form10q.htm
As filed
with the Securities and Exchange Commission on
May 12,
2008
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 March 31, 2008
Commission
File Number 001-14951
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
(Exact
name of registrant as specified in its charter)
Federally
chartered instrumentality of the United States
|
52-1578738
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
employer identification number)
|
|
|
1133
Twenty-First Street, N.W., Suite 600
|
20036
|
Washington,
D.C.
|
|
(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
S No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
|
Large
accelerated filer £
|
Accelerated
filer S
|
|
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
£ No
S
As of May
1, 2008, the registrant had 1,030,780 shares of Class A Voting Common
Stock, 500,301 shares of Class B Voting Common Stock and 8,450,182
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, 2007 consolidated balance sheet
presented in this report has been derived from the Corporation’s audited 2007
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 2007 consolidated
financial statements of Farmer Mac included in the Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2007. Results for
interim periods are not necessarily indicative of those that may be expected for
the fiscal year.
The following information concerning
Farmer Mac’s interim unaudited condensed consolidated financial statements is
included in this report beginning on the pages listed below:
Condensed
Consolidated Balance Sheets as of March 31, 2008 and
December 31, 2007
|
33
|
Condensed
Consolidated Statements of Operations for the three months ended March 31,
2008 and 2007
|
45
|
Condensed
Consolidated Statements of Cash Flows for the three months ended March 31,
2008 and 2007
|
55
|
Notes
to Condensed Consolidated Financial Statements
|
66
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
March 31,
|
|
|
December31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
199,989 |
|
|
$ |
101,445 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value (includes securities pledged to counterparties of $20.1
million and $7.2 million, respectively, as of March 31, 2008 and December
31, 2007)
|
|
|
2,424,097 |
|
|
|
2,616,187 |
|
Trading,
at fair value
|
|
|
641,827 |
|
|
|
8,179 |
|
Total
investment securities
|
|
|
3,065,924 |
|
|
|
2,624,366 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Held-to-maturity,
at amortized cost
|
|
|
526,574 |
|
|
|
959,865 |
|
Available-for-sale,
at fair value
|
|
|
325,272 |
|
|
|
338,958 |
|
Trading,
at fair value
|
|
|
445,202 |
|
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
1,297,048 |
|
|
|
1,298,823 |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
|
122,382 |
|
|
|
118,629 |
|
Loans
held for investment, at amortized cost
|
|
|
636,637 |
|
|
|
649,280 |
|
Allowance
for loan losses
|
|
|
(1,651 |
) |
|
|
(1,690 |
) |
Total
loans, net of allowance
|
|
|
757,368 |
|
|
|
766,219 |
|
|
|
|
|
|
|
|
|
|
Real
estate owned, at lower of cost or fair value
|
|
|
590 |
|
|
|
590 |
|
Financial
derivatives, at fair value
|
|
|
10,903 |
|
|
|
2,288 |
|
Interest
receivable
|
|
|
58,648 |
|
|
|
91,939 |
|
Guarantee
and commitment fees receivable
|
|
|
55,725 |
|
|
|
57,804 |
|
Deferred
tax asset, net
|
|
|
48,747 |
|
|
|
30,239 |
|
Prepaid
expenses and other assets
|
|
|
11,072 |
|
|
|
3,900 |
|
Total
Assets
|
|
$ |
5,506,014 |
|
|
$ |
4,977,613 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
4,061,661 |
|
|
$ |
3,829,698 |
|
Due
after one year
|
|
|
1,045,193 |
|
|
|
744,649 |
|
Total
notes payable
|
|
|
5,106,854 |
|
|
|
4,574,347 |
|
|
|
|
|
|
|
|
|
|
Financial
derivatives, at fair value
|
|
|
102,887 |
|
|
|
55,273 |
|
Accrued
interest payable
|
|
|
33,731 |
|
|
|
50,004 |
|
Guarantee
and commitment obligation
|
|
|
51,541 |
|
|
|
52,130 |
|
Accounts
payable and accrued expenses
|
|
|
8,841 |
|
|
|
20,069 |
|
Reserve
for losses
|
|
|
2,197 |
|
|
|
2,197 |
|
Total
Liabilities
|
|
|
5,306,051 |
|
|
|
4,754,020 |
|
|
|
|
|
|
|
|
|
|
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, 8,332,699 and
8,363,580 shares issued and outstanding as of March 31, 2008 and December
31, 2007, respectively
|
|
|
8,333 |
|
|
|
8,364 |
|
Additional
paid-in capital
|
|
|
87,784 |
|
|
|
87,134 |
|
Accumulated
other comprehensive loss
|
|
|
(29,393 |
) |
|
|
(2,793 |
) |
Retained
earnings
|
|
|
96,708 |
|
|
|
94,357 |
|
Total
Stockholders' Equity
|
|
|
199,963 |
|
|
|
223,593 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
5,506,014 |
|
|
$ |
4,977,613 |
|
See accompanying notes to condensed
consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
Interest
income:
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$ |
41,508 |
|
|
$ |
38,992 |
|
Farmer
Mac Guaranteed Securities
|
|
|
18,770 |
|
|
|
19,403 |
|
Loans
|
|
|
11,831 |
|
|
|
11,319 |
|
Total
interest income
|
|
|
72,109 |
|
|
|
69,714 |
|
Total
interest expense
|
|
|
54,171 |
|
|
|
60,632 |
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
17,938 |
|
|
|
9,082 |
|
Recovery/(provision)
for loan losses
|
|
|
- |
|
|
|
215 |
|
Net
interest income after recovery/(provision) for loan losses
|
|
|
17,938 |
|
|
|
9,297 |
|
|
|
|
|
|
|
|
|
|
Non-interest
(loss)/income:
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
6,634 |
|
|
|
5,858 |
|
Losses
on financial derivatives
|
|
|
(41,720 |
) |
|
|
(4,026 |
) |
Gains/(losses)
on trading assets
|
|
|
10,111 |
|
|
|
(7 |
) |
Other
income
|
|
|
461 |
|
|
|
409 |
|
Non-interest
(loss)/income
|
|
|
(24,514 |
) |
|
|
2,234 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
3,650 |
|
|
|
3,137 |
|
General
and administrative
|
|
|
2,028 |
|
|
|
2,337 |
|
Regulatory
fees
|
|
|
513 |
|
|
|
550 |
|
Real
estate owned operating costs, net
|
|
|
49 |
|
|
|
- |
|
Provision/(recovery)
for losses
|
|
|
- |
|
|
|
(413 |
) |
Non-interest
expense
|
|
|
6,240 |
|
|
|
5,611 |
|
|
|
|
|
|
|
|
|
|
(Loss)/income
before income taxes
|
|
|
(12,816 |
) |
|
|
5,920 |
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit)/expense
|
|
|
(5,119 |
) |
|
|
1,438 |
|
Net
(loss)/income
|
|
|
(7,697 |
) |
|
|
4,482 |
|
Preferred
stock dividends
|
|
|
(560 |
) |
|
|
(560 |
) |
Net
(loss)/income available to common stockholders
|
|
$ |
(8,257 |
) |
|
$ |
3,922 |
|
|
|
|
|
|
|
|
|
|
Earnings
per common share and dividends:
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
(0.84 |
) |
|
$ |
0.37 |
|
Diluted
earnings per common share
|
|
$ |
(0.84 |
) |
|
$ |
0.37 |
|
Common
stock dividends per common share
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
(in
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$ |
(7,697 |
) |
|
$ |
4,482 |
|
Adjustments
to reconcile net (loss)/income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
amortization of premiums and discounts on loans and
investments
|
|
|
1,141 |
|
|
|
325 |
|
Amortization
of debt premiums, discounts and issuance costs
|
|
|
28,538 |
|
|
|
29,813 |
|
Proceeds
from repayment of trading investment securities
|
|
|
423 |
|
|
|
388 |
|
Purchases
of loans held for sale
|
|
|
(8,424 |
) |
|
|
(15,528 |
) |
Proceeds
from repayment of loans held for sale
|
|
|
4,095 |
|
|
|
8,889 |
|
Net
change in fair value of trading securities and financial
derivatives
|
|
|
28,888 |
|
|
|
3,928 |
|
Amortization
of SFAS 133 transition adjustment on financial derivatives
|
|
|
72 |
|
|
|
91 |
|
Total
(recovery)/provision for losses
|
|
|
- |
|
|
|
(628 |
) |
Deferred
income taxes
|
|
|
(10,679 |
) |
|
|
(3,014 |
) |
Stock-based
compensation expense
|
|
|
914 |
|
|
|
729 |
|
Decrease
in interest receivable
|
|
|
33,291 |
|
|
|
17,407 |
|
Decrease/(increase)
in guarantee and commitment fees receivable
|
|
|
2,079 |
|
|
|
(2,455 |
) |
Increase
in other assets
|
|
|
(7,804 |
) |
|
|
(3,269 |
) |
(Decrease)/increase
in accrued interest payable
|
|
|
(16,273 |
) |
|
|
4,364 |
|
(Decrease)/increase
in other liabilities
|
|
|
(12,203 |
) |
|
|
5,721 |
|
Net
cash provided by operating activities
|
|
|
36,361 |
|
|
|
51,243 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities (1)
|
|
|
(835,025 |
) |
|
|
(1,234,474 |
) |
Purchases
of Farmer Mac II Guaranteed Securities and AgVantage Farmer Mac
Guaranteed Securities
|
|
|
(60,281 |
) |
|
|
(61,098 |
) |
Purchases
of loans held for investment
|
|
|
(29,044 |
) |
|
|
(6,116 |
) |
Purchases
of defaulted loans
|
|
|
(1,163 |
) |
|
|
(833 |
) |
Proceeds
from repayment of investment securities (2)
|
|
|
367,527 |
|
|
|
800,052 |
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
69,697 |
|
|
|
73,495 |
|
Proceeds
from repayment of loans held for investment
|
|
|
41,983 |
|
|
|
47,767 |
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
6,118 |
|
|
|
200 |
|
Net
cash used in investing activities
|
|
|
(440,188 |
) |
|
|
(381,007 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
34,398,361 |
|
|
|
23,802,544 |
|
Proceeds
from issuance of medium-term notes
|
|
|
639,974 |
|
|
|
536,000 |
|
Payments
to redeem discount notes
|
|
|
(33,934,610 |
) |
|
|
(23,855,507 |
) |
Payments
to redeem medium-term notes
|
|
|
(599,000 |
) |
|
|
(203,200 |
) |
Tax
benefit from tax deductions in excess of compensation cost
recognized
|
|
|
- |
|
|
|
13 |
|
Proceeds
from common stock issuance
|
|
|
22 |
|
|
|
202 |
|
Purchases
of common stock
|
|
|
(830 |
) |
|
|
(9,475 |
) |
Dividends
paid on common and preferred stock
|
|
|
(1,546 |
) |
|
|
(1,597 |
) |
Net
cash provided by financing activities
|
|
|
502,371 |
|
|
|
268,980 |
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
98,544 |
|
|
|
(60,784 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
101,445 |
|
|
|
877,714 |
|
Cash
and cash equivalents at end of period
|
|
$ |
199,989 |
|
|
$ |
816,930 |
|
(1)
|
Includes
purchases of $349.0 million and $689.3 million related to auction rate
certificates for first quarter 2008 and 2007, respectively. See
Note 2.
