As
filed
with the Securities and Exchange Commission on
August
9,
2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended June 30, 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 T No £
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 £
|
Accelerated
filer T
|
Non
Accelerated filer £
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes £ No T
As
of
August 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
8,928,912 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 June 30, 2007 and
December 31, 2006
|
3
|
Condensed
Consolidated Statements of Operations for the three and six months
ended
June 30, 2007 and 2006
|
4
|
Condensed
Consolidated Statements of Cash Flows for the six months ended
June 30,
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)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
572,261
|
|
|
$ |
877,714
|
|
Investment
securities
|
|
|
2,464,097
|
|
|
|
1,830,904
|
|
Farmer
Mac Guaranteed Securities
|
|
|
1,313,426
|
|
|
|
1,330,418
|
|
Loans
held for sale
|
|
|
92,944
|
|
|
|
71,621
|
|
Loans
held for investment
|
|
|
660,540
|
|
|
|
705,745
|
|
Allowance
for loan losses
|
|
|
(1,681 |
) |
|
|
(1,945 |
) |
Loans
held for investment, net
|
|
|
658,859
|
|
|
|
703,800
|
|
Real
estate owned
|
|
|
1,799
|
|
|
|
2,097
|
|
Financial
derivatives
|
|
|
19,884
|
|
|
|
9,218
|
|
Interest
receivable
|
|
|
82,866
|
|
|
|
73,545
|
|
Guarantee
and commitment fees receivable
|
|
|
57,026
|
|
|
|
40,743
|
|
Deferred
tax asset, net
|
|
|
8,945
|
|
|
|
6,886
|
|
Prepaid
expenses and other assets
|
|
|
5,001
|
|
|
|
6,727
|
|
Total
Assets
|
|
$ |
5,277,108
|
|
|
$ |
4,953,673
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
3,594,063
|
|
|
$ |
3,298,097
|
|
Due
after one year
|
|
|
1,279,250
|
|
|
|
1,296,691
|
|
Total
notes payable
|
|
|
4,873,313
|
|
|
|
4,594,788
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
|
19,423
|
|
|
|
23,474
|
|
Accrued
interest payable
|
|
|
54,986
|
|
|
|
36,125
|
|
Guarantee
and commitment obligation
|
|
|
51,978
|
|
|
|
35,359
|
|
Accounts
payable and accrued expenses
|
|
|
18,587
|
|
|
|
12,828
|
|
Reserve
for losses
|
|
|
2,197
|
|
|
|
2,610
|
|
Total
Liabilities
|
|
|
5,020,484
|
|
|
|
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, 8,843,108
and
9,075,862 shares issued and outstanding as of June 30, 2007 and
December
31, 2006, respectively
|
|
|
8,843
|
|
|
|
9,076
|
|
Additional
paid-in capital
|
|
|
88,904
|
|
|
|
85,349
|
|
Accumulated
other comprehensive income/(loss)
|
|
|
(1,800 |
) |
|
|
4,956
|
|
Retained
earnings
|
|
|
124,146
|
|
|
|
112,577
|
|
Total
Stockholders' Equity
|
|
|
256,624
|
|
|
|
248,489
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
5,277,108
|
|
|
$ |
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
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$ |
41,530
|
|
|
$ |
30,298
|
|
|
$ |
80,522
|
|
|
$ |
56,996
|
|
Farmer
Mac Guaranteed Securities
|
|
|
18,782
|
|
|
|
18,953
|
|
|
|
38,185
|
|
|
|
36,990
|
|
Loans
|
|
|
11,199
|
|
|
|
11,847
|
|
|
|
22,518
|
|
|
|
23,230
|
|
Total
interest income
|
|
|
71,511
|
|
|
|
61,098
|
|
|
|
141,225
|
|
|
|
117,216
|
|
Total
interest expense
|
|
|
63,032
|
|
|
|
51,020
|
|
|
|
123,664
|
|
|
|
96,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
8,479
|
|
|
|
10,078
|
|
|
|
17,561
|
|
|
|
20,745
|
|
Recovery/(provision)
for loan losses
|
|
|
-
|
|
|
|
594
|
|
|
|
215
|
|
|
|
1,606
|
|
Net
interest income after recovery/(provision) for loan losses
|
|
|
8,479
|
|
|
|
10,672
|
|
|
|
17,776
|
|
|
|
22,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
6,354
|
|
|
|
5,288
|
|
|
|
12,212
|
|
|
|
10,337
|
|
Gains
on financial derivatives and trading assets
|
|
|
19,825
|
|
|
|
9,908
|
|
|
|
15,792
|
|
|
|
21,608
|
|
Gains
on sale of available-for-sale investment securities
|
|
|
21
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Gains
on the sale of real estate owned
|
|
|
32
|
|
|
|
304
|
|
|
|
32
|
|
|
|
514
|
|
Representation
and warranty claims income
|
|
|
-
|
|
|
|
718
|
|
|
|
-
|
|
|
|
718
|
|
Other
income
|
|
|
42
|
|
|
|
58
|
|
|
|
451
|
|
|
|
227
|
|
Non-interest
income
|
|
|
26,274
|
|
|
|
16,276
|
|
|
|
28,508
|
|
|
|
33,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
3,719
|
|
|
|
2,673
|
|
|
|
6,856
|
|
|
|
5,577
|
|
General
and administrative
|
|
|
2,237
|
|
|
|
2,577
|
|
|
|
4,574
|
|
|
|
5,335
|
|
Regulatory
fees
|
|
|
550
|
|
|
|
588
|
|
|
|
1,100
|
|
|
|
1,175
|
|
Real
estate owned operating costs, net
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
137
|
|
Provision/(recovery)
for losses
|
|
|
100
|
|
|
|
592
|
|
|
|
(313 |
) |
|
|
(104 |
) |
Non-interest
expense
|
|
|
6,606
|
|
|
|
6,452
|
|
|
|
12,217
|
|
|
|
12,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
28,147
|
|
|
|
20,496
|
|
|
|
34,067
|
|
|
|
43,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
9,218
|
|
|
|
6,559
|
|
|
|
10,656
|
|
|
|
14,046
|
|
Net
income
|
|
|
18,929
|
|
|
|
13,937
|
|
|
|
23,411
|
|
|
|
29,589
|
|
Preferred
stock dividends
|
|
|
(560 |
) |
|
|
(560 |
) |
|
|
(1,120 |
) |
|
|
(1,120 |
) |
Net
income available to common stockholders
|
|
$ |
18,369
|
|
|
$ |
13,377
|
|
|
$ |
22,291
|
|
|
$ |
28,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
1.79
|
|
|
$ |
1.21
|
|
|
$ |
2.15
|
|
|
$ |
2.57
|
|
Diluted
earnings per common share
|
|
$ |
1.74
|
|
|
$ |
1.18
|
|
|
$ |
2.10
|
|
|
$ |
2.50
|
|
Common
stock dividends per common share
|
|
$ |
0.10
|
|
|
$ |
0.10
|
|
|
$ |
0.20
|
|
|
$ |
0.20
|
|
See
accompanying notes to condensed consolidated
financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited;
in thousands)
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
23,411
|
|
|
$ |
29,589
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
accretion of premiums and discounts on loans and
investments
|
|
|
(803 |
) |
|
|
(1,237 |
) |
Amortization
of debt premiums, discounts and issuance costs
|
|
|
62,956
|
|
|
|
58,220
|
|
Proceeds
from repayment and sale of trading investment securities
|
|
|
5,091
|
|
|
|
1,001
|
|
Purchases
of loans held for sale
|
|
|
(27,222 |
) |
|
|
(31,316 |
) |
Proceeds
from repayment of loans held for sale
|
|
|
4,201
|
|
|
|
5,344
|
|
Net
change in fair value of trading securities and financial
derivatives
|
|
|
(14,654 |
) |
|
|
(22,420 |
) |
Amortization
of SFAS 133 transition adjustment on financial derivatives
|
|
|
209
|
|
|
|
298
|
|
Gain
on sale of available-for-sale securities
|
|
|
(21 |
) |
|
|
-
|
|
Gains
on the sale of real estate owned
|
|
|
(32 |
) |
|
|
(514 |
) |
Total
(recovery)/provision for losses
|
|
|
(528 |
) |
|
|
(1,711 |
) |
Deferred
income taxes
|
|
|
(2,231 |
) |
|
|
1,527
|
|
Stock-based
compensation expense
|
|
|
1,508
|
|
|
|
955
|
|
(Increase)/decrease
in interest receivable
|
|
|
(9,321 |
) |
|
|
3,857
|
|
Increase
in guarantee and commitment fees receivable
|
|
|
(16,283 |
) |
|
|
(3,614 |
) |
Decrease
in other assets
|
|
|
2,502
|
|
|
|
24,734
|
|
Increase/(decrease)
in accrued interest payable
|
|
|
18,861
|
|
|
|
(216 |
) |
Increase/(decrease)
in other liabilities
|
|
|
20,716
|
|
|
|
(5,026 |
) |
Net
cash provided by operating activities
|
|
|
68,360
|
|
|
|
59,471
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
(2,238,930 |
) |
|
|
(1,913,573 |
) |
Purchases
of Farmer Mac II Guaranteed Securities and AgVantage Farmer
Mac Guaranteed
Securities
|
|
|
(122,122 |
) |
|
|
(108,600 |
) |
Purchases
of loans held for investment
|
|
|
(34,278 |
) |
|
|
(25,058 |
) |
Purchases
of defaulted loans
|
|
|
(1,483 |
) |
|
|
(4,565 |
) |
Proceeds
from repayment of investment securities
|
|
|
1,567,668
|
|
|
|
1,524,967
|
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
131,609
|
|
|
|
117,990
|
|
Proceeds
from repayment of loans
|
|
|
84,931
|
|
|
|
68,426
|
|
Proceeds
from sale of available-for-sale investment securities
|
|
|
32,109
|
|
|
|
-
|
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
1,324
|
|
|
|
3,033
|
|
Proceeds
from sale of real estate owned
|
|
|
230
|
|
|
|
2,819
|
|
Net
cash used in investing activities
|
|
|
(578,942 |
) |
|
|
(334,561 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
56,058,511
|
|
|
|
37,272,236
|
|
Proceeds
from issuance of medium-term notes
|
|
|
795,000
|
|
|
|
117,200
|
|
Payments
to redeem discount notes
|
|
|
(56,100,859 |
) |
|
|
(37,100,394 |
) |
Payments
to redeem medium-term notes
|
|
|
(537,083 |
) |
|
|
(114,000 |
) |
Tax
benefit from tax deductions in excess of compensation cost
recognized
|
|
|
346
|
|
|
|
348
|
|
Proceeds
from common stock issuance
|
|
|
5,589
|
|
|
|
2,112
|
|
Purchases
of common stock
|
|
|
(13,186 |
) |
|
|
(8,974 |
) |
Dividends
paid
|
|
|
(3,189 |
) |
|
|
(3,339 |
) |
Net
cash provided by financing activities
|
|
|
205,129
|
|
|
|
165,189
|
|
Net
decrease in cash and cash equivalents
|
|
|
(305,453 |
) |
|
|
(109,901 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
877,714
|
|
|
|
458,852
|
|
Cash
and cash equivalents at end of period
|
|
$ |
572,261
|
|
|
$ |
348,951
|
|
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 six months ended June 30, 2007 and 2006.
