive Plan (Previously
filed as Exhibit 10.1.4 to Form 10-K filed March 16,
2005).
|
|
|
|
|
†*
|
10.2
|
-
|
Employment
Agreement dated May 5, 1989 between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.4 to Form 10-K filed
February 14, 1990).
|
|
|
|
|
†*
|
10.2.1
|
-
|
Amendment
No. 1 dated as of January 10, 1991 to Employment Contract between
Henry D.
Edelman and the Registrant (Previously filed as Exhibit 10.4 to Form
10-K
filed April 1, 1991).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.2.2
|
-
|
Amendment
to Employment Contract dated as of June 1, 1993 between Henry D.
Edelman
and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q
filed
November 15, 1993).
|
|
|
|
|
†*
|
10.2.3
|
-
|
Amendment
No. 3 dated as of June 1, 1994 to Employment Contract between Henry
D.
Edelman and the Registrant (Previously filed as Exhibit 10.6 to Form
10-Q filed August 15, 1994).
|
|
|
|
|
†*
|
10.2.4
|
-
|
Amendment
No. 4 dated as of February 8, 1996 to Employment Contract between
Henry D.
Edelman and the Registrant (Form 10-K filed
March 29, 1996).
|
|
|
|
|
†*
|
10.2.5
|
-
|
Amendment
No. 5 dated as of June 13, 1996 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 1996).
|
|
|
|
|
†*
|
10.2.6
|
-
|
Amendment
No. 6 dated as of August 7, 1997 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed November 14,
1997).
|
|
|
|
|
†*
|
10.2.7
|
-
|
Amendment
No. 7 dated as of June 4, 1998 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 1998).
|
|
|
|
|
†*
|
10.2.8
|
-
|
Amendment
No. 8 dated as of June 3, 1999 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 12, 1999).
|
|
|
|
|
†*
|
10.2.9
|
-
|
Amendment
No. 9 dated as of June 1, 2000 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 2000).
|
|
|
|
|
†*
|
10.2.10
|
-
|
Amendment
No. 10 dated as of June 7, 2001 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 2001).
|
|
|
|
|
†*
|
10.2.11
|
-
|
Amendment
No. 11 dated as of June 6, 2002 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 2002).
|
|
|
|
|
†*
|
10.2.12
|
-
|
Amendment
No. 12 dated as of June 5, 2003 to Employment Contract between Henry
D.
Edelman and the Registrant (Form 10-Q filed
August 14, 2003).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.2.13
|
-
|
Amendment
No. 13 dated as of August 3, 2004 to Employment Contract between
Henry D. Edelman and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.2.14
|
-
|
Amendment
No. 14 dated as of June 16, 2005 to Employment Contract between Henry
D. Edelman and the Registrant (Form 10-Q filed
August 9, 2005).
|
|
|
|
|
†*
|
10.2.15
|
-
|
Amendment
No. 15 dated as of June 1, 2006 to Employment Contract between Henry
D. Edelman and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.3
|
-
|
Employment
Agreement dated May 11, 1989 between Nancy E. Corsiglia and the
Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed
February 14, 1990).
|
|
|
|
|
†*
|
10.3.1
|
-
|
Amendment
dated December 14, 1989 to Employment Agreement between
Nancy E. Corsiglia and the Registrant (Previously filed as
Exhibit 10.5 to Form 10-K filed February 14, 1990).
|
|
|
|
|
†*
|
10.3.2
|
-
|
Amendment
No. 2 dated February 14, 1991 to Employment Agreement between Nancy
E.
Corsiglia and the Registrant (Previously filed as Exhibit 10.7 to
Form 10-K filed April 1, 1991).
|
|
|
|
|
†*
|
10.3.3
|
-
|
Amendment
to Employment Contract dated as of June 1, 1993 between Nancy E.
Corsiglia
and the Registrant (Previously filed as Exhibit 10.9 to Form 10-Q
filed
November 15, 1993).
|
|
|
|
|
†*
|
10.3.4
|
-
|
Amendment
No. 4 dated June 1, 1993 to Employment Contract between Nancy E.