|
(2)
|
Includes
proceeds, through the normal auction process, of $248.0 million and $694.6
million related to auction rate certificates for first quarter 2008 and
2007, respectively. See Note
2.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1.
|
Accounting
Policies
|
|
(a)
|
Cash and Cash
Equivalents and Statements of Cash
Flows
|
Farmer
Mac considers highly liquid investment securities with original maturities of
three months or less at the time of purchase to be cash
equivalents. Changes in the balance of cash and cash equivalents are
reported in the condensed consolidated statements of cash flows. The
following table sets forth information regarding certain cash and non-cash
transactions for the three months ended March 31, 2008 and 2007.
|
|
Three
Months Ended
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
(in
thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
40,171 |
|
|
$ |
28,529 |
|
Income
taxes
|
|
|
16,000 |
|
|
|
- |
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
577 |
|
|
|
200 |
|
Transfers
of investment securities from available-for-sale to trading from
the effect of adopting SFAS 159
|
|
|
600,468 |
|
|
|
- |
|
Transfers
of Farmer Mac II Guaranteed Securities from held-to-maturity to
trading from the effect of adopting SFAS 159
|
|
|
428,670 |
|
|
|
- |
|
As of
March 31, 2008 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 three-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 months ended March 31, 2008 and
2007:
|
|
|
|
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,690 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,887 |
|
Provision/(recovery)
for losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(39 |
) |
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
1,651 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,945 |
|
|
$ |
- |
|
|
$ |
2,610 |
|
|
$ |
4,555 |
|
Provision/(recovery)
for losses
|
|
|
(215 |
) |
|
|
- |
|
|
|
(413 |
) |
|
|
(628 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
1,730 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,927 |
|
The table
below summarizes the components of Farmer Mac’s allowance for losses as of March
31, 2008 and December 31, 2007:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$ |
1,651 |
|
|
$ |
1,690 |
|
Real
estate owned valuation allowance
|
|
|
- |
|
|
|
- |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
On-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
857 |
|
|
|
857 |
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
637 |
|
|
|
655 |
|
LTSPCs
|
|
|
703 |
|
|
|
685 |
|
Total
|
|
$ |
3,848 |
|
|
$ |
3,887 |
|
Prior to
third quarter 2007, no allowance for losses had been made for loans underlying
Farmer Mac I Guaranteed Securities issued prior to the 1996 Act (“Pre-1996 Act
Farmer Mac I Guaranteed Securities”), AgVantage securities or securities issued
under the Farmer Mac II program (“Farmer Mac II Guaranteed
Securities”). Pre-1996 Act Farmer Mac I Guaranteed Securities
are supported by unguaranteed first loss subordinated interests, which are
expected to exceed the estimated credit losses on those
loans. Through June 30, 2007, Farmer Mac had not experienced any
credit losses on any Pre-1996 Act Farmer Mac I Guaranteed
Securities. In third quarter 2007, Farmer Mac charged off $0.4
million related to one loan underlying Pre-1996 Act Farmer Mac I Guaranteed
Securities. The remaining $2.4 million of Pre-1996 Act Farmer
Mac I Guaranteed Securities represent interests in seasoned performing loans
with low loan-to-value ratios. Farmer Mac does not expect to incur
any further losses on the remaining Pre-1996 Act Farmer Mac I Guaranteed
Securities in the future. Each AgVantage security is a general
obligation of an issuing institution approved by Farmer Mac and is
collateralized by eligible mortgage loans. As of March 31, 2008,
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. As of March 31, 2008, Farmer Mac had not experienced any
credit losses on any AgVantage Securities and does not expect to incur any such
losses in the future. The guaranteed portions collateralizing Farmer
Mac II Guaranteed Securities are guaranteed by the United States Department of
Agriculture (“USDA”). Each USDA guarantee is an obligation backed by
the full faith and credit of the United States. As of March 31, 2008,
Farmer Mac had not experienced any credit losses on any Farmer Mac II Guaranteed
Securities and does not expect to incur any such losses in the
future.
As of
March 31, 2008, Farmer Mac individually analyzed $13.3 million of its
$41.2 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $27.9 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 $13.3 million of assets analyzed
individually were adequately collateralized. Accordingly, Farmer Mac
did not record any specific allowances as of March 31,
2008. Similarly, as of December 31, 2007, Farmer Mac did not record
any specific allowances related to its $36.6 million of impaired assets as
of that date.
Farmer
Mac recognized interest income of approximately $1.2 million and $0.9 million on
impaired loans during the three months ended March 31, 2008 and 2007,
respectively. During the three months ended March 31, 2008 and 2007,
Farmer Mac’s average investment in impaired loans was $38.9 million and $55.9
million, respectively.
|
(c)
|
Adoption of Fair Value
Accounting Standards
|
Effective
January 1, 2008, Farmer Mac adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(“SFAS 157”) and 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”). These standards require disclosures
about financial assets and liabilities that are measured at fair value and
provide an election option to report financial instruments at fair value with
changes in fair value recorded in earnings as they occur.
Fair
Value Measurements
SFAS 157
defines fair value, establishes a framework for measuring fair value under other
accounting pronouncements that permit or require fair value measurements, 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.
The
principal impact of SFAS 157 to Farmer Mac is to require expanded disclosures
regarding fair value measurements. SFAS 157 establishes a fair value
hierarchy that prioritizes inputs to valuation techniques used to measure fair
value. The hierarchy gives highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). Farmer Mac’s assets and liabilities recorded at fair
value have been categorized based upon a fair value hierarchy in accordance with
SFAS 157. The levels of fair value hierarchy are described
below:
Basis of
Fair Value Measurement
|
Level
1
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities. Farmer
Mac has classified exchange-traded Treasury futures as Level 1
measurements.
|
|
Level
2
|
Quoted
prices in markets that are not active or financial instruments for which
all significant inputs are observable, either directly or
indirectly. Level 2 inputs include inputs other than quoted
prices that are observable for the financial instrument, such as interest
rates and yield curves that are observable at commonly quoted
intervals. Farmer Mac has classified financial instruments for
which there are continuous and verifiable pricing sources as Level 2
inputs, including certificates of deposit, commercial paper, asset-backed
securities, corporate debt securities, mortgage-backed securities,
preferred stock, and most financial
derivatives.
|
|
Level
3
|
Prices
or valuations that require inputs that are both significant to the fair
value measurement and unobservable. Level 3 inputs include
situations where there is little, if any, market activity for the
financial instrument. For financial instruments that are thinly
traded, Farmer Mac uses as its primary fair value source analytical models
that project cash flows based on internal and external inputs including
transaction terms, yield curves, benchmark data, volatility data,
prepayment assumptions and default assumptions. Financial
instruments requiring Level 3 inputs include mission-related asset-backed
securities and corporate debt securities, available-for-sale Farmer Mac I
Guaranteed Securities, trading Farmer Mac II Guaranteed Securities,
auction-rate certificates, and financial
derivatives.
|
In some
cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety falls has been
determined based on the lowest level input that is significant to the fair value
measurement in its entirety. Farmer Mac’s assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the financial
instrument.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that Farmer Mac has classified within the Level 3
category. As a result, the unrealized gains and losses for assets and
liabilities within the Level 3 category presented in the following tables may
include changes in fair value that were attributable to both observable (e.g.,
changes in market interest rates) and unobservable (e.g., changes in long-dated
volatilities) inputs.
The
following table presents information about Farmer Mac’s assets and liabilities
measured at fair value on a recurring basis as of March 31, 2008, and indicates
the fair value hierarchy of the valuation techniques utilized by Farmer Mac to
determine such fair value.
Assets
and Liabilities Measured at Fair Value on a Recurring Basis as of March
31, 2008
|
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate certificates of deposit
|
|
$ |
- |
|
|
$ |
178,047 |
|
|
$ |
- |
|
|
$ |
178,047 |
|
Fixed
rate commercial paper
|
|
|
- |
|
|
|
1,987 |
|
|
|
- |
|
|
|
1,987 |
|
Floating
rate auction-rate certificates backed by Government guaranteed
student loans
|
|
|
- |
|
|
|
- |
|
|
|
229,360 |
|
|
|
229,360 |
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
71,149 |
|
|
|
- |
|
|
|
71,149 |
|
Floating
rate corporate debt securities
|
|
|
- |
|
|
|
526,156 |
|
|
|
399,331 |
|
|
|
925,487 |
|
Fixed
rate corporate debt securities
|
|
|
- |
|
|
|
1,472 |
|
|
|
503,089 |
|
|
|
504,561 |
|
Floating
rate Government/GSE guaranteed mortgage-backed
securities
|
|
|
- |
|
|
|
407,118 |
|
|
|
- |
|
|
|
407,118 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
8,001 |
|
|
|
- |
|
|
|
8,001 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
53,324 |
|
|
|
- |
|
|
|
53,324 |
|
Floating
rate GSE preferred stock
|
|
|
- |
|
|
|
45,063 |
|
|
|
- |
|
|
|
45,063 |
|
Total
available-for-sale investment securities
|
|
|
- |
|
|
|
1,292,317 |
|
|
|
1,131,780 |
|
|
|
2,424,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
7,179 |
|
|
|
7,179 |
|
Fixed
rate mortgage-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
459,026 |
|
|
|
459,026 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
175,622 |
|
|
|
- |
|
|
|
175,622 |
|
Total
trading investment securities
|
|
|
- |
|
|
|
175,622 |
|
|
|
466,205 |
|
|
|
641,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
|
- |
|
|
|
1,467,939 |
|
|
|
1,597,985 |
|
|
|
3,065,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
325,272 |
|
|
|
325,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
445,202 |
|
|
|
445,202 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
770,474 |
|
|
|
770,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
|
- |
|
|
|
10,903 |
|
|
|
- |
|
|
|
10,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets at Fair Value
|
|
$ |
- |
|
|
$ |
1,478,842 |
|
|
$ |
2,368,459 |
|
|
$ |
3,847,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
$ |
12 |
|
|
$ |
99,368 |
|
|
$ |
3,507 |
|
|
$ |
102,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities at Fair Value
|
|
$ |
12 |
|
|
$ |
99,368 |
|
|
$ |
3,507 |
|
|
$ |
102,887 |
|
The
following table presents additional information about assets and liabilities
measured at fair value on a recurring basis and for which Farmer Mac has used
Level 3 inputs to determine fair value.