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
|
(in
thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
49,164
|
|
|
$ |
40,360
|
|
Income
taxes
|
|
|
7,000
|
|
|
|
4,500
|
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Real
estate owned acquired through foreclosure
|
|
|
-
|
|
|
|
-
|
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
1,324
|
|
|
|
3,033
|
|
As
of
June 30, 2007, Farmer Mac maintained an allowance for losses to cover estimated
probable losses on loans held, 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 factors
including:
|
·
|
geographic
and agricultural commodity/product concentrations in the
portfolio;
|
|
·
|
the
credit profile of the portfolio;
|
|
·
|
delinquency
trends of the portfolio;
|
|
·
|
historical
charge-off and recovery activities of the portfolio;
and
|
|
·
|
other
factors to capture current portfolio trends and characteristics
that
differ from historical experience.
|
Management
believes that its use of this methodology produces a reliable estimate of
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 the components of Farmer Mac’s
allowance for losses for the three and six months ended June 30, 2007 and
2006:
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
Reserve
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
for
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,730
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,927
|
|
Provision/(recovery)
for losses
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
Charge-offs
|
|
|
(49 |
) |
|
|
(100 |
) |
|
|
-
|
|
|
|
(149 |
) |
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending
balance
|
|
$ |
1,681
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,945
|
|
|
$ |
-
|
|
|
$ |
2,610
|
|
|
$ |
4,555
|
|
Provision/(recovery)
for losses
|
|
|
(215 |
) |
|
|
100
|
|
|
|
(413 |
) |
|
|
(528 |
) |
Charge-offs
|
|
|
(49 |
) |
|
|
(100 |
) |
|
|
-
|
|
|
|
(149 |
) |
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending
balance
|
|
$ |
1,681
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,878
|
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
3,883
|
|
|
$ |
-
|
|
|
$ |
2,931
|
|
|
$ |
6,814
|
|
Provision/(recovery)
for losses
|
|
|
(594 |
) |
|
|
5
|
|
|
|
587
|
|
|
|
(2 |
) |
Charge-offs
|
|
|
(900 |
) |
|
|
(5 |
) |
|
|
-
|
|
|
|
(905 |
) |
Recoveries
|
|
|
345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
345
|
|
Ending
balance
|
|
$ |
2,734
|
|
|
$ |
-
|
|
|
$ |
3,518
|
|
|
$ |
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
4,876
|
|
|
$ |
-
|
|
|
$ |
3,777
|
|
|
$ |
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,606 |
) |
|
|
155
|
|
|
|
(259 |
) |
|
|
(1,710 |
) |
Charge-offs
|
|
|
(900 |
) |
|
|
(155 |
) |
|
|
-
|
|
|
|
(1,055 |
) |
Recoveries
|
|
|
364
|
|
|
|
-
|
|
|
|
-
|
|
|
|
364
|
|
Ending
balance
|
|
$ |
2,734
|
|
|
$ |
-
|
|
|
$ |
3,518
|
|
|
$ |
6,252
|
|
The
table
below summarizes the components of Farmer Mac’s allowance for losses as of June
30, 2007 and December 31, 2006:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$ |
1,681
|
|
|
$ |
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
|
|
|
683
|
|
|
|
679
|
|
LTSPCs
|
|
|
657
|
|
|
|
949
|
|
Total
|
|
$ |
3,878
|
|
|
$ |
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 June 30, 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 June 30, 2007, Farmer Mac had not experienced any
credit losses on any Farmer Mac I Guaranteed Securities issued prior to the
1996
Act, any AgVantage securities or any Farmer Mac II Guaranteed Securities
and does not expect to incur any such losses in the future.
As
of
June 30, 2007, Farmer Mac individually analyzed $14.7 million of its $45.7
million of impaired assets for collateral shortfalls against updated appraised
values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $31.0 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 $14.7 million of assets analyzed individually
were adequately collateralized. Accordingly, Farmer Mac did not
record any specific allowances as of June 30, 2007. Similarly, as of
December 31, 2006, Farmer Mac did not record any specific allowances related
to
its $56.9 million of impaired assets as of that date.
Farmer
Mac recognized interest income of approximately $0.8 million and
$1.7 million on impaired loans during the three months and six months ended
June 30, 2007, respectively, compared to $1.2 million and
$1.9 million, respectively, during the same periods in
2006. During the three months and six months ended June 30, 2007,
Farmer Mac’s average investment in impaired loans was $50.4 million and
$51.3 million, respectively, compared to $68.4 million and
$71.2 million, respectively, for the same periods in 2006.
|
(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, 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 and also to
derive
an overall lower effective cost of borrowing than would otherwise be available
to Farmer Mac 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 June 30, 2007 and December 31, 2006:
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(in
thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$ |
1,183,798
|
|
|
$ |
9,341
|
|
|
$ |
803,436
|
|
|
$ |
(9,982 |
) |
Receive-fixed
|
|
|
1,167,482
|
|
|
|
(10,470 |
) |
|
|
810,482
|
|
|
|
(7,111 |
) |
Basis
|
|
|
181,422
|
|
|
|
2,019
|
|
|
|
335,065
|
|
|
|
2,531
|
|
Treasury
futures
|
|
|
900
|
|
|
|
(1 |
) |
|
|
-
|
|
|
|
-
|
|
Agency
forwards
|
|
|
63,250
|
|
|
|
(428 |
) |
|
|
71,045
|
|
|
|
306
|
|
Total
|
|
$ |
2,596,852
|
|
|
$ |
461
|
|
|
$ |
2,020,028
|
|
|
$ |
(14,256 |
) |
As
of
June 30, 2007, Farmer Mac had approximately $0.6 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 $0.3
million of the amount currently reported in accumulated other comprehensive
income/(loss) will be reclassified into earnings.
As
of
June 30, 2007, Farmer Mac had outstanding basis swaps with a related party
with
a notional amount of $181.4 million and a fair value of $2.0 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. Accordingly, Farmer Mac recorded an unrealized loss of
$0.3 million and $0.8 million for the three months and six months ended June
30,
2007.
(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 and six months ended June 30, 2007 and 2006:
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
Basic EPS
|
|
|
Dilutive
stock options
|
|
|
Diluted
EPS
|
|
|
Basic EPS
|
|
|
Dilutive
stock options
|
|
|
Diluted
EPS
|
|
|
|
|
(in
thousands, except per share amounts)
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
18,369
|
|
|
|
|
|
$ |
18,369
|
|
|
$ |
13,377
|
|
|
|
|
|
$ |
13,377
|
|
Weighted-average
shares
|
|
|
10,287
|
|
|
|
255
|
|
|
|
10,542
|
|
|
|
11,083
|
|
|
|
256
|
|
|
|
11,339
|
|
Earnings
per common share
|
|
$ |
1.79
|
|
|
|
|
|
|
$ |
1.74
|
|
|
$ |
1.21
|
|
|
|
|
|
|
$ |
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
22,291
|
|
|
|
|
|
|
$ |
22,291
|
|
|
$ |
28,469
|
|
|
|
|
|
|
$ |
28,469
|
|
Weighted
average shares
|
|
|
10,377
|
|
|
|
216
|
|
|
|
10,593
|
|
|
|
11,095
|
|
|
|
287
|
|
|
|
11,382
|
|
Earnings
per common share
|
|
$ |
2.15
|
|
|
|
|
|
|
$ |
2.10
|
|
|
$ |
2.57
|
|
|
|
|
|
|
$ |
2.50
|
|
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 the three
months and six months ended June 30, 2007, Farmer Mac repurchased
133,500
and
493,982
shares,
respectively, of
its Class C Non-Voting Common Stock at an average price of $27.75
and
$26.65 per
share, respectively,
pursuant to both of
the
Corporation’s previously
announced stock repurchase programs. These
repurchases reduced the Corporation’s stockholders’ equity by approximately
$3.7 million
and
$13.2 million,
respectively.