Corsiglia
and the Registrant (Previously filed as Exhibit 10.10 to Form 10-K
filed
March 31, 1994).
|
|
|
|
|
†*
|
10.3.5
|
-
|
Amendment
No. 5 dated as of June 1, 1994 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Previously filed as Exhibit 10.12 to
Form 10-Q filed August 15, 1994).
|
|
|
|
|
†*
|
10.3.6
|
-
|
Amendment
No. 6 dated as of June 1, 1995 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 1995).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.3.7
|
-
|
Amendment
No. 7 dated as of February 8, 1996 to Employment Contract between
Nancy E.
Corsiglia and the Registrant (Form 10-K filed
March 29, 1996).
|
|
|
|
|
†*
|
10.3.8
|
-
|
Amendment
No. 8 dated as of June 13, 1996 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 1996).
|
|
|
|
|
†*
|
10.3.9
|
-
|
Amendment
No. 9 dated as of August 7, 1997 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed November 14,
1997).
|
|
|
|
|
†*
|
10.3.10
|
-
|
Amendment
No. 10 dated as of June 4, 1998 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 1998).
|
|
|
|
|
†*
|
10.3.11
|
-
|
Amendment
No. 11 dated as of June 3, 1999 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 12, 1999).
|
|
|
|
|
†*
|
10.3.12
|
-
|
Amendment
No. 12 dated as of June 1, 2000 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 2000).
|
|
|
|
|
†*
|
10.3.13
|
-
|
Amendment
No. 13 dated as of June 7, 2001 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 2001).
|
|
|
|
|
†*
|
10.3.14
|
-
|
Amendment
No. 14 dated as of June 6, 2002 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 2002).
|
|
|
|
|
†*
|
10.3.15
|
-
|
Amendment
No. 15 dated as of June 5, 2003 to Employment Contract between Nancy
E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 2003).
|
|
|
|
|
†*
|
10.3.16
|
-
|
Amendment
No. 16 dated as of August 3, 2004 to Employment Contract between
Nancy E. Corsiglia and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.3.17
|
-
|
Amendment
No. 17 dated as of June 16, 2005 to Employment Contract between Nancy
E. Corsiglia and the Registrant (Form 10-Q filed
August 9, 2005).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.3.18
|
-
|
Amendment
No. 18 dated as of June 1, 2006 to Employment Contract between Nancy
E. Corsiglia and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.4
|
-
|
Employment
Contract dated as of September 1, 1997 between Tom D. Stenson and
the
Registrant (Previously filed as Exhibit 10.8 to Form 10-Q filed November
14, 1997).
|
|
|
|
|
†*
|
10.4.1
|
-
|
Amendment
No. 1 dated as of June 4, 1998 to Employment Contract between Tom
D.
Stenson and the Registrant (Previously filed as Exhibit 10.8.1 to
Form
10-Q filed August 14, 1998).
|
|
|
|
|
†*
|
10.4.2
|
-
|
Amendment
No. 2 dated as of June 3, 1999 to Employment Contract between Tom
D.
Stenson and the Registrant (Form 10-Q filed
August 12, 1999).
|
|
|
|
|
†*
|
10.4.3
|
-
|
Amendment
No. 3 dated as of June 1, 2000 to Employment Contract between Tom
D.
Stenson and the Registrant (Form 10-Q filed
August 14, 2000).
|
|
|
|
|
†*
|
10.4.4
|
-
|
Amendment
No. 4 dated as of June 7, 2001 to Employment Contract between Tom
D.
Stenson and the Registrant (Form 10-Q filed
August 14, 2001).
|
|
|
|
|
†*
|
10.4.5
|
-
|
Amendment
No. 5 dated as of June 6, 2002 to Employment Contract between Tom
D.