Changes
in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring
Basis for the Three Months ended March 31, 2008
|
|
|
|
|
|
Beginning
Balance
|
|
|
Purchases,
Sales, Issuances and Settlements, net
|
|
|
Realized
and Unrealized Gains/ (Losses) included in Income
|
|
|
Unrealized
Gains/(Losses) included in Other Comprehensive Income
|
|
|
Net
Transfers In and/or Out of Level 3
|
|
|
Ending
Balance
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed
student loans
|
|
$ |
- |
|
|
$ |
99,931 |
|
|
$ |
- |
|
|
$ |
(2,115 |
) |
|
$ |
131,544 |
|
|
$ |
229,360 |
|
Floating
rate corporate debt securities
|
|
|
- |
|
|
|
400,000 |
|
|
|
- |
|
|
|
(669 |
) |
|
|
- |
|
|
|
399,331 |
|
Fixed
rate corporate debt securities
|
|
|
500,138 |
|
|
|
- |
|
|
|
- |
|
|
|
2,951 |
|
|
|
- |
|
|
|
503,089 |
|
Total
available-for-sale investment securities
|
|
|
500,138 |
|
|
|
499,931 |
|
|
|
- |
|
|
|
167 |
|
|
|
131,544 |
|
|
|
1,131,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities (1)
|
|
|
8,179 |
|
|
|
(423 |
) |
|
|
(577 |
) |
|
|
- |
|
|
|
- |
|
|
|
7,179 |
|
Fixed
rate mortgage-backed securities (1)
|
|
|
415,813 |
|
|
|
29,367 |
|
|
|
13,846 |
|
|
|
- |
|
|
|
- |
|
|
|
459,026 |
|
Total
trading investment securities
|
|
|
423,992 |
|
|
|
28,944 |
|
|
|
13,269 |
|
|
|
- |
|
|
|
- |
|
|
|
466,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
|
924,130 |
|
|
|
528,875 |
|
|
|
13,269 |
|
|
|
167 |
|
|
|
131,544 |
|
|
|
1,597,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities
|
|
|
338,958 |
|
|
|
(19,753 |
) |
|
|
- |
|
|
|
6,067 |
|
|
|
- |
|
|
|
325,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II Guaranteed Securities (2)
|
|
|
428,670 |
|
|
|
10,982 |
|
|
|
5,550 |
|
|
|
- |
|
|
|
- |
|
|
|
445,202 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
767,628 |
|
|
|
(8,771 |
) |
|
|
5,550 |
|
|
|
6,067 |
|
|
|
- |
|
|
|
770,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets at Fair Value
|
|
$ |
1,691,758 |
|
|
$ |
520,104 |
|
|
$ |
18,819 |
|
|
$ |
6,234 |
|
|
$ |
131,544 |
|
|
$ |
2,368,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives (3)
|
|
$ |
(1,106 |
) |
|
$ |
- |
|
|
$ |
(2,401 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,507 |
) |
Total
Liabilities at Fair Value
|
|
$ |
(1,106 |
) |
|
$ |
- |
|
|
$ |
(2,401 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,507 |
) |
(1)
|
Unrealized
gains/(losses) are attributable to assets still held as of March 31, 2008
and are recorded in gains/(losses) on trading
assets.
|
(2)
|
Includes
unrealized gains of approximately $5.6 million attributable to assets
still held as of March 31, 2008 that are recorded in gains/(losses) on
trading assets.
|
(3)
|
Unrealized
losses are attributable to liabilities still held as of March 31, 2008 and
are recorded in losses on financial
derivatives.
|
Fair
Value Option
SFAS 159
permits entities to make a one-time election to report financial instruments at
fair value with changes in fair value recorded in earnings as they
occur. 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.
Farmer
Mac adopted the provisions of SFAS 159 on January 1, 2008 and recorded a
cumulative effect of adoption adjustment of $12.1 million, net of tax, as an
increase to the beginning balance of retained earnings. The fair
value option election was made for certain available-for-sale investment
securities and certain held-to-maturity Farmer Mac II Guaranteed
Securities. These assets were selected for the fair value option
under SFAS 159 because they were funded or hedged principally with financial
derivatives and, therefore, the changes in fair value of the assets provide
partial economic and financial reporting offsets to the related financial
derivatives.
Impact
of Adopting SFAS 159 to Retained Earnings as of January 1,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Value as of January 1, 2008 Prior to Adoption of Fair Value
Option
|
|
|
Transition
Gain
|
|
|
Fair
Value as of January 1, 2008 After Adoption of Fair Value
Option
|
|
|
|
(in
thousands)
|
|
Available-for-sale
Investment Securities:
|
|
|
|
|
|
|
|
|
|
Fixed
rate GSE preferred stock (1)
|
|
$ |
184,655 |
|
|
$ |
2,783 |
|
|
$ |
184,655 |
|
Fixed
rate mortgage-backed securities (1)
|
|
|
415,813 |
|
|
|
14,504 |
|
|
|
415,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
Farmer Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II Guaranteed Securites
|
|
|
427,330 |
|
|
|
1,340 |
|
|
|
428,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
cumulative effect of adoption
|
|
|
|
18,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
|
|
|
|
6,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of adoption to beginning retained earnings
|
|
|
|
|
|
$ |
12,108 |
|
|
|
|
|
(1)
Farmer
Mac adopted the fair value option for certain securities classified within its
investment portfolio previously classified as
available-for-sale. These securities are presented in the condensed
consolidated balance sheet at fair value in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities and the amount of the transition gain was recognized in
accumulated other comprehensive loss prior to the adoption of SFAS
159.
|
(d)
|
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”), futures contracts involving U.S.
Treasury securities and interest rate swaps. 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 in the condensed
consolidated statements of operations.
The
following table summarizes information related to Farmer Mac’s financial
derivatives as of March 31, 2008 and December 31, 2007:
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(in
thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$ |
1,401,444 |
|
|
$ |
(99,267 |
) |
|
$ |
1,411,772 |
|
|
$ |
(52,941 |
) |
Receive-fixed
|
|
|
1,160,000 |
|
|
|
10,902 |
|
|
|
1,098,000 |
|
|
|
1,065 |
|
Basis
|
|
|
150,172 |
|
|
|
(3,507 |
) |
|
|
161,967 |
|
|
|
(1,106 |
) |
Agency
forwards
|
|
|
17,625 |
|
|
|
(100 |
) |
|
|
4,233 |
|
|
|
(2 |
) |
Treasury
futures
|
|
|
3,500 |
|
|
|
(12 |
) |
|
|
1,000 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,732,741 |
|
|
$ |
(91,984 |
) |
|
$ |
2,676,972 |
|
|
$ |
(52,985 |
) |
As of
March 31, 2008, Farmer Mac had approximately $0.4 million of net after-tax
unrealized losses on financial derivatives included in accumulated other
comprehensive loss 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 12 months, Farmer Mac estimates that $0.2 million
of the amount currently reported in accumulated other comprehensive loss will be
reclassified into earnings.
As of
March 31, 2008, Farmer Mac had outstanding basis swaps with a related party with
a notional amount of $150.2 million and a fair value of $(3.5) million. As
of December 31, 2007, these swaps had an outstanding notional amount of $162.0
million and a fair value of $(1.1) million. 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. Those
swaps hedge most of 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. The pricing of
discount notes is closely correlated to LIBOR rates. Accordingly,
Farmer Mac recorded an unrealized loss on those outstanding basis swaps of
$2.4 million for the three months ended March 31, 2008. See Note
3 “Related Party Transactions” in the Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2007, as filed with the SEC on March
17, 2008, for additional information on these related party
transactions.
|
(e)
|
Earnings Per Common
Share
|
Basic
earnings per common share are based on the weighted-average number of shares of
common stock outstanding. Diluted earnings per common share are based
on the weighted-average number of shares of common stock outstanding adjusted to
include all potentially dilutive common stock options. The following
schedule reconciles basic and diluted earnings per common share (“EPS”) for the
three months ended March 31, 2008 and 2007:
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
Shares
|
|
|
$
per Share
|
|
|
Income
|
|
|
Shares
|
|
|
$
per Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income available to common
stockholders
|
|
$ |
(8,257 |
) |
|
|
9,867 |
|
|
$ |
(0.84 |
) |
|
$ |
3,922 |
|
|
|
10,468 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
178 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
(8,257 |
) |
|
|
9,867 |
|
|
$ |
(0.84 |
) |
|
$ |
3,922 |
|
|
|
10,646 |
|
|
$ |
0.37 |
|
(1)
|
For
the three months ended March 31, 2008 and 2007, stock options of 2,218,199
and 440,839 respectively, were outstanding but not included in the
computation of diluted earnings per share of common stock because they
were anti-dilutive.
|
In
February 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 aggregate number of shares purchased by
Farmer Mac under that stock repurchase program reached the maximum number of
authorized shares during first quarter 2008, thereby terminating the program
according to its terms. During the three months ended March 31,
2008, Farmer Mac
repurchased
31,691
shares of its Class C Non-Voting
Common Stock at an average price of $26.13 per share pursuant to the stock repurchase program. These
repurchases reduced the Corporation’s stockholders’ equity by approximately
$0.8 million. All
of the shares repurchased under Farmer Mac’s stock repurchase program were
purchased in open market transactions and were retired to become authorized but
unissued shares available for future issuance.
|
(f)
|
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, 3,745,999 have been issued, net of cancellations as of March 31, 2008,
effectively exhausting options available under that plan. 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 $0.3 million and $0.4 million of compensation expense during the
three-month periods ended March 31, 2008 and 2007, respectively, related to the
non-vested portion of stock option awards that were outstanding as of December
31, 2005. Additionally, Farmer Mac recognized $0.7 million and $0.3
million of compensation expense related to stock options awarded subsequent to
December 31, 2005 for the three-month periods ended March 31, 2008 and
2007, respectively.
As of
March 31, 2008, Farmer Mac had $0.3 million of total unrecognized compensation
cost related to stock options outstanding and unvested as of December 31, 2005,
all of which is expected to be recognized in the second quarter of
2008.
The
following table summarizes stock option activity for the three months ended
March 31, 2008 and 2007:
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,218,199 |
|
|
$ |
25.48 |
|
|
|
2,145,705 |
|
|
$ |
23.83 |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
1,000 |
|
|
|
27.77 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
(9,405 |
) |
|
|
21.54 |
|
Canceled
|
|
|
- |
|
|
|
- |
|
|
|
(3,335 |
) |
|
|
23.53 |
|
Outstanding,
end of period
|
|
|
2,218,199 |
|
|
|
25.48 |
|
|
|
2,133,965 |
|
|
|
23.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,360,222 |
|
|
$ |
24.46 |
|
|
|
1,318,998 |
|
|
$ |
24.05 |
|
There
were no cancellations of stock options during first quarter 2008. The
cancellations of stock options during first quarter 2007 were due either to
unvested options terminating in accordance with the provisions of the applicable
stock option plans upon directors’ or employees’ departures from Farmer Mac or
vested options terminating unexercised on their expiration
date. There were no exercises of stock options during first quarter
2008. For first quarter 2007, the additional paid-in capital received
from stock option exercises was $193,000. The reduction of income
taxes to be paid as a result of the deduction for stock option exercises in
first quarter 2007 was $20,000.
The
following table summarizes information regarding options outstanding as of
March 31, 2008:
|
|
|
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 |
|
|
|
126,077 |
|
|
6.1
years
|
|
|
|
125,409 |
|
|
6.1
years
|
|
|
20.00
- 24.99 |
|
|
|
864,928 |
|
|
4.9
years
|
|
|
|
703,574 |
|
|
4.5
years
|
|
|
25.00
- 29.99 |
|
|
|
1,013,026 |
|
|
7.1
years
|
|
|
|
341,071 |
|
|
5.7
years
|
|
|
30.00
- 34.99 |
|
|
|
213,668 |
|
|
3.9
years
|
|
|
|
189,668 |
|
|
3.2
years
|
|
|
35.00
- 39.99 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
40.00
- 44.99 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
45.00
- 50.00 |
|
|
|
500 |
|
|
4.0
years
|
|
|
|
500 |
|
|
4.0
years
|
|
|
|
|
|
|
2,218,199 |
|
|
|
|
|
|
|
1,360,222 |
|
|
|
|
|
There
were no stock options granted during first quarter 2008. The
weighted-average grant date fair value of options granted during the year ended
December 31, 2007 was $11.24 per share. The fair value was estimated
using the Black-Scholes option pricing model based on the following
assumptions:
|
|
2007
|
|
Risk-free
interest rate
|
|
|
4.8 |
% |
Expected
years until exercise
|
|
6
years
|
|
Expected
stock volatility
|
|
|
36.0 |
% |
Dividend
yield
|
|
|
1.4 |
% |
Certain
reclassifications of prior period information were made to conform to the
current period presentation.
|
(h)
|
New Accounting
Standards
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS 157, which defines fair value, establishes a framework for measuring
fair value under other accounting pronouncements that permit or require fair
value measurements, 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. In February
2008, FASB issued a final FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No.