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, 31,333 remain available for future issuance as of June 30,
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 $0.8 million of compensation expense during
the
three-month and six-month periods ended June 30, 2007, respectively, and
$0.4
million and $0.9 million of compensation expense during the three-month and
six-month periods ended June 30, 2006, respectively, related to the
non-vested portion of stock option awards that were outstanding as of December
31, 2005. Additionally, Farmer Mac recognized $0.4 million and $0.7
million of compensation expense related to stock options awarded subsequent
to
December 31, 2005, for the three-month and six-month periods ended June 30,
2007, respectively, compared to no compensation expense and $0.1 million
of
similar compensation expense recognized for the three-month and six-month
periods ended June 30, 2006, respectively.
As
of
June 30, 2007, Farmer Mac had $1.1 million of total unrecognized compensation
cost related to stock options outstanding and unvested as of December 31,
2005. Of that cost, $0.6 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 and six months
ended June 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,133,965
|
|
|
$ |
23.85
|
|
|
|
2,091,208
|
|
|
$ |
22.68
|
|
Granted
|
|
|
456,427
|
|
|
|
29.33
|
|
|
|
358,928
|
|
|
|
26.35
|
|
Exercised
|
|
|
(253,459 |
) |
|
|
21.44
|
|
|
|
(75,111 |
) |
|
|
17.26
|
|
Canceled
|
|
|
(31,334 |
) |
|
|
27.11
|
|
|
|
(75,091 |
) |
|
|
28.82
|
|
Outstanding,
end of period
|
|
|
2,305,599
|
|
|
$ |
25.15
|
|
|
|
2,299,934
|
|
|
$ |
23.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,145,705
|
|
|
$ |
23.83
|
|
|
|
2,153,008
|
|
|
$ |
22.41
|
|
Granted
|
|
|
457,427
|
|
|
|
29.32
|
|
|
|
358,928
|
|
|
|
26.35
|
|
Exercised
|
|
|
(262,864 |
) |
|
|
21.44
|
|
|
|
(136,911 |
) |
|
|
15.40
|
|
Canceled
|
|
|
(34,669 |
) |
|
|
26.76
|
|
|
|
(75,091 |
) |
|
|
28.82
|
|
Outstanding,
end of period
|
|
|
2,305,599
|
|
|
$ |
25.15
|
|
|
|
2,299,934
|
|
|
$ |
23.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,408,361
|
|
|
$ |
24.04
|
|
|
|
1,431,465
|
|
|
$ |
23.28
|
|
The
cancellations of stock options during the six months ended June 30, 2007
and
June 30, 2006 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. For the three-month and the six-month
periods ended June 30, 2007, the additional paid-in capital received from
stock
option exercises was $5.1 million
and $5.3
million, respectively, compared to $1.2 million
and
$2.0 million
for the
comparable periods in the prior year. For the three-month and the
six-month periods ended June 30, 2007, the reduction of income taxes to be
paid as a result of the deduction for stock option exercises was $0.7 million
and
$0.8 million,
respectively, compared to $0.3 million and $0.7 million for the comparable
periods in the prior year.
The
following table summarizes information regarding options outstanding as of
June
30, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
Average
|
Range
of
|
|
|
|
Remaining
|
|
|
|
Remaining
|
Exercise
|
|
Number
of
|
|
Contractual
|
|
Number
of
|
|
Contractual
|
Prices
|
|
Shares
|
|
Life
|
|
Shares
|
|
Life
|
|
|
|
|
|
|
|
|
|
$10.00
- $19.99
|
|
217,777
|
|
6.9
years
|
|
216,109
|
|
6.9
years
|
20.00
- 24.99
|
|
884,628
|
|
5.6
years
|
|
696,690
|
|
5.0
years
|
25.00
- 29.99
|
|
1,013,026
|
|
7.8
years
|
|
305,394
|
|
6.1
years
|
30.00
- 34.99
|
|
189,668
|
|
3.9
years
|
|
189,668
|
|
3.9
years
|
35.00
- 39.99
|
|
-
|
|
-
|
|
-
|
|
-
|
40.00
- 44.99
|
|
-
|
|
-
|
|
-
|
|
-
|
45.00
- 50.00
|
|
500
|
|
4.8
years
|
|
500
|
|
4.8
years
|
|
|
2,305,599
|
|
|
|
1,408,361
|
|
|
The
weighted-average grant date fair values of options granted in 2007 and 2006
were
$11.25 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
|
|
|
4.8% |
|
|
|
5.0% |
|
Expected
years until exercise
|
|
6
years
|
|
|
6
years
|
|
Expected
stock volatility
|
|
|
35.9% |
|
|
|
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 or 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. During second quarter 2007, both the recorded liability for
uncertain tax positions and the corresponding deferred tax asset were reduced
to
$1.0 million.
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 SFAS 159, if adopted, 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 June 30, 2007 and December 31, 2006.
|
|
June
30, 2007
|
|
|
December
31, 2006
|
|
|
|
Available-
|
|
|
Held-to-
|
|
|
|
|
|
Available-
|
|
|
Held-to-
|
|
|
|
|
|
|
for-Sale
|
|
|
Maturity
|
|
|
Total
|
|
|
for-Sale
|
|
|
Maturity
|
|
|
Total
|
|
|
(in
thousands)
|
Farmer
Mac I
|
|
$ |
367,418
|
|
|
$ |
27,296
|
|
|
$ |
394,714
|
|
|
$ |
404,938
|
|
|
$ |
28,489
|
|
|
$ |
433,427
|
|
Farmer
Mac II
|
|
|
-
|
|
|
|
918,712
|
|
|
|
918,712
|
|
|
|
-
|
|
|
|
896,991
|
|
|
|
896,991
|
|
Total
|
|
$ |
367,418
|
|
|
$ |
946,008
|
|
|
$ |
1,313,426
|
|
|
$ |
404,938
|
|
|
$ |
925,480
|
|
|
$ |
1,330,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
365,340
|
|
|
$ |
946,008
|
|
|
$ |
1,311,348
|
|
|
$ |
395,786
|
|
|
$ |
925,480
|
|
|
$ |
1,321,266
|
|
Unrealized
gains
|
|
|
4,685
|
|
|
|
72
|
|
|
|
4,757
|
|
|
|
11,980
|
|
|
|
214
|
|
|
|
12,194
|
|
Unrealized
losses
|
|
|
(2,607 |
) |
|
|
(14,375 |
) |
|
|
(16,982 |
) |
|
|
(2,828 |
) |
|
|
(6,715 |
) |
|
|
(9,543 |
) |
Fair
value
|
|
$ |
367,418
|
|
|
$ |
931,705
|
|
|
$ |
1,299,123
|
|
|
$ |
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 June 30, 2007 and December
31,
2006, as applicable. The available-for-sale unrealized losses were on
18 and 12 individual securities as of June 30, 2007 and December 31, 2006,
respectively.
As
of
June 30, 2007, 9 of the available-for-sale Farmer Mac Guaranteed Securities
in
loss positions had been in loss positions for more than 12 months and had
a
total unrealized loss of $2.6 million. As of December 31, 2006, 6 of
the available-for-sale Farmer Mac Guaranteed Securities in loss positions
had
been in loss positions for more than 12 months and had a total unrealized
loss
of $2.8 million. The unrealized losses on those securities are due to
overall increases in market interest rates. As of June 30, 2007, all
of the available-for-sale securities with unrealized losses aged greater
than
12 months have losses that are less than 3 percent of the amortized
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 June 30, 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 June 30, 2007.
|
June
30, 2007
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Fair
value of beneficial interests retained in Farmer Mac Guaranteed
Securities
|
|
$ |
1,299,123
|
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
4.9
|
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
9.8 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(124 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(205 |
) |
|
|
|
|
|
Weighted-average
discount rate
|
|
|
5.9 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(21,929 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(43,872 |
) |
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.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
744,092
|
|
|
$ |
770,236
|
|
Guaranteed
Securities
|
|
|
391,763
|
|
|
|
423,624
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
915,151
|
|
|
|
892,667
|
|
Total
on-balance sheet
|
|
$ |
2,051,006
|
|
|
$ |
2,086,527
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
1,644,413
|
|
|
$ |
1,969,734
|
|
AgVantage
|
|
|
2,500,000
|
|
|
|
1,500,000
|
|
Guaranteed
Securities
|
|
|
2,151,635
|
|
|
|
1,649,895
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
27,292
|
|
|
|
33,132
|
|
Total
off-balance sheet
|
|
$ |
6,323,340
|
|
|
$ |
5,152,761
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,374,346
|
|
|
$ |
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 and six
months ended June 30, 2007 and 2006. The following table presents
information related to Farmer Mac’s acquisition of defaulted loans for the three
and six months ended June 30, 2007 and 2006 and the outstanding balances
and
carrying amounts of all such loans as of June 30, 2007 and December 31, 2006,
respectively.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
2007
|
|
|
June
30,
2006
|
|
|
June
30,
2007
|
|
|
June
30,
2006
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at acquistion date
|
|
$ |
650
|
|
|
$ |
511
|
|
|
$ |
1,483
|
|
|
$ |
4,565
|
|
Contractually
required payments receivable
|
|
|
659
|
|
|
|
515
|
|
|
|
1,530
|
|
|
|
4,635
|
|
|
|
As
of
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
40,029
|
|
|
$ |
45,330
|
|
Carrying
amount
|
|
|
35,711
|
|
|
|
42,687
|
|
Net
credit losses for the six months ended June 30, 2007 and 2006 and 90-day
delinquencies as of June 30, 2007, December 31, 2006 and June 30, 2006 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 June 30, 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 June 30, 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
|
|
|
|
As
of
|
|
|
As
of
|
|
|
As
of
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
13,561
|
|
|
$ |
18,457
|
|
|
$ |
18,599
|
|
|
$ |
49
|
|
|
$ |
536
|
|
Guaranteed
Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
on-balance sheet
|
|
$ |
13,561
|
|
|
$ |
18,457
|
|
|
$ |
18,599
|
|
|
$ |
49
|
|
|
$ |
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
1,202
|
|
|
$ |
1,198
|
|
|
$ |
2,409
|
|
|
$ |
-
|
|
|
$ |
-
|
|
Guaranteed
Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
off-balance sheet
|
|
$ |
1,202
|
|
|
$ |
1,198
|
|
|
$ |
2,409
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
14,763
|
|
|
$ |
19,655
|
|
|
$ |
21,008
|
|
|
$ |
49
|
|
|
$ |
536
|
|
(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, or 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:
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
|
(in
thousands)
|
|
Proceeds
from new securitizations
|
|
$ |
1,324
|
|
|
$ |
3,033
|
|
Guarantee
fees received
|
|
|
4,923
|
|
|
|
2,079
|
|
Purchases
of assets from the trusts
|
|
|
247
|
|
|
|
506
|
|
Servicing
advances
|
|
|
104
|
|
|
|
10
|
|
Repayment
of servicing advances
|
|
|
95
|
|
|
|
8
|
|
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 June 30, 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
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Post-1996
Act Farmer Mac I Guaranteed Securities
|
|
$ |
4,651,635
|
|
|
$ |
3,149,895
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
27,292
|
|
|
|
33,132
|
|
Total Farmer Mac I and II
|
|
$ |
4,678,927
|
|
|
$ |
3,183,027
|
|
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 $30.8 million as of June 30, 2007
and $13.6 million as of December 31, 2006. As of June 30,
2007, the weighted-average remaining maturity of all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage
securities, was 12.1 years.