Stenson and the Registrant (Form 10-Q filed
August 14, 2002).
|
|
|
|
|
†*
|
10.4.6
|
-
|
Amendment
No. 6 dated as of June 5, 2003 to Employment Contract between Tom D.
Stenson and the Registrant (Form 10-Q filed
August 14, 2003).
|
|
|
|
|
†*
|
10.4.7
|
-
|
Amendment
No. 7 dated as of August 3, 2004 to Employment Contract between Tom
D. Stenson and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.4.8
|
-
|
Amendment
No. 8 dated as of June 16, 2005 to Employment Contract between
Tom D. Stenson and the Registrant (Form 10-Q filed
August 9, 2005).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.4.9
|
-
|
Amendment
No. 9 dated as of June 1, 2006 to Employment Contract between
Tom D. Stenson and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.5
|
-
|
Employment
Contract dated February 1, 2000 between Jerome G. Oslick and the
Registrant (Previously filed as Exhibit 10.6 to Form 10-Q filed
May 11, 2000).
|
|
|
|
|
†*
|
10.5.1
|
-
|
Amendment
No. 1 dated as of June 1, 2000 to Employment Contract between Jerome
G.
Oslick and the Registrant (Previously filed as Exhibit 10.6.1 to
Form 10-Q
filed August 14, 2000).
|
|
|
|
|
†*
|
10.5.2
|
-
|
Amendment
No. 2 dated as of June 7, 2001 to Employment Contract between Jerome
G.
Oslick and the Registrant (Previously filed as Exhibit 10.6.2 to
Form 10-Q
filed August 14, 2001).
|
|
|
|
|
†*
|
10.5.3
|
-
|
Amendment
No. 3 dated as of June 6, 2002 to Employment Contract between Jerome
G.
Oslick and the Registrant (Form 10-Q filed
August 14, 2002).
|
|
|
|
|
†*
|
10.5.4
|
-
|
Amendment
No. 4 dated as of June 5, 2003 to Employment Contract between Jerome
G.
Oslick and the Registrant (Form 10-Q filed
August 14, 2003).
|
|
|
|
|
†*
|
10.5.5
|
-
|
Amendment
No. 5 dated as of June 16, 2005 to Employment Contract between Jerome
G. Oslick and the Registrant (Form 10-Q filed
August 9, 2005).
|
|
|
|
|
†*
|
10.5.6
|
-
|
Amendment
No. 6 dated as of June 1, 2006 to Employment Contract between Jerome
G. Oslick and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.6
|
-
|
Employment
Contract dated June 5, 2003 between Timothy L. Buzby and the Registrant
(Form 10-Q filed August 14, 2003).
|
|
|
|
|
†*
|
10.6.1
|
-
|
Amendment
No. 1 dated as of August 3, 2004 to Employment Contract between Timothy
L.
Buzby and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.6.2
|
-
|
Amendment
No. 2 dated as of June 16, 2005 to Employment Contract between
Timothy L. Buzby and the Registrant (Form 10-Q filed
August 9, 2005).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
10.6.3
|
-
|
Amendment
No. 3 dated as of June 1, 2006 to Employment Contract between Timothy
L. Buzby and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
*
|
10.7
|
-
|
Farmer
Mac I Seller/Servicer Agreement dated as of August 7, 1996 between
Zions
First National Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
|
|
|
|
*
|
10.8
|
-
|
Medium-Term
Notes U.S. Selling Agency Agreement dated as of October 1, 1998 between
Zions First National Bank and the Registrant (Form 10-Q filed
November 14, 2002).
|
|
|
|
|
*
|
10.9
|
-
|
Discount
Note Dealer Agreement dated as of September 18, 1996 between Zions
First
National Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
|
|
|
|
*#
|
10.10
|
-
|
ISDA
Master Agreement and Credit Support Annex dated as of June 26, 1997
between Zions First National Bank and the Registrant (Form 10-Q filed
November 14, 2002).