157. This FSP delays the effective date of SFAS 157, for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. In addition, the FSP removes certain leasing transactions from
the scope of SFAS 157. The effective date of SFAS 157 for
nonfinancial assets and liabilities has been delayed by one year to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years. SFAS 157 for financial assets and liabilities is effective for
fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. Farmer Mac’s adoption of SFAS 157 on January 1,
2008 did not result in a material difference to its fair value
measurements.
In
February 2007, FASB issued SFAS 159, which permits entities to make a
one-time election to report financial instruments at fair value with changes in
fair value recorded in earnings as they occur. 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.
Farmer
Mac adopted the provisions of SFAS 159 on January 1, 2008 and recorded a
cumulative effect of adoption adjustment of $12.1 million, net of tax, as an
increase to the beginning balance of retained earnings. The fair
value option election was made for certain available-for-sale investment
securities and certain held-to-maturity Farmer Mac II Guaranteed
Securities. These assets were selected for the fair value option
under SFAS 159 because they were funded or hedged principally with financial
derivatives and, therefore, the changes in fair value of the assets provide
partial economic and financial reporting offsets to the related financial
derivatives.
In
November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at
Fair Value Through Earnings (“SAB 109”), which expressed the SEC’s views
regarding written loan commitments that are accounted for at fair value through
earnings. SAB 109 revises and rescinds portions of Staff Accounting
Bulletin No. 105, Application
of Accounting Principles to Loan Commitments. SAB 109 revises
the SEC’s views on incorporating expected net future cash flows related to loan
servicing activities in the fair value measurement of a written loan
commitment. SAB 109 retains the SEC’s views on incorporating net
future cash flows related to internally-developed intangible assets in the fair
value measurement of a written loan commitment. SAB 109 is effective
on a prospective basis to derivative loan commitments issued or modified in
fiscal quarters beginning after December 15, 2007. The adoption
of SAB 109 did not have a material effect on Farmer Mac’s results of operations
or financial position.
In April
2007, FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No.
39 (“FSP FIN 39-1”). This FSP amends FIN 39 to allow
an entity to offset cash collateral receivables and payables reported at fair
value against derivative instruments (as defined by SFAS 133) for contracts
executed with the same counterparty under master netting
arrangements. The decision to offset cash collateral under this FSP
must be applied consistently to all derivatives counterparties where the entity
has master netting arrangements. If an entity nets derivative
positions as permitted under FIN 39, this FSP requires the entity to also
offset the cash collateral receivables and payables with the same counterparty
under a master netting arrangement. FSP FIN 39-1 is effective
for fiscal years beginning after November 15, 2007. The adoption
of FSP FIN 39-1 did not have a material effect on Farmer Mac’s results of
operations or financial position.
In March
2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133. This standard applies to derivative instruments,
non-derivative instruments that are designated and qualify as hedging
instruments and related hedged items accounted for under SFAS
133. SFAS 161 does not change the accounting for derivatives and
hedging activities, but requires enhanced disclosures concerning the effect on
the financial statements from their use. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. Since SFAS 161 only requires additional
disclosures, it will not have an impact on Farmer Mac’s results of operations or
financial position.
The
following tables present the amortized cost and fair values of Farmer Mac’s
investments as of March 31, 2008 and December 31, 2007.
|
|
As
of March 31, 2008
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate certificates of deposit
|
|
$ |
178,047 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
178,047 |
|
Fixed
rate commercial paper
|
|
|
1,987 |
|
|
|
- |
|
|
|
- |
|
|
|
1,987 |
|
Floating
rate auction-rate certificates backed by Government guaranteed
student loans (1)
|
|
|
231,475 |
|
|
|
- |
|
|
|
(2,115 |
) |
|
|
229,360 |
|
Floating
rate asset-backed securities
|
|
|
71,650 |
|
|
|
- |
|
|
|
(501 |
) |
|
|
71,149 |
|
Floating
rate corporate debt securities (2)
|
|
|
960,757 |
|
|
|
18 |
|
|
|
(35,288 |
) |
|
|
925,487 |
|
Fixed
rate corporate debt securities (3)
|
|
|
501,497 |
|
|
|
3,089 |
|
|
|
(25 |
) |
|
|
504,561 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
(4)
|
|
|
403,275 |
|
|
|
4,392 |
|
|
|
(549 |
) |
|
|
407,118 |
|
Fixed
rate GSE guaranteed mortgage-backed
securities
|
|
|
7,942 |
|
|
|
68 |
|
|
|
(9 |
) |
|
|
8,001 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(16,676 |
) |
|
|
53,324 |
|
Floating
rate GSE preferred stock
|
|
|
52,500 |
|
|
|
- |
|
|
|
(7,437 |
) |
|
|
45,063 |
|
Total
available-for-sale
|
|
|
2,479,130 |
|
|
|
7,567 |
|
|
|
(62,600 |
) |
|
|
2,424,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities (5)
|
|
|
8,009 |
|
|
|
- |
|
|
|
(830 |
) |
|
|
7,179 |
|
Fixed
rate mortgage-backed securities (6)
|
|
|
430,676 |
|
|
|
28,350 |
|
|
|
- |
|
|
|
459,026 |
|
Fixed
rate GSE preferred stock
|
|
|
181,547 |
|
|
|
3,316 |
|
|
|
(9,241 |
) |
|
|
175,622 |
|
Total
trading
|
|
|
620,232 |
|
|
|
31,666 |
|
|
|
(10,071 |
) |
|
|
641,827 |
|
Total
investment securities
|
|
$ |
3,099,362 |
|
|
$ |
39,233 |
|
|
$ |
(72,671 |
) |
|
$ |
3,065,924 |
|
(1)
|
AAA-rated
callable auction-rate certificates collateralized by pools of Federal
Family Education Loan Program ("FFELP") guaranteed student loans that are
backed by the full faith and credit of the United States, the interest
rates of which are reset through an auction process, most commonly at
intervals of 28 days.
|
(2)
|
Floating
rate corporate debt securities include $400.0 million of mission-related
investments.
|
(3)
|
Fixed
rate corporate debt securities include $500.0 million of mission-related
investments.
|
(4)
|
Include
$20.1 million fair value of floating rate GSE mortgage-backed securities
that Farmer Mac has pledged as collateral and for which the counterparty
has the right to sell or repledge.
|
(5)
|
Floating
rate asset-backed securities are comprised of mission-related
investments.
|
(6)
|
Fixed
rate mortgage-backed securities are comprised of mission-related
investments.
|
|
|
As
of December 31, 2007
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate certificates of deposit
|
|
$ |
181,864 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
181,864 |
|
Fixed
rate commercial paper
|
|
|
66,339 |
|
|
|
- |
|
|
|
- |
|
|
|
66,339 |
|
Floating
rate auction-rate certificates backed by Government guaranteed
student loans (1)
|
|
|
131,544 |
|
|
|
- |
|
|
|
- |
|
|
|
131,544 |
|
Floating
rate asset-backed securities
|
|
|
30,000 |
|
|
|
13 |
|
|
|
- |
|
|
|
30,013 |
|
Floating
rate corporate debt securities
|
|
|
561,193 |
|
|
|
1 |
|
|
|
(19,345 |
) |
|
|
541,849 |
|
Fixed
rate corporate debt securities (2)
|
|
|
501,490 |
|
|
|
138 |
|
|
|
(3 |
) |
|
|
501,625 |
|
Fixed
rate mortgage-backed securities (3)
|
|
|
401,309 |
|
|
|
14,504 |
|
|
|
- |
|
|
|
415,813 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
(4)
|
|
|
437,680 |
|
|
|
5,016 |
|
|
|
(192 |
) |
|
|
442,504 |
|
Fixed
rate GSE guaranteed mortgage-backed
securities
|
|
|
8,330 |
|
|
|
1 |
|
|
|
(47 |
) |
|
|
8,284 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(4,397 |
) |
|
|
65,603 |
|
Floating
rate GSE preferred stock
|
|
|
52,500 |
|
|
|
- |
|
|
|
(6,406 |
) |
|
|
46,094 |
|
Fixed
rate GSE preferred stock
|
|
|
181,873 |
|
|
|
4,206 |
|
|
|
(1,424 |
) |
|
|
184,655 |
|
Total
available-for-sale
|
|
|
2,624,122 |
|
|
|
23,879 |
|
|
|
(31,814 |
) |
|
|
2,616,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities (5)
|
|
|
8,432 |
|
|
|
- |
|
|
|
(253 |
) |
|
|
8,179 |
|
Total
trading
|
|
|
8,432 |
|
|
|
- |
|
|
|
(253 |
) |
|
|
8,179 |
|
Total
investment securities
|
|
$ |
2,632,554 |
|
|
$ |
23,879 |
|
|
$ |
(32,067 |
) |
|
$ |
2,624,366 |
|
(1)
|
AAA-rated
callable auction-rate certificates collateralized by pools of Federal
Family Education Loan Program ("FFELP") guaranteed student loans that are
backed by the full faith and credit of the United States, the interest
rates of which are reset through an auction process, most commonly at
intervals of 28 days.
|
(2)
|
Fixed
rate corporate debt securities include $500.0 million of mission-related
investments.
|
(3)
|
Fixed
rate mortgage-backed securities are comprised of mission-related
investments.
|
(4)
|
Include
$7.2 million fair value of floating rate GSE mortgage-backed securities
that Farmer Mac has pledged as collateral and for which the counterparty
has the right to sell or repledge.
|
(5)
|
Floating
rate asset-backed securities are comprised of mission-related
investments.
|
As of
March 31, 2008 and December 31, 2007, unrealized losses on available-for-sale
investment securities were as follows:
|
|
As
of March 31, 2008
|
|
|
|
Available-for-Sale
Investment Securities
|
|
|
|
Unrealized
loss position for less than 12 months
|
|
|
Unrealized
loss position for more than 12 months
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
(in
thousands)
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
209,360 |
|
|
$ |
(2,115 |
) |
|
$ |
- |
|
|
$ |
- |
|
Floating
rate asset-backed securities
|
|
|
71,149 |
|
|
|
(501 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate corporate debt securities
|
|
|
780,974 |
|
|
|
(23,118 |
) |
|
|
124,495 |
|
|
|
(12,170 |
) |
Fixed
rate corporate debt securities
|
|
|
1,473 |
|
|
|
(25 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
81,902 |
|
|
|
(543 |
) |
|
|
574 |
|
|
|
(6 |
) |
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
804 |
|
|
|
(9 |
) |
Floating
rate GSE subordinated debt
|
|
|
53,324 |
|
|
|
(16,676 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
45,063 |
|
|
|
(7,437 |
) |
Total
|
|
$ |
1,198,182 |
|
|
$ |
(42,978 |
) |
|
$ |
170,936 |
|
|
$ |
(19,622 |
) |
|
|
As
of December 31, 2007
|
|
|
|
Available-for-Sale
Investment Securities
|
|
|
|
Unrealized
loss position for less than 12 months
|
|
|
Unrealized
loss position for more than 12 months
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
|
(in
thousands)
|
|
Floating
rate corporate debt securities
|
|
$ |
493,458 |
|
|
$ |
(16,732 |
) |
|
$ |
47,369 |
|
|
$ |
(2,613 |
) |
Fixed
rate corporate debt securities
|
|
|
1,488 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
35,610 |
|
|
|
(185 |
) |
|
|
499 |
|
|
|
(7 |
) |
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
7,748 |
|
|
|
(47 |
) |
Floating
rate GSE subordinated debt
|
|
|
65,603 |
|
|
|
(4,397 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
46,094 |
|
|
|
(6,406 |
) |
Fixed
rate GSE preferred stock
|
|
|
89,385 |
|
|
|
(1,424 |
) |
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
685,544 |
|
|
$ |
(22,741 |
) |
|
$ |
101,710 |
|
|
$ |
(9,073 |
) |
The
temporary unrealized losses presented above are principally due to a general
widening of credit spreads from the dates of acquisition to March 31, 2008 and
December 31, 2007, as applicable and not due to any significant deterioration in
credit rating. As of March 31, 2008 and December 31, 2007, all of the
investment securities in an unrealized loss position were at least “A” rated,
except two that were rated “BBB” as of March 31, 2008. The
unrealized losses were on 87 and 65 individual available-for-sale investment
securities as of March 31, 2008 and December 31, 2007,
respectively.