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
June 30, 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 $1.6 billion
and
$2.0 billion, respectively.
As
of
June 30, 2007, the weighted-average remaining maturity of all loans underlying
LTSPCs was 15.3 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 $21.2 million as of June 30, 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 and six months ended June 30, 2007 and
2006:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,929
|
|
|
$ |
13,937
|
|
|
$ |
23,411
|
|
|
$ |
29,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on available for sale securities, net of tax
|
|
|
(11,653 |
) |
|
|
(6,679 |
) |
|
|
(6,965 |
) |
|
|
(15,721 |
) |
Amortization
of SFAS 133 transition adjustment on financial derivatives, net
of
tax
|
|
|
118
|
|
|
|
167
|
|
|
|
209
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in accumulated other comprehensive loss, net of tax
|
|
|
(11,535 |
) |
|
|
(6,512 |
) |
|
|
(6,756 |
) |
|
|
(15,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
7,394
|
|
|
$ |
7,425
|
|
|
$ |
16,655
|
|
|
$ |
14,166
|
|
The
following table presents Farmer Mac’s accumulated other comprehensive
income/(loss) as of June 30, 2007 and December 31, 2006 and changes in the
components of accumulated other comprehensive income/(loss) for the six months
ended June 30, 2007 and the year ended December 31, 2006.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
5,802
|
|
|
$ |
16,637
|
|
Net
unrealized gains/(losses), net of tax
|
|
|
(6,965 |
) |
|
|
(10,835 |
) |
Ending
balance
|
|
$ |
(1,163 |
) |
|
$ |
5,802
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(846 |
) |
|
$ |
(1,390 |
) |
Amortization
of SFAS 133 transition adjustment on financial derivatives, net
of
tax
|
|
|
209
|
|
|
|
544
|
|
Ending
balance
|
|
$ |
(637 |
) |
|
$ |
(846 |
) |
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income/(loss), net of tax
|
|
$ |
(1,800 |
) |
|
$ |
4,956
|
|
The
following table presents the amortized cost and estimated fair values of
Farmer
Mac’s investments as of June 30, 2007 and December 31, 2006.
|
|
As
of June 30, 2007
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
(in
thousands)
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
$ |
380,495
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
380,495
|
|
Fixed
rate asset-backed securities
|
|
|
365,650
|
|
|
|
-
|
|
|
|
(6,680 |
) |
|
|
358,970
|
|
Floating
rate corporate debt securities
|
|
|
518,277
|
|
|
|
401
|
|
|
|
(1,103 |
) |
|
|
517,575
|
|
Fixed
rate corporate debt securities
|
|
|
519,006
|
|
|
|
-
|
|
|
|
(3,539 |
) |
|
|
515,467
|
|
Floating
rate preferred stock
|
|
|
53,102
|
|
|
|
- |
|
|
|
(305 |
) |
|
|
52,797
|
|
Fixed
rate preferred stock
|
|
|
182,486
|
|
|
|
7,169
|
|
|
|
-
|
|
|
|
189,655
|
|
Floating
rate commercial paper
|
|
|
50,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,143
|
|
Fixed
rate commercial paper
|
|
|
248,938
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248,938
|
|
Floating
rate mortgage-backed securities
|
|
|
141,062
|
|
|
|
532
|
|
|
|
(12 |
) |
|
|
141,582
|
|
Fixed
rate mortgage-backed securities
|
|
|
8,806
|
|
|
|
-
|
|
|
|
(331 |
) |
|
|
8,475
|
|
Total
investment securities available-for-sale
|
|
$ |
2,467,965
|
|
|
$ |
8,102
|
|
|
$ |
(11,970 |
) |
|
$ |
2,464,097
|
|
|
|
As
of December 31, 2006
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
(in
thousands)
|
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
|
|
Floating
rate preferred stock
|
|
|
53,691
|
|
|
|
- |
|
|
|
(284 |
) |
|
|
53,407
|
|
Fixed
rate preferred stock
|
|
|
183,080
|
|
|
|
3,628
|
|
|
|
- |
|
|
|
186,708
|
|
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 June 30, 2007 and December
31,
2006, as applicable. All investment securities in an unrealized loss
position were at least “A” rated and had not experienced any significant decline
in credit rating during 2007 or 2006. The unrealized losses were on
30 and 21 individual investment securities as of June 30, 2007 and December
31,
2006, respectively.
As
of
June 30, 2007, 12 of the securities in loss positions had been in loss positions
for more than 12 months and had a total unrealized loss of $4.2
million. As of December 31, 2006, six of the securities in loss
positions had been in loss positions for more than 12 months and had a total
unrealized loss of $4.4 million. 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. As of June 30,
2007, all of the securities with unrealized losses aged greater than
12 months have losses that are less than 7 percent of the amortized
security cost. All aged unrealized losses are recoverable within a
reasonable period of time by way of changes in market interest rates or
maturity. Accordingly, Farmer Mac has concluded that none of the
unrealized losses on its investment securities represent other-than-temporary
impairment as of June 30, 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
June 30, 2007, Farmer Mac did not own any held-to-maturity investments or
trading investments. The amortized cost, fair value and yield of
investments by remaining contractual maturity for available-for-sale investment
securities as of June 30, 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 June 30, 2007
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
Due
within one year
|
|
$ |
384,434
|
|
|
$ |
384,144
|
|
|
|
4.84 |
% |
Due
after one year through five years
|
|
|
1,026,370
|
|
|
|
1,024,778
|
|
|
|
5.30 |
% |
Due
after five years through ten years
|
|
|
527,545
|
|
|
|
525,711
|
|
|
|
6.18 |
% |
Due
after ten years
|
|
|
529,616
|
|
|
|
529,464
|
|
|
|
5.46 |
% |
Total
|
|
$ |
2,467,965
|
|
|
$ |
2,464,097
|
|
|
|
5.45 |
% |
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;
|
|
·
|
legislative
or regulatory developments that could affect Farmer
Mac;
|
|
·
|
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 second quarter 2007 was $18.4
million or $1.74 per diluted common share, compared to $13.4 million or $1.18
per diluted common share for second quarter 2006. Net income
available to common stockholders for the six months ended June 30, 2007 was
$22.3 million or $2.10 per diluted common share, compared to $28.5 million
or
$2.50 per diluted common share for the six months ended June 30,
2006. These fluctuations, both the increase in the quarterly net
income comparison and the decrease in the six month net income comparison,
were
due principally to volatility resulting from gains and losses on financial
derivatives used to manage interest rate risk. During second quarter
2007, Farmer Mac recorded gains on financial derivatives of $19.8 million,
compared to gains on financial derivatives of $9.9 million for second
quarter 2006. Although Farmer Mac’s financial derivatives provide
highly effective economic hedges of interest rate risk, accounting under
SFAS 133 caused the gains on the financial derivatives to be reflected in
net income for second quarter 2007 while the offsetting economic losses on
the
hedged items were not. Similarly, under SFAS 133 the gains on
financial derivatives for second 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.
Beyond
the impact of SFAS 133 on net income, Farmer Mac’s financial results in second
quarter 2007 were driven by growth in guarantee and commitment fees while
non-interest expenses remained relatively flat. In contrast, Farmer
Mac’s financial results in second quarter 2006 benefited from items that are
not
predictable sources of ongoing revenue, specifically representation and warranty
claims income; gains on the sale of REO; and significant recoveries from
the
allowance for losses. 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
second quarter 2007, Farmer Mac:
|
·
|
added
$152.4 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchased
$39.9 million of newly originated and current seasoned Farmer Mac
I
loans;
|
|
·
|
guaranteed
$1.0 billion of AgVantage securities;
and
|
|
·
|
purchased
$59.1 million of Farmer Mac II USDA-guaranteed portions of
loans.
|
This
new
business brought Farmer Mac’s outstanding program volume as of June 30, 2007 to
$8.4 billion. During second quarter 2007, pre-existing LTSPCs with a
principal balance of $360.8 million were converted to Farmer Mac I
Guaranteed Securities in swap transactions, with no effect on new business
volume.