|
|
|
|
|
*#
|
10.11
|
-
|
Master
Central Servicing Agreement dated as of December 17, 1996 between
Zions
First National Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
|
|
|
|
*#
|
10.11.1
|
-
|
Amendment
No. 1 dated as of February 26, 1997 to Master Central Servicing Agreement
dated as of December 17, 1996 between Zions First National Bank and
the
Registrant (Form 10-Q filed November 14, 2002).
|
|
|
|
|
*#
|
10.11.2
|
-
|
Amended
and Restated Master Central Servicing Agreement dated as of May 1,
2004 between Zions First National Bank and the Registrant (Form 10-Q
filed August 9, 2004).
|
|
|
|
|
*#
|
10.12
|
-
|
Loan
Closing File Review Agreement dated as of August 2, 2005 between
Zions First National Bank and the Registrant (Form 10-Q filed
November 9, 2005).
|
|
|
|
|
*#
|
10.13
|
-
|
Long
Term Standby Commitment to Purchase dated as of August 1, 1998 between
AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed
November 14, 2002).
|
|
|
|
|
*#
|
10.13.1
|
-
|
Amendment
No. 1 dated as of January 1, 2000 to Long Term Standby
Commitment to Purchase dated as of August 1, 1998 between AgFirst
Farm Credit Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
*
|
10.13.2
|
-
|
Amendment
No. 2 dated as of September 1, 2002 to Long Term Standby Commitment
to
Purchase dated as of August 1, 1998, as amended by Amendment No.
1 dated
as of January 1, 2000, between AgFirst Farm Credit Bank and the Registrant
(Form 10-Q filed November 14, 2002).
|
|
|
|
|
*
|
10.14
|
-
|
Lease
Agreement, dated June 28, 2001 between EOP - Two Lafayette, L.L.C.
and the
Registrant (Previously filed as Exhibit 10.10 to Form 10-K filed
March 27,
2002).
|
|
|
|
|
*
|
10.15
|
-
|
Lease
Agreement dated May 26, 2005 between Zions First National Bank and
the
Registrant (Previously filed as Exhibit 10.19 to Form 10-Q filed
August 9, 2005).
|
|
|
|
|
*#
|
10.16
|
-
|
Long
Term Standby Commitment to Purchase dated as of June 1, 2003 between
Farm Credit Bank of Texas and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
*#
|
10.16.1
|
-
|
Amendment
No. 1 dated as of December 8, 2006 to Long-Term Standby Commitment to
Purchase dated as of June 1, 2003 between Farm Credit Bank of Texas
and the Registrant (Form 10-K filed March 15,
2007).
|
|
|
|
|
*#
|
10.17
|
-
|
Central
Servicer Delinquent Loan Servicing Transfer Agreement dated as of
July 1, 2004 between AgFirst Farm Credit Bank and the Registrant
(Form 10-Q filed November 9, 2004).
|
|
|
|
|
†*
|
10.18
|
-
|
Employment
Contract dated June 20, 2005 between Mary K. Waters and the
Registrant (Form 10-Q filed
August 9, 2005).
|
|
|
|
|
†*
|
10.18.1
|
-
|
Amendment
No. 1 dated as of dated June 1, 2006 to Employment Contract between
Mary K. Waters and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.19
|
-
|
Description
of compensation agreement between the Registrant and its directors
(Form 10-Q filed August 9, 2006).
|
|
|
|
|
|
21
|
-
|
Farmer
Mac Mortgage Securities Corporation, a Delaware
corporation.
|
|
|
|
|
**
|
|
-
|
Certification
of Chief Executive Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2007, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
**
|
|
-
|
Certification
of Chief Financial Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2007, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
**
|
|
-
|
Certification
of Chief Executive Officer and Chief Financial Officer relating to
the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007, pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
May
10,
2007
|
By:
|
/s/
Henry D. Edelman
|
|
|
Henry
D. Edelman
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
/s/
Nancy E. Corsiglia
|
|
|
Nancy
E. Corsiglia
Vice
President - Finance
(Principal
Financial Officer)
|
-62-