As of
March 31, 2008, 10 of the securities in loss positions had been in loss
positions for more than 12 months and had a total unrealized loss of $19.6
million. As of December 31, 2007, 11 of the securities in loss
positions had been in loss positions for more than 12 months and had a total
unrealized loss of $9.1 million. The unrealized losses on those
securities are principally due to a general widening of credit spreads from the
dates of acquisition and not due to any significant underlying credit
deterioration of the issuers. Securities with unrealized losses aged
12 months or more have a fair value as of March 31, 2008 that is at least 84
percent of their amortized cost basis and, on average, at least 94 percent of
their amortized cost basis. All aged unrealized losses are
recoverable within a reasonable period of time by way of changes in credit
spreads or maturity. Accordingly, Farmer Mac has concluded that none
of the unrealized losses on its available-for-sale investment securities
represent other-than-temporary impairment as of March 31,
2008. Farmer Mac has the intent and ability to hold its investment
securities in loss positions until either the market value recovers or the
securities mature.
As of
March 31, 2008, Farmer Mac did not own any held-to-maturity
investments. As of March 31, 2008, Farmer Mac owned trading
investment securities that mature after five years with an amortized cost
of $620.2 million, a fair value of $641.8 million, and a weighted average yield
of 6.47 percent. The amortized cost, fair value and yield of
investments by remaining contractual maturity for available-for-sale investment
securities as of March 31, 2008 are set forth below. Asset- and
mortgage-backed securities are included based on their final maturities,
although the actual maturities may differ due to prepayments of the underlying
assets or mortgages.
|
|
Investment
Securities
|
|
|
|
Available-for-Sale
|
|
|
|
as
of March 31, 2008
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
Due
within one year
|
|
$ |
782,014 |
|
|
$ |
782,746 |
|
|
|
4.45 |
% |
Due
after one year through five years
|
|
|
505,502 |
|
|
|
472,962 |
|
|
|
3.43 |
% |
Due
after five years through ten years
|
|
|
517,395 |
|
|
|
516,509 |
|
|
|
3.35 |
% |
Due
after ten years
|
|
|
674,219 |
|
|
|
651,880 |
|
|
|
5.00 |
% |
Total
|
|
$ |
2,479,130 |
|
|
$ |
2,424,097 |
|
|
|
4.16 |
% |
Note
3.
|
Farmer
Mac Guaranteed Securities
|
The
following table sets forth information about on-balance sheet Farmer Mac
Guaranteed Securities as of March 31, 2008 and December 31, 2007.
|
|
March 31,
2008
|
|
|
|
Held-to-
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$ |
31,405 |
|
|
$ |
325,272 |
|
|
$ |
- |
|
|
$ |
356,677 |
|
Farmer
Mac II
|
|
|
495,169 |
|
|
|
- |
|
|
|
445,202 |
|
|
|
940,371 |
|
Total
|
|
$ |
526,574 |
|
|
$ |
325,272 |
|
|
$ |
445,202 |
|
|
$ |
1,297,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
526,574 |
|
|
$ |
314,839 |
|
|
$ |
438,313 |
|
|
$ |
1,279,726 |
|
Unrealized
gains
|
|
|
5,467 |
|
|
|
10,433 |
|
|
|
6,889 |
|
|
|
22,789 |
|
Unrealized
losses
|
|
|
(452 |
) |
|
|
- |
|
|
|
- |
|
|
|
(452 |
) |
Fair
value
|
|
$ |
531,589 |
|
|
$ |
325,272 |
|
|
$ |
445,202 |
|
|
$ |
1,302,063 |
|
|
|
December
31, 2007
|
|
|
|
Held-to-
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$ |
33,961 |
|
|
$ |
338,958 |
|
|
$ |
- |
|
|
$ |
372,919 |
|
Farmer
Mac II
|
|
|
925,904 |
|
|
|
- |
|
|
|
- |
|
|
|
925,904 |
|
Total
|
|
$ |
959,865 |
|
|
$ |
338,958 |
|
|
$ |
- |
|
|
$ |
1,298,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
959,865 |
|
|
$ |
334,592 |
|
|
$ |
- |
|
|
$ |
1,294,457 |
|
Unrealized
gains
|
|
|
628 |
|
|
|
5,412 |
|
|
|
- |
|
|
|
6,040 |
|
Unrealized
losses
|
|
|
(1,562 |
) |
|
|
(1,046 |
) |
|
|
- |
|
|
|
(2,608 |
) |
Fair
value
|
|
$ |
958,931 |
|
|
$ |
338,958 |
|
|
$ |
- |
|
|
$ |
1,297,889 |
|
The
temporary unrealized losses presented above are principally due to changes in
interest rates from the date of acquisition to December 31, 2007. The
available-for-sale unrealized losses were on nine individual securities as of
December 31, 2007. There were no unrealized losses on
available-for-sale securities as of March 31, 2008.
As of
December 31, 2007, four 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 $1.0 million. The
unrealized losses on those securities are due to overall increases in market
interest rates. As of December 31, 2007, all of the
available-for-sale securities with unrealized losses aged greater than
12 months have losses that are less than two 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 December 31,
2007. Farmer Mac has the intent and ability to hold its on-balance
sheet Farmer Mac Guaranteed Securities until either the market value recovers or
the securities mature.
The table
below presents a sensitivity analysis for the Corporation’s on-balance sheet
Farmer Mac Guaranteed Securities as of March 31, 2008.
|
|
March 31,
2008
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Fair
value of beneficial interests retained in Farmer Mac Guaranteed
Securities
|
|
$ |
1,302,063 |
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
4.5 |
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
11.7 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(67 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(158 |
) |
|
|
|
|
|
Weighted-average
discount rate
|
|
|
5.4 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(20,347 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(41,712 |
) |
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 for Farmer Mac Guaranteed
Securities, loans, and LTSPCs as of March 31, 2008 and December 31,
2007.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
753,823 |
|
|
$ |
762,319 |
|
Guaranteed
Securities
|
|
|
345,261 |
|
|
|
367,578 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
929,639 |
|
|
|
921,802 |
|
Total
on-balance sheet
|
|
$ |
2,028,723 |
|
|
$ |
2,051,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
1,943,181 |
|
|
$ |
1,948,941 |
|
AgVantage
|
|
|
2,500,000 |
|
|
|
2,500,000 |
|
Guaranteed
Securities
|
|
|
1,922,861 |
|
|
|
2,018,300 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
29,805 |
|
|
|
24,815 |
|
Total
off-balance sheet
|
|
$ |
6,395,847 |
|
|
$ |
6,492,056 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,424,570 |
|
|
$ |
8,543,755 |
|
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 condensed consolidated financial statements during the period in which
Farmer Mac becomes entitled to purchase the loans and therefore regains
effective control over the transferred loans. Fair values are
determined by current collateral valuations or management’s estimate of
discounted collateral values, and represent the cash flows expected to be
collected. Farmer Mac records, at acquisition, the difference between
each loan’s acquisition cost and its fair value, if any, as a charge-off to the
reserve for losses. Subsequent to the purchase, such defaulted loans
are treated as nonaccrual loans and, therefore, interest is accounted for on the
cash basis. Any decreases in expected cash flows are recognized as
impairment. No impairment was recognized during the three months
ended March 31, 2008 and 2007. The following table presents
information related to Farmer Mac’s acquisition of defaulted loans for the three
months ended March 31, 2008 and 2007 and the outstanding balances and carrying
amounts of all such loans as of March 31, 2008 and December 31, 2007,
respectively.
|
|
Three
Months Ended
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Fair
value at acquistion date
|
|
$ |
1,163 |
|
|
$ |
833 |
|
Contractually
required payments receivable
|
|
|
1,326 |
|
|
|
871 |
|
|
|
As
of
|
|
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
34,333 |
|
|
$ |
38,621 |
|
Carrying
amount
|
|
|
30,031 |
|
|
|
34,541 |
|
Net
credit losses for the three months ended March 31, 2008 and 2007 and 90-day
delinquencies as of March 31, 2008, December 31, 2007 and March 31, 2007 for
Farmer Mac Guaranteed Securities, loans and LTSPCs are presented in the table
below. Information is not presented for loans underlying Pre-1996 Act
Farmer Mac I Guaranteed Securities, AgVantage securities or Farmer Mac II
Guaranteed Securities. Pre-1996 Act Farmer Mac I Guaranteed
Securities are supported by unguaranteed first loss subordinated interests,
which are expected to exceed the estimated credit losses on those
loans. Through June 30, 2007, Farmer Mac had not experienced any
credit losses on any Pre-1996 Act Farmer Mac I Guaranteed
Securities. In third quarter 2007, Farmer Mac charged off $0.4
million related to one loan underlying Pre-1996 Act Farmer Mac I Guaranteed
Securities. The remaining $2.4 million of Pre-1996 Act Farmer
Mac I Guaranteed Securities represent interests in seasoned performing loans
with low loan-to-value ratios. Farmer Mac does not expect to incur
any further losses on the remaining Pre-1996 Act Farmer Mac I Guaranteed
Securities in the future. Each AgVantage security is a general
obligation of an issuing institution approved by Farmer Mac and is
collateralized by eligible mortgage loans. As of March 31, 2008,
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. As of March 31, 2008, Farmer Mac had not experienced any
credit losses on any AgVantage Securities and does not expect to incur any such
losses in the future. The guaranteed portions collateralizing Farmer
Mac II Guaranteed Securities are guaranteed by the USDA. Each USDA
guarantee is an obligation backed by the full faith and credit of the United
States. As of March 31, 2008, Farmer Mac had not experienced any
credit losses on any Farmer Mac II Guaranteed Securities and does not expect to
incur any such losses in the future.