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 June 30, 2007 was $3.9 million, which was 8 basis points
relative to the outstanding post-1996 Act Farmer Mac I portfolio (excluding
AgVantage securities). This represents little change from the level
of the allowance for losses as of March 31, 2007, which was also $3.9 million
and 8 basis points. These amounts compare to $4.6 million and
10 basis points as of December 31, 2006 and $6.3 million and 13 basis
points as of June 30, 2006.
As
of
June 30, 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
$14.8 million, representing 0.30 percent of the principal balance of
the outstanding post-1996 Act Farmer Mac I portfolio (excluding AgVantage
securities), compared to $21.0 million (0.46 percent) as of June 30,
2006.
Set
forth
below is a more detailed discussion of Farmer Mac’s results of
operations.
Net
Interest Income. Net interest income was $8.5 million for
second quarter 2007, compared to $10.1 million for second quarter
2006. Net interest income was $17.6 million for the six months ended
June 30, 2007, compared to $20.7 million for the six months ended June 30,
2006. The net interest yield was 70 basis points for the six
months ended June 30, 2007, compared to 95 basis points for the six months
ended June 30, 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 the
classification of approximately $1.7 million (7 basis points) of guarantee
fee income as interest income for the six months ended June 30, 2007, compared
to $1.7 million (8 basis points) for the six months ended June 30,
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 six months ended
June 30, 2007 and 2006, this classification resulted in no effect on the
net
interest yield and an increase of the net interest yield of 12 basis points,
respectively.
The
net
interest yields for the six months ended June 30, 2007 and 2006 included
the
benefits of yield maintenance payments of $2.2 million (9 basis points) and
$2.3
million (11 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 six months ended June 30, 2007 and
2006, the after-tax effects of yield maintenance payments on net income and
diluted earnings per share were $1.4 million or $0.14 per diluted
share and $1.5 million or $0.13 per diluted share,
respectively.
The
following table provides information regarding interest-earning assets and
funding for the six months ended June 30, 2007 and 2006. The balance
of non-accruing loans is included in the average balance of interest-earning
loans presented, though the related income is accounted for on the cash
basis. Therefore, as the balance of non-accruing loans and the income
received increases or decreases, the net interest yield will fluctuate
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 higher short-term market rates during the first half of 2007 compared
to the first half of 2006. The increase in the average rate for
investments reflects higher short-term rates during the first half of 2007
compared to the first half of 2006 and the short-term or floating rate nature
of
most investments acquired or reset during 2007. The higher average
rate on loans and Farmer Mac Guaranteed Securities during the first half
2007
reflects the increase in market rates reflected in the rates on loans acquired
or reset during that period compared to the rates on loans that have
matured. 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 and 2007.
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
(dollars
in thousands)
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,011,706
|
|
|
$ |
26,706
|
|
|
|
5.28 |
% |
|
$ |
614,978
|
|
|
$ |
14,414
|
|
|
|
4.69 |
% |
Investments
|
|
|
2,002,840
|
|
|
|
53,816
|
|
|
|
5.37 |
% |
|
|
1,681,448
|
|
|
|
42,582
|
|
|
|
5.06 |
% |
Loans
and Farmer Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
2,013,241
|
|
|
|
60,703
|
|
|
|
6.03 |
% |
|
|
2,056,083
|
|
|
|
60,220
|
|
|
|
5.86 |
% |
Total
interest-earning assets
|
|
|
5,027,787
|
|
|
|
141,225
|
|
|
|
5.62 |
% |
|
|
4,352,509
|
|
|
|
117,216
|
|
|
|
5.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
2,388,599
|
|
|
|
60,997
|
|
|
|
5.11 |
% |
|
|
2,471,175
|
|
|
|
56,392
|
|
|
|
4.56 |
% |
Notes
payable due after one year
|
|
|
2,459,365
|
|
|
|
62,667
|
|
|
|
5.10 |
% |
|
|
1,669,947
|
|
|
|
40,079
|
|
|
|
4.80 |
% |
Total
interest-bearing liabilities
|
|
|
4,847,964
|
|
|
|
123,664
|
|
|
|
5.10 |
% |
|
|
4,141,122
|
|
|
|
96,471
|
|
|
|
4.66 |
% |
Net
non-interest-bearing funding
|
|
|
179,823
|
|
|
|
|
|
|
|
|
|
|
|
211,387
|
|
|
|
|
|
|
|
|
|
Total
funding
|
|
$ |
5,027,787
|
|
|
|
123,664
|
|
|
|
4.92 |
% |
|
$ |
4,352,509
|
|
|
|
96,471
|
|
|
|
4.43 |
% |
Net
interest income/yield
|
|
|
|
|
|
$ |
17,561
|
|
|
|
0.70 |
% |
|
|
|
|
|
$ |
20,745
|
|
|
|
0.95 |
% |
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 funding due to the increase in capital
markets interest rates.
|
|
Six
Months Ended June 30, 2007
|
|
|
|
Compared
to Six Months Ended
|
|
|
|
June
30, 2006
|
|
|
|
Increase/(Decrease)
Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
(in
thousands)
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
2,011
|
|
|
$ |
10,282
|
|
|
$ |
12,293
|
|
Investments
|
|
|
2,718
|
|
|
|
8,515
|
|
|
|
11,233
|
|
Loans and Farmer Mac Guaranteed Securities
|
|
|
3,223
|
|
|
|
(2,740 |
) |
|
|
483
|
|
Total
|
|
|
7,952
|
|
|
|
16,057
|
|
|
|
24,009
|
|
Expense
from interest-bearing liabilities
|
|
|
9,721
|
|
|
|
17,472
|
|
|
|
27,193
|
|
Change in net interest income
|
|
$ |
(1,769 |
) |
|
$ |
(1,415 |
) |
|
$ |
(3,184 |
) |
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 $6.4 million for second quarter
2007 and $12.2 million for the six months ended June 30, 2007, compared to
$5.3 million and $10.3 million, respectively, for the same periods in
2006. The effect of SFAS 140 classified guarantee fees of
$0.8 million for second quarter 2007 and $1.7 million for the six
months ended June 30, 2007, compared to $0.9 million and $1.7 million,
respectively, for the same periods in 2006 as interest income, 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 $2.2 million for second quarter 2007 and
$4.6 million for the six months ended June 30, 2007, compared to $2.6
million and $5.3 million, respectively, for the same periods in
2006. The reductions in general and administrative expenses are due
to lower amounts spent on professional fees related to new products and
regulatory compliance matters during 2007 compared to
2006. Compensation and employee benefits were $3.7 million for
second quarter 2007 and $6.9 million for the six months ended June 30,
2007, compared to $2.7 million and $5.6 million, respectively, for the same
periods in 2006. Farmer Mac recognized compensation expense related
to stock options of $0.8 million and $1.5 million for second quarter
2007 and the six months ended June 30, 2007, respectively, compared to $0.4
million and $1.0 million, respectively, for the same periods in
2006. For more information on stock option expense, see
Note 1(e) to the condensed consolidated financial statements.
Regulatory
fee expense for second quarter 2007 and the six months ended June 30, 2007
were
$0.6 million and $1.1 million, respectively, compared to $0.6 million and
$1.2
million, respectively, for the same periods in 2006. 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 the
end of
2007.
During
second quarter 2007, Farmer Mac provided $0.1 million for its allowance for
losses, compared to a recovery of $2,000 in second quarter
2006. During the six months ended June 30, 2007, Farmer Mac released
$0.5 million from the allowance for losses, compared to a release of $1.7
million for the six months ended June 30, 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 June 30, 2007, Farmer Mac’s total allowance for losses
was $3.9 million, which was 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.
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 gain of $19.8 million for second quarter 2007 and
a net
gain of $15.8 million for the six months ended June 30, 2007 due to market
value
changes caused by increases in interest rates, compared to net gains of
$9.9 million and $21.6 million, respectively, for the same periods in
2006 also 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 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 and also to
derive
an overall lower effective 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 second quarter 2007
was $1.3 billion, compared to $471.5 million in first quarter 2007 and $657.9
million in second 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 second quarter 2007, those efforts resulted in
$152.4 million of LTSPCs and the guarantee of a $1.0 billion ten-year AgVantage
security.
While
Farmer Mac achieved a significant 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 continue to
generate 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;
|
|
·
|
new
structures for LTSPC transactions, including risk sharing provisions;
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.
On
July
27, 2007, the House of Representatives passed its version of a 2007 Farm
Bill
(H.R. 2419) that would expand Farmer Mac’s charter to authorize the Corporation
to purchase and guarantee securities backed by rural utilities (electric
and
telephone) loans made by cooperative lenders, particularly the National Rural
Utilities Cooperative Finance Corporation and institutions of the Farm Credit
System. At this time, no assurance can be given that this legislation
will be enacted into law nor, if enacted, that it will result in significant
additional business for Farmer Mac.
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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Loan
purchase and guarantee and commitment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
39,856
|
|
|
$ |
26,114
|
|
|
$ |
61,500
|
|
|
$ |
56,374
|
|
LTSPCs
|
|
|
152,402
|
|
|
|
570,595
|
|
|
|
548,724
|
|
|
|
643,750
|
|
AgVantage
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
500,000
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
59,149
|
|
|
|
61,204
|
|
|
|
112,697
|
|
|
|
106,331
|
|
Total
purchases, guarantees and commitments
|
|
$ |
1,251,407
|
|
|
$ |
657,913
|
|
|
$ |
1,722,921
|
|
|
$ |
1,306,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold
|
|
$ |
1,124
|
|
|
$ |
1,548
|
|
|
$ |
1,324
|
|
|
$ |
3,033
|
|
Retained
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loans
previously under LTSPCs exchanged for Farmer Mac Guaranteed
Securities
|
|
|
360,777
|
|
|
|
550,114
|
|
|
|
664,543
|
|
|
|
550,114
|
|
Total
|
|
$ |
361,901
|
|
|
$ |
551,662
|
|
|
$ |
665,867
|
|
|
$ |
553,147
|
|
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
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I newly originated and current seasoned loan purchases
|
|
$ |
39,856
|
|
|
$ |
26,114
|
|
|
$ |
61,500
|
|
|
$ |
56,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying off-balance sheet Farmer Mac I Guaranteed
Securities
|
|
|
247
|
|
|
|
-
|
|
|
|
247
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans underlying on-balance sheet Farmer Mac I Guaranteed Securities
transferred to loans
|
|
|
131
|
|
|
|
214
|
|
|
|
964
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying LTSPCs
|
|
|
272
|
|
|
|
297
|
|
|
|
272
|
|
|
|
3,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loan purchases
|
|
$ |
40,506
|
|
|
$ |
26,625
|
|
|
$ |
62,983
|
|
|
$ |
60,939
|
|
USDA’s
most recent publications (as available on USDA’s website as of August 1, 2007)
forecast:
|
·
|
2007
net cash farm income to be $67.2 billion, an increase of $0.5 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 4.7 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
June 30, 2007, Farmer Mac had $572.3 million of cash and cash equivalents
and
$2.5 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 the first half of
2007 was due primarily to Farmer Mac’s February 15, 2007 mission-related
investment 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 six months ended June 30, 2007, on-balance sheet program assets (Farmer
Mac
Guaranteed Securities and loans) decreased by $40.9 million due to the net
result of principal paydowns on program assets offset by new loan
purchases.
Consistent
with the net increase in total assets of $323.4 million during the six months
ended June 30, 2007, total liabilities increased $315.3 million from
December 31, 2006 to June 30, 2007. This increase in
liabilities was primarily due to the $278.5 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 six months ended June 30, 2007, accumulated other comprehensive
income/(loss) decreased $6.8 million, which was primarily the result of $1.2
million after-tax unrealized losses on securities available-for-sale as of
June
30, 2007, compared to $5.8 million after-tax unrealized gains on securities
available-for-sale as of December 31, 2006. Accumulated other
comprehensive income/(loss) 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 June 30, 2007, Farmer Mac’s core capital totaled
$258.4
million, compared to $243.5 million as of December 31,
2006. As of June 30, 2007, core capital exceeded Farmer Mac’s
statutory minimum capital requirement of $192.2
million by $66.2
million.
Farmer
Mac was in compliance with its risk-based capital standards as of June 30,
2007. As of June 30, 2007, the risk-based capital stress test generated a
regulatory capital requirement of $83.8 million, an increase from the $42.9
million requirement as of December 31, 2006. As of June 30, 2007, Farmer
Mac’s regulatory capital of $262.3 million exceeded the risk-based capital
requirement by approximately $178.5 million. The increase in the
risk-based capital requirement from December 31, 2006 to June 30, 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 existing 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.
At
its
meeting on August 9, 2007, the Board of FCA adopted proposed amendments to
the
risk-based capital regulation applicable to Farmer Mac that will be published
in
the Federal Register for public comment. Farmer Mac has not seen the
proposed regulation and does not know what effect, if any, it would have
in the
future if adopted in its current form. Based upon preliminary information
from FCA, Farmer Mac understands that, if the proposed rule had been in effect
as a final rule on March 31, 2007, Farmer Mac’s regulatory capital requirement
as of that date would have been somewhat greater than the regulatory capital
requirement under the existing rule, but less than the statutory minimum
capital
requirement. As noted above, 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.
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 some of its interest rate risks. As of June
30, 2007, 51 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 second quarter 2007, 15 percent had
yield maintenance or another form of prepayment protection. As of
June 30, 2007, none of the USDA-guaranteed portions underlying Farmer Mac
II
Guaranteed Securities had yield maintenance provisions; however, 26.4 percent
contained prepayment penalties. Of the USDA-guaranteed portions
purchased in second quarter 2007, 2.9 percent contained various 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.
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 June 30, 2007 and December 31, 2006 to an immediate and
instantaneous parallel shift in the yield curve. During second
quarter 2007, Farmer Mac maintained a low level of interest rate sensitivity
through ongoing asset and liability management activities.
|
|
Percentage
Change in MVE from Base Case
|
Interest
Rate
|
|
June
30,
|
|
December
31,
|
Scenario
|
|
2007
|
|
2006
|
|
|
|
|
|
+
300 bp
|
|
-9.3%
|
|
-7.9%
|
+
200 bp
|
|
-5.9%
|
|
-4.7%
|
+
100 bp
|
|
-2.7%
|
|
-1.9%
|
-
100 bp
|
|
0.9%
|
|
0.0%
|
-
200 bp
|
|
0.3%
|
|
-1.1%
|
-
300 bp
|
|
-0.7%
|
|
-2.1%
|
As
of June 30, 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 2.7 percent, while a parallel
decrease of 100 basis points would have decreased NII by 4.3 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 June 30, 2007, both MVE and NII showed
similar or lesser sensitivity to non-parallel shocks than to the parallel
shocks. As of June 30, 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
1.2 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
June 30, 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 June 30, 2007, Farmer Mac had
uncollateralized net exposure of $11.0 million to two
counterparties.
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 (including interest rate shock tests for adjustable
rate
mortgages with initial reset periods of five years or less) 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”;
and
|
|
·
|
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 factors
including:
|
·
|
geographic
and agricultural commodity/product concentrations in the
portfolio;
|
|
·
|
the
credit profile of the portfolio;
|
|
·
|
delinquency
trends of the portfolio;
|
|
·
|
historical
charge-off and recovery activities of the portfolio;
and
|
|
·
|
other
factors to capture current portfolio trends and characteristics
that
differ from historical experience.
|
Management
believes that its use of this methodology produces a reliable estimate of
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.
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 June 30, 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 June 30, 2007, Farmer
Mac had not experienced any credit losses on any Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act, any AgVantage securities or any
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 and six months ended June 30, 2007
and
2006:
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,730
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,927
|
|
Provision/(recovery)
for losses
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
100
|
|
Charge-offs
|
|
|
(49 |
) |
|
|
(100 |
) |
|
|
-
|
|
|
|
(149 |
) |
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending
balance
|
|
$ |
1,681
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,945
|
|
|
$ |
-
|
|
|
$ |
2,610
|
|
|
$ |
4,555
|
|
Provision/(recovery)
for losses
|
|
|
(215 |
) |
|
|
100
|
|
|
|
(413 |
) |
|
|
(528 |
) |
Charge-offs
|
|
|
(49 |
) |
|
|
(100 |
) |
|
|
-
|
|
|
|
(149 |
) |
Recoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending
balance
|
|
$ |
1,681
|
|
|
$ |
-
|
|
|
$ |
2,197
|
|
|
$ |
3,878
|
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
Reserve
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
for
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
Losses
|
|
|
for
Losses
|
|
|
(in
thousands)
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
3,883
|
|
|
$ |
-
|
|
|
$ |
2,931
|
|
|
$ |
6,814
|
|
Provision/(recovery)
for losses
|
|
|
(594 |
) |
|
|
5
|
|
|
|
587
|
|
|
|
(2 |
) |
Charge-offs
|
|
|
(900 |
) |
|
|
(5 |
) |
|
|
-
|
|
|
|
(905 |
) |
Recoveries
|
|
|
345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
345
|
|
Ending
balance
|
|
$ |
2,734
|
|
|
$ |
-
|
|
|
$ |
3,518
|
|
|
$ |
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
4,876
|
|
|
$ |
-
|
|
|
$ |
3,777
|
|
|
$ |
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,606 |
) |
|
|
155
|
|
|
|
(259 |
) |
|
|
(1,710 |
) |
Charge-offs
|
|
|
(900 |
) |
|
|
(155 |
) |
|
|
-
|
|
|
|
(1,055 |
) |
Recoveries
|
|
|
364
|
|
|
|
-
|
|
|
|
-
|
|
|
|
364
|
|
Ending
balance
|
|
$ |
2,734
|
|
|
$ |
-
|
|
|
$ |
3,518
|
|
|
$ |
6,252
|
|
During
second quarter 2007, Farmer Mac provided $0.1 million for its allowance for
losses, compared to the release of $2,000 in second quarter
2006. During second quarter 2007, Farmer Mac charged off $0.1
million in losses against the allowance for losses. During second quarter
2006, Farmer Mac charged off $0.9 million in losses against the allowance
for losses and had $0.3 million in recoveries for net recoveries of $0.6
million. There was no previously accrued or advanced interest on
loans or Farmer Mac I Guaranteed Securities that was charged off in second
quarter 2007 or second quarter 2006. As of June 30, 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
June 30, 2007, Farmer Mac’s 90-day delinquencies totaled $14.8 million and
represented 0.30 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 $21.0 million (0.46 percent) as of
June 30, 2006. As of June 30, 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 $37.2 million and represented 0.76 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
$40.0 million (0.87 percent) as of June 30, 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,
|
|
|
|
|
|
Less:
|
|
|
|
|
|
Guarantees
(1),
|
|
Non-
|
|
|
|
REO
and
|
|
|
|
|
|
LTSPCs,
|
|
performing
|
|
|
|
Performing
|
|
90-Day
|
|
|
|
and
REO
|
|
Assets
|
|
Percentage
|
|
Bankruptcies
|
|
Delinquencies
|
|
Percentage
|
|
(dollars
in thousands)
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
$ 4,904,592
|
|
$ 37,225
|
|
0.76%
|
|
$ 22,462
|
|
$ 14,763
|
|
0.30%
|
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%
|
(1)
Excludes loans underlying AgVantage securities.