|
|
90-Day
|
|
|
Net
Credit
|
|
|
|
Delinquencies
(1)
|
|
|
Losses/(Recoveries)
(2)
|
|
|
|
As
of
|
|
|
As
of
|
|
|
As
of
|
|
|
For
the Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
6,989 |
|
|
$ |
10,024 |
|
|
$ |
22,864 |
|
|
$ |
39 |
|
|
$ |
- |
|
Total
on-balance sheet
|
|
$ |
6,989 |
|
|
$ |
10,024 |
|
|
$ |
22,864 |
|
|
$ |
39 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
3,985 |
|
|
$ |
560 |
|
|
$ |
5,477 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
off-balance sheet
|
|
$ |
3,985 |
|
|
$ |
560 |
|
|
$ |
5,477 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,974 |
|
|
$ |
10,584 |
|
|
$ |
28,341 |
|
|
$ |
39 |
|
|
$ |
- |
|
(1)
|
Includes
loans and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs that are 90 days or more past due, in foreclosure,
restructured after delinquency, and in bankruptcy, excluding loans
performing under either their original loan terms or a court-approved
bankruptcy plan.
|
(2)
|
Includes
loans and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs.
|
Note
4.
|
Comprehensive
(Loss)/Income
|
Comprehensive
(loss)/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 (loss)/income for the three months ended March
31, 2008 and 2007:
|
|
Three
Months Ended
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$ |
(7,697 |
) |
|
$ |
4,482 |
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, net of tax:
|
|
|
|
|
|
|
|
|
Net
unrealized holding (losses)/gains (1)
|
|
|
(15,435 |
) |
|
|
4,688 |
|
|
|
|
|
|
|
|
|
|
Financial
derivatives, net of tax:
|
|
|
|
|
|
|
|
|
Reclassification
for amortization of SFAS 133 transition adjustment (2)
|
|
|
72 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss)/income, net of tax
|
|
|
(15,363 |
) |
|
|
4,779 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
(loss)/income
|
|
$ |
(23,060 |
) |
|
$ |
9,261 |
|
|
(1)
|
Unrealized
holding (losses)/gains on available-for-sale securities is shown net of
income tax benefit/(expense) of $8.3 million and $(2.5) million in first
quarter 2008 and 2007,
respectively.
|
|
(2)
|
Amortization
of SFAS 133 transition adjustment is shown net of income tax expense of
$39,000 and $49,000 in first quarter 2008 and 2007,
respectively.
|
The
following table presents Farmer Mac’s accumulated other comprehensive loss as of
March 31, 2008 and December 31, 2007 and changes in the components of
accumulated other comprehensive loss for the three months ended March 31, 2008
and the year ended December 31, 2007.
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
|
|
(in
thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(2,320 |
) |
|
$ |
5,802 |
|
Reclassification
adjustment to retained earnings for SFAS 159 adoption, net of
tax
|
|
|
(11,237 |
) |
|
|
- |
|
Adjusted
beginning balance
|
|
|
(13,557 |
) |
|
|
5,802 |
|
Net
unrealized holding losses, net of tax
|
|
|
(15,435 |
) |
|
|
(8,122 |
) |
Ending
balance
|
|
$ |
(28,992 |
) |
|
$ |
(2,320 |
) |
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(473 |
) |
|
$ |
(846 |
) |
Amortization
of SFAS 133 transition adjustment on financial derivatives, net of
tax
|
|
|
72 |
|
|
|
373 |
|
Ending
balance
|
|
$ |
(401 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss, net of tax
|
|
$ |
(29,393 |
) |
|
$ |
(2,793 |
) |
Note
5.
|
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. Farmer Mac accounts for these transactions
and other financial guarantees in accordance with FASB Interpretation No. 45,
Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (“FIN 45”). In accordance with
FIN 45, Farmer Mac records, at the inception of a guarantee, a liability
for the fair value of its obligation to stand ready to perform under the terms
of each guarantee and an asset that is equal to the fair value of the fees that
will be received over the life of each guarantee. The fair values of
the guarantee obligation and asset at inception are based on the present value
of expected cash flows using management’s best estimate of certain key
assumptions, including prepayment speeds, forward yield curves and discount
rates commensurate with the risks involved. Because the cash flows of
these instruments may be interest rate path dependent, these values and
projected discount rates are derived using a Monte Carlo simulation
model. The guarantee obligation and corresponding asset are
subsequently amortized into guarantee and commitment fee income in relation to
the decline in the unpaid principal balance on the underlying agricultural real
estate mortgage loans.
Off-Balance
Sheet Farmer Mac Guaranteed Securities
Agricultural
mortgage loans and other mortgage assets may be placed into trusts that are used
as vehicles for the securitization of the transferred assets and the Farmer
Mac-guaranteed beneficial interests in the trusts are sold to
investors. The following table summarizes cash flows received from
and paid to these trusts:
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
March 31,
2007
|
|
|
|
(in
thousands)
|
|
Proceeds
from new securitizations
|
|
$ |
577 |
|
|
$ |
200 |
|
Guarantee
fees received
|
|
|
3,547 |
|
|
|
3,265 |
|
Servicing
advances
|
|
|
- |
|
|
|
8 |
|
Repayment
of servicing advances
|
|
|
1 |
|
|
|
19 |
|
The following table presents the maximum principal amount of
potential undiscounted future payments that Farmer Mac could be required to make
under all off-balance sheet Farmer Mac Guaranteed Securities as of March 31,
2008 and December 31, 2007, not including offsets provided by any recourse
provisions, recoveries from third parties or collateral for the underlying
loans.
Outstanding
Balance of Off-Balance Sheet
|
|
Farmer
Mac Guaranteed Securities
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Post-1996
Act Farmer Mac I Guaranteed Securities
|
|
$ |
4,422,861 |
|
|
$ |
4,518,300 |
|
Farmer
Mac II Guaranteed Securities
|
|
|
29,805 |
|
|
|
24,815 |
|
Total
Farmer Mac I and II
|
|
$ |
4,452,666 |
|
|
$ |
4,543,115 |
|
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 $34.6 million as of March 31, 2008
and $36.4 million as of December 31, 2007. As of March 31,
2008, the weighted-average remaining maturity of all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage
securities, was 15.4 years.
Long-Term
Standby Purchase Commitments (LTSPCs)
An LTSPC
is a commitment by Farmer Mac to purchase on one or more unspecified future
dates, from a segregated pool of eligible loans, either: (a) loans delinquent
120 days or more at par plus accrued interest, or (b) performing loans at a
mark-to-market negotiated price. As consideration for its assumption
of the credit risk on loans underlying an LTSPC, Farmer Mac receives a
commitment fee payable monthly in arrears in an amount approximating what would
have been the guarantee fee if the transaction were structured as a swap for
Farmer Mac Guaranteed Securities.
As of
March 31, 2008 and December 31, 2007, the maximum principal amount of potential
undiscounted future payments that Farmer Mac could be requested to make under
all LTSPCs, not including offsets provided by any recourse provisions,
recoveries from third parties or collateral for the underlying loans, was $1.9
billion.
As of
March 31, 2008, the weighted-average remaining maturity of all loans underlying
LTSPCs was 14.1 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 $16.9 million as of March 31, 2008 and $15.7 million as
of December 31, 2007.
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, 2007.
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:
|
·
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prospects
for earnings;
|
|
·
|
prospects
for growth in loan purchase, guarantee, securitization and LTSPC
volume;
|
|
·
|
trends
in net interest income;
|
|
·
|
trends
in portfolio credit quality and provisions for
losses;
|
|
·
|
trends
in non-program investments;
|
|
·
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changes
in capital position; and
|
|
·
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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, 2007, as filed with the SEC on March 17, 2008, and
uncertainties regarding:
|
·
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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;
|
|
·
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legislative
or regulatory developments that could affect Farmer
Mac;
|
|
·
|
the
willingness of investors to invest in Farmer Mac Guaranteed Securities;
and
|
|
·
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developments
in the financial markets, including possible reaction 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 Policies
and Estimates
The
critical accounting policies that are both important to the portrayal of Farmer
Mac’s financial condition and results of operations and require complex,
subjective judgments are the accounting policies for the allowance for losses
and fair value measurements.
Allowance
for Losses. For a discussion
of Farmer Mac’s accounting policy for the allowance for losses and the related
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, 2007,
as filed with the SEC on March 17, 2008.
Fair
Value Measurement. During first
quarter 2008, Farmer Mac determined that its accounting policy for measurement
of fair values was a critical accounting policy. A significant
portion of Farmer Mac’s assets consists of financial instruments that are
measured at fair value in the condensed consolidated balance
sheets. For financial instruments that are complex in nature or for
which observable inputs are not available, the measurement of fair value
requires significant management judgments and assumptions. These
judgments and assumptions, as well as changes in market conditions, may have a
material impact on the condensed consolidated balance sheets and statements of
operations. While Farmer Mac’s fair value measurement methods have
not changed from previous reporting periods, additional disclosures of such
measurement methods are required by the adoption of Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(“SFAS 157”) as described in Note 1(c) to the condensed consolidated
financial statements.
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in a transaction between market participants at the
measurement date. The amount of judgment involved in measuring the
fair value of a financial instrument is affected by a number of factors, such as
the type of investment, the liquidity of the markets for the instrument and the
contractual characteristics of the instrument. Farmer Mac uses one of
the following three practices for estimating fair value, the selection of which
is based on the reliability and availability of relevant market data: (1) quoted
market prices for identical instruments, (2) quoted prices, from multiple third
parties, in markets that are not active or for which all significant inputs are
observable, either directly or indirectly, or (3) analytical models that employ
techniques such as discounted cash flow approach and that include market-based
assumptions such as prepayment speeds, forward yield curves and discount rates
commensurate with the risks involved. Price transparency tends to be
limited in less liquid markets where quoted market prices or observable market
data may not be available. Farmer Mac regularly refines and enhances
its valuation methodologies to correlate more closely to observable market
data. When observable market prices or data are not readily available
or do not exist, the estimation of fair value may require significant management
judgment and assumptions. The estimates are subject to change in
future reporting periods if such conditions and information
change. For example, volatility in credit markets could result in
wider credit spreads, which may change fair value measurements for
certain financial instruments.
Farmer
Mac’s assets and liabilities presented at fair value in the condensed
consolidated balance sheet on a recurring basis include:
|
·
|
Farmer
Mac Guaranteed Securities classified as available-for-sale and trading;
and
|
The
changes in fair value from period to period are recorded either in the condensed
consolidated balance sheet to accumulated other comprehensive income/(loss) or
in the condensed consolidated statement of operations as gains/(losses) on
financial derivatives or gains/(losses) on trading assets.
As of
March 31, 2008, Farmer Mac’s assets and liabilities recorded at fair value
included financial instruments valued at $2.4 billion whose fair values were
estimated by management in the absence of readily determinable fair values
(i.e., Level 3). These financial instruments measured as Level 3
represented 43 percent of total assets and 60 percent of financial
instruments measured at fair value as of March 31, 2008. Assets
underlying these financial instruments measured as Level 3 primarily include the
following:
Type of Financial
Instrument
|
Underlying
Assets
|
Farmer
Mac II Guaranteed Securities
|
Portions
of loans guaranteed by USDA pursuant to the Consolidated Farm Rural
Development Act.
|
Farmer
Mac I Guaranteed Securities
|
Agricultural
mortgage loans eligible under Farmer Mac’s credit underwriting, collateral
valuation, documentation and other standards.
|
Corporate
debt and mortgage-backed securities (mission-related investments approved
by the Farm Credit Administration (“FCA”))
|
General
obligations of the National Rural Utilities Cooperative Finance
Corporation (“Nat Rural”) and/or mortgage loans made to rural electric
distribution cooperatives by Nat Rural.
|
Auction-rate
certificates (“ARCs”)
|
Guaranteed
student loans that are backed by the full faith and credit of the United
States.
|
Due to
the absence of an active auction market or other market trading in ARCs, during
first quarter 2008 Farmer Mac transferred all of its ARCs from Level 2 to Level
3 and recorded the ARCs as of March 31, 2008 at fair values of between 99
percent of par and par as described below in “—Liquidity and Capital Resources –
Liquidity.” The discounted values reflect uncertainty regarding the
ability to obtain par in the absence of any active market
trading. The par valuations reflect actual par tender offers received
on some of Farmer Mac’s ARC holdings.