As
of
June 30, 2007, approximately $1.4 billion (28.9 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 $1.3 billion (29.1 percent) as of June 30,
2006.
As
of
June 30, 2007, Farmer Mac individually analyzed $14.7 million of its $45.7
million of impaired assets for collateral shortfalls against updated appraised
values, other updated collateral valuations or discounted values. All
of the $14.7 million of assets analyzed individually were adequately
collateralized. Farmer Mac evaluated the remaining $31.0 million of
impaired assets for which updated valuations were not available in the aggregate
in consideration of their similar risk characteristics and historical
statistics. Farmer Mac did not record any specific allowances for any
of its impaired assets as of June 30, 2007. Farmer Mac’s non-specific
or general allowances were $3.9 million as of June 30, 2007.
Distribution
of Post-1996 Act Non-performing
|
|
Assets
by Original LTV Ratio
|
|
as
of June 30, 2007
|
|
(dollars
in thousands)
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
Non-performing
|
|
|
|
|
Original
LTV Ratio
|
|
Assets
|
|
|
Percentage
|
|
0.00%
to 40.00%
|
|
$ |
2,874
|
|
|
|
8% |
|
40.01%
to 50.00%
|
|
|
7,968
|
|
|
|
21%
|
|
50.01%
to 60.00%
|
|
|
18,075
|
|
|
|
49% |
|
60.01%
to 70.00%
|
|
|
7,562
|
|
|
|
20% |
|
70.01%
to 80.00%
|
|
|
526
|
|
|
|
1% |
|
80.01%
+
|
|
|
220
|
|
|
|
1% |
|
Total
|
|
$ |
37,225
|
|
|
|
100% |
|
The
following table presents outstanding loans held and loans underlying post-1996
Act Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and
LTSPCs, post-1996 Act non-performing assets as of June 30, 2007 by year of
origination, geographic region and commodity/collateral type:
Farmer
Mac I Post-1996 Act Non-performing Assets
|
|
|
|
Distribution
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
Loans,
|
|
|
Loans,
|
|
|
Non-
|
|
|
Non-
|
|
|
|
Guarantees
and
|
|
|
Guarantees
and
|
|
|
performing
|
|
|
performing
|
|
|
|
LTSPCs
|
|
|
LTSPCs
(1)
|
|
|
Assets
(2)
|
|
|
Asset
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
|
12 |
% |
|
$ |
624,178
|
|
|
$ |
9,100
|
|
|
|
1.46 |
% |
1997
|
|
|
5 |
% |
|
|
232,572
|
|
|
|
5,871
|
|
|
|
2.52 |
% |
1998
|
|
|
8 |
% |
|
|
388,078
|
|
|
|
5,462
|
|
|
|
1.41 |
% |
1999
|
|
|
9 |
% |
|
|
422,332
|
|
|
|
6,933
|
|
|
|
1.64 |
% |
2000
|
|
|
5 |
% |
|
|
231,916
|
|
|
|
4,740
|
|
|
|
2.04 |
% |
2001
|
|
|
8 |
% |
|
|
415,428
|
|
|
|
3,679
|
|
|
|
0.89 |
% |
2002
|
|
|
10 |
% |
|
|
488,205
|
|
|
|
856
|
|
|
|
0.18 |
% |
2003
|
|
|
11 |
% |
|
|
531,967
|
|
|
|
217
|
|
|
|
0.04 |
% |
2004
|
|
|
8 |
% |
|
|
386,066
|
|
|
|
152
|
|
|
|
0.04 |
% |
2005
|
|
|
11 |
% |
|
|
542,990
|
|
|
|
215
|
|
|
|
0.04 |
% |
2006
|
|
|
9 |
% |
|
|
464,302
|
|
|
|
-
|
|
|
|
0.00 |
% |
2007
|
|
|
4 |
% |
|
|
176,558
|
|
|
|
-
|
|
|
|
0.00 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,904,592
|
|
|
$ |
37,225
|
|
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
17 |
% |
|
$ |
833,734
|
|
|
$ |
22,839
|
|
|
|
2.74 |
% |
Southwest
|
|
|
41 |
% |
|
|
2,023,418
|
|
|
|
4,993
|
|
|
|
0.25 |
% |
Mid-North
|
|
|
22 |
% |
|
|
1,091,260
|
|
|
|
1,718
|
|
|
|
0.16 |
% |
Mid-South
|
|
|
9 |
% |
|
|
430,889
|
|
|
|
3,003
|
|
|
|
0.70 |
% |
Northeast
|
|
|
7 |
% |
|
|
324,469
|
|
|
|
3,380
|
|
|
|
1.04 |
% |
Southeast
|
|
|
4 |
% |
|
|
200,822
|
|
|
|
1,292
|
|
|
|
0.64 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,904,592
|
|
|
$ |
37,225
|
|
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
42 |
% |
|
$ |
2,084,904
|
|
|
$ |
17,069
|
|
|
|
0.82 |
% |
Permanent
plantings
|
|
|
21 |
% |
|
|
1,040,270
|
|
|
|
14,745
|
|
|
|
1.42 |
% |
Livestock
|
|
|
26 |
% |
|
|
1,256,618
|
|
|
|
3,730
|
|
|
|
0.30 |
% |
Part-time
farm/rural housing
|
|
|
6 |
% |
|
|
291,684
|
|
|
|
1,681
|
|
|
|
0.58 |
% |
Ag
storage and processing
|
|
|
4 |
% |
|
|
175,068
|
|
|
|
-
|
|
|
|
0.00 |
% |
Other
|
|
|
1 |
% |
|
|
56,048
|
|
|
|
-
|
|
|
|
0.00 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,904,592
|
|
|
$ |
37,225
|
|
|
|
0.76 |
% |
(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 (excluding AgVantage
securities) and LTSPCs as of June 30, 2007, by year of origination,
geographic region and commodity/collateral type.
Farmer
Mac I Post-1996 Act Credit Losses Relative to all
|
|
Cumulative
Original Loans, Guarantees and LTSPCs
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
Original
Loans,
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
Guarantees
|
|
|
Net
Credit
|
|
|
Loss
|
|
|
|
and
LTSPCs (1)
|
|
|
Losses
|
|
|
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
$ |
3,402,787
|
|
|
$ |
1,589
|
|
|
|
0.05 |
% |
1997
|
|
|
744,889
|
|
|
|
2,513
|
|
|
|
0.34 |
% |
1998
|
|
|
1,112,037
|
|
|
|
3,895
|
|
|
|
0.35 |
% |
1999
|
|
|
1,131,921
|
|
|
|
1,291
|
|
|
|
0.11 |
% |
2000
|
|
|
726,027
|
|
|
|
2,383
|
|
|
|
0.33 |
% |
2001
|
|
|
1,037,336
|
|
|
|
701
|
|
|
|
0.07 |
% |
2002
|
|
|
1,017,729
|
|
|
|
-
|
|
|
|
0.00 |
% |
2003
|
|
|
862,116
|
|
|
|
-
|
|
|
|
0.00 |
% |
2004
|
|
|
598,361
|
|
|
|
-
|
|
|
|
0.00 |
% |
2005
|
|
|
705,734
|
|
|
|
-
|
|
|
|
0.00 |
% |
2006
|
|
|
619,071
|
|
|
|
-
|
|
|
|
0.00 |
% |
2007
|
|
|
234,464
|
|
|
|
-
|
|
|
|
0.00 |
% |
Total
|
|
$ |
12,192,472
|
|
|
$ |
12,372
|
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,317,546
|
|
|
$ |
6,917
|
|
|
|
0.30 |
% |
Southwest
|
|
|
5,058,132
|
|
|
|
4,882
|
|
|
|
0.10 |
% |
Mid-North
|
|
|
2,148,976
|
|
|
|
18
|
|
|
|
0.00 |
% |
Mid-South
|
|
|
848,861
|
|
|
|
336
|
|
|
|
0.04 |
% |
Northeast
|
|
|
938,893
|
|
|
|
1
|
|
|
|
0.00 |
% |
Southeast
|
|
|
880,064
|
|
|
|
218
|
|
|
|
0.02 |
% |
Total
|
|
$ |
12,192,472
|
|
|
$ |
12,372
|
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
4,986,893
|
|
|
$ |
31
|
|
|
|
0.00 |
% |
Permanent
plantings
|
|
|
2,834,898
|
|
|
|
9,359
|
|
|
|
0.33 |
% |
Livestock
|
|
|
3,027,985
|
|
|
|
2,676
|
|
|
|
0.09 |
% |
Part-time
farm/rural housing
|
|
|
815,543
|
|
|
|
306
|
|
|
|
0.04 |
% |
Ag
storage and processing
|
|
|
376,466 |
(3)
|
|
|
-
|
|
|
|
0.00 |
% |
Other
|
|
|
150,687
|
|
|
|
-
|
|
|
|
0.00 |
% |
Total
|
|
$ |
12,192,472
|
|
|
$ |
12,372
|
|
|
|
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 agricultural storage and processing loans underlying LTSPCs
are for
facilities
under construction, and as of June 30, 2007, approximately $160.9
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 June 30, 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 June 30, 2007, Farmer Mac’s cash and cash equivalents and liquidity
investment securities were $572.3 million and $1.6 billion,
respectively. In addition, as of June 30, 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) $918.7
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 June 30, 2007, the aggregate of the Farmer
Mac II Guaranteed Securities, mission-related non-program investments, cash
and
liquidity investments represented 79 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
second 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 the
three months and six months ended June 30, 2007, Farmer Mac repurchased
133,500 and
493,982 shares,
respectively, of its
Class C Non-Voting
Common Stock at an average price of $27.75 and $26.65 per share,
respectively, pursuant
to both of the
Corporation’s previously announced stock repurchase programs. These
repurchases reduced the Corporation’s stockholders’
equity by
approximately $3.7 million
and $13.2 million,
respectively. During the three months and six months ended
June 30, 2006, Farmer Mac repurchased 282,500 and 321,450 shares,
respectively, of its Class C Non-Voting Common Stock at an average price
of
$26.55 and $26.70, respectively, which reduced the Corporation’s stockholders’
equity by approximately $7.5 million and $8.6 million,
respectively. 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 August 2, 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 September 28, 2007 to
holders of record as of September 14, 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
(1)
|
|
|
Farmer
Mac II
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
$ |
1,039,856
|
|
|
$ |
152,402
|
|
|
$ |
59,149
|
|
|
$ |
1,251,407
|
|
March
31, 2007
|
|
|
21,644
|
|
|
|
396,322
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
1,598,673
|
|
|
|
1,139,699
|
|
|
|
234,684
|
|
|
|
2,973,056
|
|
December
31, 2005
|
|
|
110,056
|
|
|
|
461,441
|
|
|
|
200,168
|
|
|
|
771,665
|
|
(1)
|
During
2005, Farmer Mac began issuing LTSPCs for the construction of agricultural
storage and processing facilities. As of June 30, 2007,
approximately $160.9 million of the loans underlying those $357.1
million
of LTSPCs 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007 (1)
|
|
$ |
5,783,879
|
|
|
$ |
1,644,413
|
|
|
$ |
3,611
|
|
|
$ |
942,443
|
|
|
$ |
8,374,346
|
|
March
31, 2007 (2)
|
|
|
4,508,595
|
|
|
|
1,920,848
|
|
|
|
3,748
|
|
|
|
932,056
|
|
|
|
7,365,247
|
|
December
31, 2006 (3)
|
|
|
4,338,698
|
|
|
|
1,969,734
|
|
|
|
5,057
|
|
|
|
925,799
|
|
|
|
7,239,288
|
|
September
30, 2006 (4)
|
|
|
4,267,309
|
|
|
|
1,884,223
|
|
|
|
5,802
|
|
|
|
900,835
|
|
|
|
7,058,169
|
|
June
30, 2006 (5)
|
|
|
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
|
|
(1)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the
conversion
of $360.8 million of existing LTSPCs to Farmer Mac I Guaranteed
Securities during second quarter 2007 at the request of program
participants.