Results of
Operations
Overview. The net loss to
common stockholders for first quarter 2008 was $8.3 million or $0.84 per
diluted common share, compared to net income of $3.9 million or $0.37 per
diluted common share for first quarter 2007. The net loss for first
quarter 2008 was due principally to reductions in the fair value of financial
derivatives caused by the decline in interest rates during the
quarter. During first quarter 2008, Farmer Mac recorded losses on
financial derivatives of $41.7 million, compared to losses on financial
derivatives of $4.0 million during first quarter 2007. Although
Farmer Mac’s financial derivatives provide highly effective economic hedges of
interest rate risk, accounting elected under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended (“SFAS 133”) required
the losses on the financial derivatives to be reflected in net income for first
quarter 2008, while a majority of the offsetting economic gains on the hedged
items were not reflected in net income. Similarly, under
SFAS 133, the losses on financial derivatives for first quarter 2007 were
reflected in net income, while the offsetting economic gains 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. 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.
On
January 1, 2008, with the adoption of SFAS 159, Farmer Mac elected to measure
$600.5 million of investment securities and $427.3 million of Farmer Mac II
Guaranteed securities at fair value, with changes in fair value reflected in
earnings as they occur. These assets were selected for the fair value
option under SFAS 159 because they were funded or hedged principally with
financial derivatives and, therefore, the changes in fair value of the assets
provide partial economic and financial reporting offsets to the related
financial derivatives. Upon adoption, Farmer Mac recorded a
cumulative effect of adoption adjustment of $12.1 million, net of tax, as an
increase to the beginning balance of retained earnings. During first
quarter 2008, the net increase in fair value of the assets selected for the fair
value option resulted in Farmer Mac recording net gains on trading assets of
$10.7 million.
Beyond
the impacts of SFAS 133 and SFAS 159 on net income, Farmer Mac’s financial
results in first quarter 2008 were driven by growth in guarantee and commitment
fees and a significant increase in net interest income due to continuing
interest rate and credit spread volatility in the capital markets. 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 had ready access to the capital markets at favorable
rates. Throughout this period, Farmer Mac’s short-term funding
spreads below the corresponding London Interbank Offered Rate, or LIBOR, were
significantly more advantageous than historical levels. Consequently,
Farmer Mac’s net interest yield on investments and program assets was
significantly higher during first quarter 2008 than its net interest yields
earned on such assets in its historical experience. Also during first
quarter 2008, widening of credit market spreads caused a decline in the fair
value of many corporate securities in Farmer Mac’s investment portfolio,
resulting in increased unrealized losses, some of which may be realized in the
future if those securities are not held to maturity and do not otherwise
recover in value.
Farmer
Mac’s outstanding program volume as of March 31, 2008 was $8.4 billion, compared
to $8.5 billion as of December 31, 2007 and $7.4 billion as of March 31,
2007. During first quarter 2008, Farmer Mac:
|
·
|
added
$53.3 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchased
$37.5 million of newly originated and current seasoned Farmer Mac I loans;
and
|
|
·
|
purchased
$53.1 million of Farmer Mac II USDA-guaranteed portions of
loans.
|
In
addition to this program volume, in March 2008 Farmer Mac purchased a
mission-related investment of $400.0 million in notes issued by Nat Rural and
secured by mortgage indebtedness issued by rural electric distribution
cooperatives serving communities across rural America, in accordance with
parameters established by FCA.
As part
of Farmer Mac’s continuing evaluation of the overall credit quality of its
portfolio, the state of the U.S. agricultural economy, the continued upward
trends in agricultural land values, and the level of Farmer Mac’s outstanding
guarantees and commitments, Farmer Mac determined that the appropriate allowance
for losses as of March 31, 2008 was $3.8 million, which was 8 basis points
relative to the outstanding post-1996 Act Farmer Mac I portfolio (excluding
AgVantage securities). The allowance for losses was $3.9 million and
8 basis points as of December 31, 2007 and March 31, 2007.
As of
March 31, 2008, 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
$11.0 million,
representing 0.22 percent of the principal
balance of the outstanding post-1996 Act Farmer Mac I portfolio (excluding
AgVantage securities), compared to $28.3 million (0.58 percent) as of
March 31, 2007.
Set forth
below is a more detailed discussion of Farmer Mac’s results of
operations.
Net
Interest Income. Net interest income was $17.9 million for
first quarter 2008, compared to $9.1 million for first quarter
2007. The net interest yield was 131 basis points for the three
months ended March 31, 2008, compared to 73 basis points for the three
months ended March 31, 2007.
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 $0.9 million (6 basis points) of guarantee fee income as interest
income for the three months ended March 31, 2008, compared to $0.8 million
(7 basis points) for the three months ended March 31, 2007.
As
discussed in Note 1(d) 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. For the three months ended March 31, 2008
and 2007, this classification resulted in an increase of the net interest yield
of $2.1 million (15 basis points) and $0.2 million (1 basis point),
respectively.
The net
interest yields for the three months ended March 31, 2008 and 2007 included the
benefits of yield maintenance payments of $1.4 million (10 basis points) and
$1.3 million (10 basis points), respectively. Yield maintenance
payments represent the present value of expected future interest income streams
and accelerate the recognition of interest income from the related
loans. Because the timing and size of these payments vary greatly,
variations do not necessarily indicate positive or negative trends to gauge
future financial results. For the three months ended March 31, 2008
and 2007, the after-tax effects of yield maintenance payments on net income and
diluted earnings per share were $0.9 million or $0.09 per diluted share and
$0.8 million or $0.08 per diluted share, respectively.
The
following table provides information regarding interest-earning assets and
funding for the three months ended March 31, 2008 and 2007. The
balance of non-accruing loans is included in the average balance of
interest-earning loans and Farmer Mac Guaranteed Securities 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 investments reflects lower short-term market rates during the
three months ended March 31, 2008 compared to the three months ended March 31,
2007 and the short-term or floating rate nature of most investments acquired or
reset during 2008. The lower average rate on loans and Farmer Mac
Guaranteed Securities during the three months ended March 31, 2008 reflects the
decline 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
lower 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 downward 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 lower market rates during 2008.
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
|
(dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
3,428,911 |
|
|
$ |
41,508 |
|
|
|
4.84 |
% |
|
$ |
2,921,163 |
|
|
$ |
38,992 |
|
|
|
5.34 |
% |
Loans
and Farmer Mac Guaranteed Securities
|
|
|
2,028,091 |
|
|
|
30,601 |
|
|
|
6.04 |
% |
|
|
2,023,941 |
|
|
|
30,722 |
|
|
|
6.07 |
% |
Total
interest-earning assets
|
|
|
5,457,002 |
|
|
|
72,109 |
|
|
|
5.29 |
% |
|
|
4,945,104 |
|
|
|
69,714 |
|
|
|
5.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
3,741,942 |
|
|
|
35,809 |
|
|
|
3.83 |
% |
|
|
3,097,860 |
|
|
|
40,006 |
|
|
|
5.17 |
% |
Notes
payable due after one year
|
|
|
1,484,186 |
|
|
|
18,362 |
|
|
|
4.95 |
% |
|
|
1,643,368 |
|
|
|
20,626 |
|
|
|
5.02 |
% |
Total
interest-bearing liabilities
|
|
|
5,226,128 |
|
|
|
54,171 |
|
|
|
4.15 |
% |
|
|
4,741,228 |
|
|
|
60,632 |
|
|
|
5.12 |
% |
Net
non-interest-bearing funding
|
|
|
230,874 |
|
|
|
|
|
|
|
|
|
|
|
203,876 |
|
|
|
|
|
|
|
|
|
Total
funding
|
|
$ |
5,457,002 |
|
|
|
54,171 |
|
|
|
3.97 |
% |
|
$ |
4,945,104 |
|
|
|
60,632 |
|
|
|
4.90 |
% |
Net
interest income/yield
|
|
|
|
|
|
$ |
17,938 |
|
|
|
1.31 |
% |
|
|
|
|
|
$ |
9,082 |
|
|
|
0.73 |
% |
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 decreases in income due to changes in rate reflect the
reset of variable-rate investments and adjustable-rate mortgages to lower rates
and the acquisition of new lower-yielding investments, loans and Farmer Mac
Guaranteed Securities, as described above. The decreases in expense
reflect the decreased cost of funding due to the decrease in capital markets
interest rates.
|
|
Three
Months Ended March 31, 2008
|
|
|
|
Compared
to Three Months Ended
|
|
|
|
March 31,
2007
|
|
|
|
Increase/(Decrease)
Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
(3,851 |
) |
|
$ |
6,367 |
|
|
$ |
2,516 |
|
Loans
and Farmer Mac Guaranteed Securities
|
|
|
(184 |
) |
|
|
63 |
|
|
|
(121 |
) |
Total
|
|
|
(4,035 |
) |
|
|
6,430 |
|
|
|
2,395 |
|
Expense
from interest-bearing liabilities
|
|
|
(12,249 |
) |
|
|
5,789 |
|
|
|
(6,460 |
) |
Change
in net interest income
|
|
$ |
8,214 |
|
|
$ |
641 |
|
|
$ |
8,855 |
|
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 $6.6 million for first quarter 2008,
compared to $5.9 million for first quarter 2007. The effect of
SFAS 140 classified guarantee fees of $0.9 million as interest income for
first quarter 2008, compared to $0.8 million for first quarter 2007,
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 $2.0 million for first quarter 2008, compared
to $2.3 million for the first quarter 2007. 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 2008 compared
to 2007. Compensation and employee benefits were $3.7 million for
first quarter 2008, compared to $3.1 million for the first quarter
2007. Farmer Mac recognized compensation expense related to stock
options of $0.9 million for first quarter 2008, compared to $0.7 million
for the first quarter 2007. For more information on stock option
expense, see Note 1(f) to the condensed consolidated financial
statements.
Regulatory
fees for first quarter 2008 and first quarter 2007 were $0.5 million and
$0.6 million, respectively. FCA has advised the Corporation that
its estimated fees for the federal fiscal year ended September 30, 2008
will be $2.1 million, compared to $2.2 million for the federal fiscal year ended
September 30, 2007. 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
2008, except legal fees, which are expected to increase as a result of
anticipated increased legal work attributable to transactions and corporate
governance matters.
During
first quarter 2008, Farmer Mac made no provision for its allowance for losses,
compared to a release of $0.6 million in first quarter 2007. See
“—Risk Management—Credit Risk” for additional information regarding Farmer Mac’s
provision for losses, provision for loan losses and Farmer Mac’s methodology for
determining its allowance for losses. As of March 31, 2008, Farmer
Mac’s total allowance for losses was $3.8 million, which was 8 basis points
relative to the outstanding post-1996 Act Farmer Mac I portfolio (excluding
AgVantage securities), compared to $3.9 million and 8 basis points as of
December 31, 2007.