|
(2)
|
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.
|
(3)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the
conversion
of $143.6 million of existing LTSPCs to Farmer Mac I Guaranteed
Securities
during fourth quarter 2006 at the request of a program
participant.
|
(4)
|
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.
|
(5)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
5-to-10-Year
|
|
|
1-Month-to-3-Year
|
|
|
Held
in
|
|
|
|
Fixed
Rate
|
|
|
ARMs
& Resets
|
|
|
ARMs
|
|
|
Portfolio
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
$ |
914,890
|
|
|
$ |
752,991
|
|
|
$ |
399,147
|
|
|
$ |
2,067,028
|
|
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
|
|
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 June 30, 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 June 30, 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 June 30, 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 Securities Act of
1933.
|
On
April
9, 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 542 shares of its
Class C Non-Voting Common Stock, at an issue price of $27.20 per share,
to the
seven directors who elected to receive such stock in lieu of their cash
retainers.
On
June
7, 2007, Farmer Mac granted options under its 1997 Incentive Plan to purchase
an
aggregate of 456,427 shares of Class C Non-Voting Common Stock, at an
exercise price of $29.33 per share, to the fifteen directors and seven
officers
of the Corporation.
|
(c)
|
As
shown in the table below, Farmer Mac repurchased 133,500 shares
of its
Class C Non-Voting Common Stock during second quarter 2007 at an
average price of $27.75 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
|
|
|
|
|
|
|
|
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
C Shares
|
|
|
Maximum
|
|
|
|
Total
|
|
|
Average
|
|
|
Purchased
as
|
|
|
Number
|
|
|
|
Number
|
|
|
Price
|
|
|
Part
|
|
|
of
Class C Shares
|
|
|
|
of
Class C
|
|
|
Paid
|
|
|
of
Publicly
|
|
|
that
May Yet Be
|
|
|
|
Shares
|
|
|
per
Class
|
|
|
Announced
|
|
|
Purchased
Under
|
|
Period
|
|
Purchased
|
|
|
C
Share
|
|
|
Program1
|
|
|
the
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2007 - April 30, 2007
|
|
|
61,700
|
|
|
$ |
27.67
|
|
|
|
61,700
|
|
|
|
696,050
|
|
May
1, 2007 - May 31, 2007
|
|
|
71,800
|
|
|
$ |
27.82
|
|
|
|
71,800
|
|
|
|
624,250
|
|
June
1, 2007 - June 30, 2007
|
|
|
-
|
|
|
$ |
-
|
|
|
|
-
|
|
|
|
624,250
|
|
Total
|
|
|
133,500
|
|
|
$ |
27.75
|
|
|
|
133,500
|
|
|
|
|
|
1
|
On
February 5, 2007, Farmer Mac announced the establishment of a program
to
repurchase up to one million shares of the Corporation’s outstanding Class
C Non-Voting Common Stock. The authority for this stock
repurchase program expires in November
2008.
|
Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
|
(a)
|
Farmer
Mac’s Annual Meeting of Stockholders was held on June 7,
2007.
|
|
(b)
|
See
paragraph (c)(1) below. In addition to the Directors elected at
the Annual Meeting of Stockholders on June 7, 2007, the following
Directors appointed by the President of the United States continue
to
serve as Directors of Farmer Mac:
|
Fred
L. Dailey (Chairman)
Julia
Bartling
Grace
T. Daniel
Lowell
L. Junkins
Glen
O. Klippenstein
|
(c)
|
(1)
|
Election
of Directors (cumulative voting):
|
|
Class
A Nominees
|
|
Number
of Shares
|
|
For
|
Withheld
|
|
|
|
Dennis
L. Brack
|
832,129
|
1,900
|
Dennis
A. Everson
|
831,838
|
1,900
|
Mitchell
A. Johnson
|
831,338
|
1,900
|
Timothy
F. Kenny
|
831,963
|
1,900
|
Charles
E. Kruse
|
831,463
|
1,800
|
|
Class
B Nominees
|
|
Number
of Shares
|
|
For
|
Withheld
|
|
|
|
Ralph
“Buddy” Cortese
|
290,180
|
450
|
Paul
A. DeBriyn
|
1,298,285
|
450
|
Michael
A. Gerber
|
290,180
|
450
|
Ernest
M. Hodges
|
290,180
|
450
|
John
Dan Raines
|
290,180
|
450
|
|
(2)
|
Selection
of Independent Registered Public Accounting Firm (Deloitte
& Touche LLP):
|
Class
A Stockholders
|
|
|
|
|
|
Number
of Shares
|
For
|
|
830,596
|
Against
|
|
1,750
|
Abstain
|
|
1,300
|
Class
B Stockholders
|
|
|
Number
of Shares
|
For
|
|
492,151
|
Against
|
|
100
|
Abstain
|
|
0
|
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 (Form 10-Q filed
November 14, 2003).
|
|
|
|
|
†*
|
10.1.1
|
-
|
Form
of stock option award agreement under 1997 Incentive Plan (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).
|
|
|
|
|
†**
|
|
-
|
Amendment
No. 16 dated as of June 7, 2007 to Employment Contract between Henry
D. Edelman and the Registrant.
|
|
|
|
|
†*
|
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).
|
*
|
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.
|
†*
|
10.3.17
|
-
|
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).
|
|
|
|
|
†*
|
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).
|
|
|
|
|
†**
|
|
-
|
Amendment
No. 19 dated as of June 7, 2007 to Employment Contract between Nancy
E. Corsiglia and the Registrant.
|
|
|
|
|
†*
|
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).
|
*
|
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.
|
†*
|
10.4.8
|
-
|
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).
|
|
|
|
|
†*
|
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).
|
|
|
|
|
†**
|
|
-
|
Amendment
No. 10 dated as of June 7, 2007 to Employment Contract between
Tom D. Stenson and the Registrant.
|
|
|
|
|
†*
|
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).
|
*
|
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.
|
†*
|
10.6.1
|
-
|
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).
|
|
|
|
|
†*
|
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).
|
|
|
|
|
†**
|
|
-
|
Amendment
No. 4 dated as of June 7, 2007 to Employment Contract between Timothy
L. Buzby and the Registrant.
|
|
|
|
|
*
|
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).
|
*
|
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.
|
*#
|
10.12
|
-
|
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).
|
|
|
|
|
*
|
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).
|
*
|
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.
|
†**
|
|
-
|
Amendment
No. 2 dated as of dated June 7, 2007 to Employment Contract between
Mary K. Waters and the Registrant.
|
|
|
|
|
†**
|
|
-
|
Description
of compensation agreement between the Registrant and its
directors.
|
|
|
|
|
|
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 June 30, 2007, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
**
|
|
-
|
Certification
of Chief Financial Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 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 June 30,
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
August
9,
2007
|
By:
|
/s/
Henry D. Edelman
|
|
|
Henry
D. Edelman
|
|
|
President
and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
/s/
Nancy E. Corsiglia
|
|
|
Nancy
E. Corsiglia
|
|
|
Executive
Vice President - Finance and Chief Financial Officer
|
|
|
(Principal
Financial Officer)
|