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(d) to the condensed consolidated
financial statements, the Corporation accounts for its financial derivatives as
undesignated financial derivatives. The losses on financial
derivatives recorded in Farmer Mac’s condensed consolidated statements of
operations for the first quarter 2008 and 2007 were $41.7 million and $4.0
million, respectively. On January 1, 2008, with the adoption of SFAS
159, Farmer elected to measure $600.5 million of investment securities and
$427.3 million of Farmer Mac II Guaranteed Securities at fair value, with
changes in fair value reflected in earnings as they occur. During
first quarter 2008, the net increase in fair value of the assets selected for
the fair value option resulted in Farmer Mac recording net gains on trading
assets of $10.7 million. These assets were selected for the fair
value option under SFAS 159 because they were funded or hedged principally with
financial derivatives and, therefore, the changes in fair value of the assets
provide partial economic and financial reporting offsets to the related
financial derivatives.
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 elected 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 into effectively fixed-rate medium-term
and long-term notes that match the anticipated duration, repricing and interest
rate characteristics of the corresponding assets. Since this strategy
provides Farmer Mac with approximately the same cash flows as those that are
inherent in the issuance of medium-term notes, Farmer Mac uses either the bond
market or the swap market based upon their relative pricing
efficiencies.
Farmer
Mac uses callable interest rate swaps (in conjunction with the issuance of
short-term debt) as an alternative to callable medium-term notes with
equivalently structured maturities and call options. The call options
on the swaps are designed to match the implicit prepayment options on those
mortgage assets without prepayment protection. The blended durations
of the swaps are also designed to match the duration of the related mortgages
over their estimated lives. If the mortgages prepay, the swaps can be
called and the short-term debt repaid; if the mortgages do not prepay, the swaps
remain outstanding and the short-term debt is rolled over, effectively providing
fixed-rate callable funding over the lives of the related
mortgages. Thus, the economics of the assets are closely matched to
the economics of the interest rate swap and funding
combination.
Business
Volume. New business
volume for first quarter 2008 was $143.9 million, compared to
$354.1 million in fourth quarter 2007 and $471.5 million in first quarter
2007. Much of Farmer Mac’s business volume during the past year 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. These
transactions tend to be larger portfolio transactions that have ranged up to
$1.0 billion. No such large transactions were completed during first
quarter 2008. The design of these transactions is such that the
ongoing guarantee and commitment fee income from prior transactions continues to
contribute to earnings. Moreover, Farmer Mac sees prospects for
additional similar large portfolio transactions, though no assurance can be
given at this time as to the certainty or timing of similar transactions in the
future.
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, which
continue to generate business opportunities for 2008 and, it believes, beyond,
include:
|
·
|
increased
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
|
|
·
|
a
recently renewed and expanded 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 important new business opportunities would result from expansion of
its statutory guarantee authorities. In that regard:
|
·
|
on
July 27, 2007, the United States 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 Nat Rural and institutions of the Farm
Credit System; and
|
|
·
|
on December 14, 2007, the United
States Senate passed the “Food and Energy Security Act,” which contains an
expansion of authority for Farmer Mac similar to that in H.R.
2419.
|
The first
formal Farm Bill conference meeting between House and Senate members took place
on April 10, 2008. During a meeting on April 15th, the
House receded to the Senate language on rural utility loans (referenced
above). That section of the bill is now considered closed and
additional changes are not anticipated. The conference committee
still has to file a conference report. At this time, no
assurance can be given that the conference report will be enacted into law
or, if enacted, that it will result in significant additional business volume
for Farmer Mac.
Notwithstanding
these efforts and developments, Farmer Mac’s business with agricultural mortgage
lenders has been and may continue to be constrained by:
|
·
|
changes
in the capital, liquidity or funding needs of major business
partners;
|
|
·
|
alternative
sources of capital, funding and credit enhancement for agricultural
lenders; and
|
|
·
|
increased
competition in the secondary market for agricultural mortgage
loans.
|
For a
more detailed discussion of these factors and the related effects on Farmer
Mac’s business volume, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations—Outlook for 2008” in
the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2007, as filed with the SEC on March 17, 2008.
The
following table sets forth Farmer Mac I and Farmer Mac II loan purchase and
guarantee activities for newly originated and current seasoned loans during the
periods indicated:
|
|
Three
Months Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
(in
thousands)
|
|
Loan
purchase and guarantee and commitment activity:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
37,468 |
|
|
$ |
21,644 |
|
LTSPCs
|
|
|
53,281 |
|
|
|
396,322 |
|
Farmer
Mac II Guaranteed Securities
|
|
|
53,114 |
|
|
|
53,548 |
|
Total
purchases, guarantees and commitments
|
|
$ |
143,863 |
|
|
$ |
471,514 |
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities issuances:
|
|
|
|
|
|
|
|
|
Sold
|
|
$ |
577 |
|
|
$ |
200 |
|
Retained
|
|
|
- |
|
|
|
- |
|
Loans
previously under LTSPCs exchanged for Farmer Mac Guaranteed
Securities
|
|
|
- |
|
|
|
303,766 |
|
Total
|
|
$ |
577 |
|
|
$ |
303,966 |
|
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 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Risk Management—Credit
Risk—Loans” in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2007, as filed with the SEC on March 17,
2008.
The
following table presents Farmer Mac’s loan purchases of newly originated and
current seasoned loans and defaulted loans purchased underlying Farmer Mac I
Guaranteed Securities and LTSPCs:
|
|
Three
Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I newly originated and current seasoned loan purchases
|
|
$ |
37,468 |
|
|
$ |
21,644 |
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying off-balance sheet Farmer Mac I
Guaranteed Securities
|
|
|
304 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Defaulted
loans underlying on-balance sheet Farmer Mac I Guaranteed Securities
transferred to loans
|
|
|
859 |
|
|
|
833 |
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying LTSPCs
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
loan purchases
|
|
$ |
38,631 |
|
|
$ |
22,477 |
|
The
weighted-average age of the Farmer Mac I newly originated and current seasoned
loans purchased during each of first quarter 2008 and first quarter 2007 was
less than one month. Of the Farmer Mac I newly originated and current
seasoned loans purchased during first quarter 2008 and first quarter 2007, 80
percent and 77 percent, respectively, had principal amortization periods
longer than the maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 15.8 years and 15.2 years,
respectively. The weighted-average age of delinquent loans purchased
out of securitized pools and LTSPCs during first quarter 2008 and first quarter
2007 was 9.9 years and 8.4 years, respectively.
USDA’s
most recent publications (as available on USDA’s website as of May 1, 2008)
forecast:
|
·
|
2008
net cash farm income to be $96.6 billion, an increase of
$9 billion over 2007 estimates, and a 42 percent premium over the
10-year average of
$68 billion.
|
|
·
|
2008
net farm income to be $92.3 billion, an increase of $3.6 billion
over 2007 estimates, and a sizable increase ($31 billion) over the
10-year average of
$61.1 billion.
|
|
·
|
Total
direct U.S. government payments to be $13.4 billion in 2008, up from
$12 billion in 2007, but still 20 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 to decrease to $0.93 billion in 2008 from $1.2 billion
in 2007.
|
|
·
|
Marketing
loan benefits, which include loan deficiency payments, marketing loan
gains, and certificate exchange gains, to drop to $8 million in 2008 from
$947 million in 2007.
|
|
·
|
The
value of U.S. farm real estate to increase 14.9 percent in 2008 to
$2.2 trillion from the current projection of $1.9 trillion for
2007.
|
|
·
|
The
amount of farm real estate debt to increase by 2.8 percent in 2008 to
$120.8 billion, compared to the current projection of
$117.5 billion in 2007.
|
The USDA
forecasts referenced above relate to U.S. agriculture generally, but should
collectively be favorable for Farmer Mac’s financial condition relative to its
exposure to outstanding guarantees and commitments, as they indicate strong
borrower cash flows, and increased farm real estate values in most U.S.
agricultural regions.
Balance Sheet
Review
As of
March 31, 2008, Farmer Mac had $200.0 million of cash and cash equivalents and
$3.1 billion of investment securities, compared to $101.4 million of cash and
cash equivalents and $2.6 billion of investment securities as of December 31,
2007. The increase in investment securities during the three months
ended March 31, 2008 includes Farmer Mac’s mission-related investment purchase
of a $400.0 million corporate debt security issued by Nat Rural and secured
by mortgage indebtedness issued by rural electric distribution
cooperatives. That transaction provided Nat Rural with liquidity and
attractive financing rates for its rural utility cooperative members that serve
rural communities and support agriculture in 47 states, and advanced Farmer
Mac’s financial role in and commitment to rural America.
During
the three months ended March 31, 2008, on-balance sheet program assets (Farmer
Mac Guaranteed Securities and loans) decreased by $10.6 million, as new loan
purchases were offset by principal paydowns on program assets.
Consistent
with the net increase in total assets of $528.4 million during the three months
ended March 31, 2008, total liabilities increased $552.0 million from
December 31, 2007 to March 31, 2008. This increase in
liabilities was primarily due to the $532.5 million increase in notes payable,
the proceeds of which were used to fund the purchase of assets. As of
March 31, 2008, Farmer Mac had a guarantee and commitment obligation of $51.5
million, compared to $52.1 million as of December 31, 2007. For
further information regarding off-balance sheet program activities, see
“—Off-Balance Sheet Program Activities” below.
During
the three months ended March 31, 2008, accumulated other comprehensive loss
increased $26.6 million, which was primarily the result of $29.0 million
after-tax unrealized losses on securities available-for-sale as of March 31,
2008, compared to $2.3 million after-tax unrealized losses on securities
available-for-sale as of December 31, 2007. Accumulated other
comprehensive 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
March 31, 2008, Farmer Mac’s core capital totaled $229.4 million,
compared to $226.4 million as of December 31, 2007. As of
March 31, 2008, core capital exceeded Farmer Mac’s statutory minimum capital
requirement of $200.3 million by
$29.1
million.
Farmer
Mac was in compliance with its risk-based capital standards as of March 31,
2008. The risk-based capital stress test generated a regulatory capital
requirement of $30.4 million as of March 31, 2008 as compared to
$42.8 million as of December 31, 2007. The large
quarter-to-quarter decline in the risk-based capital requirement is the result
of enhanced net interest income due to larger than usual net interest spreads on
investments and program assets as Farmer Mac’s short-term funding spreads below
the corresponding LIBOR were significantly more advantageous than historical
levels. As of March 31, 2008, Farmer Mac’s regulatory capital of
$233.2 million exceeded the risk-based capital requirement by approximately
$202.8 million.
In the
September 13, 2007 issue of the Federal Register, FCA published for public
comment a proposed rule that would revise certain FCA regulations governing the
risk-based capital stress test applicable to Farmer Mac. The public
comment period for that proposed rule closed October 29, 2007. Farmer
Mac has provided written comments on the proposed rule to FCA. In its
announcement of the proposed rule FCA stated that the purpose of the proposed
changes is “to more accurately reflect changes in Farmer Mac’s operations or
business practices.” In the preamble to the proposed rule, FCA noted
that had the proposed rule been in effect on March 31, 2007, Farmer Mac’s
risk-based capital requirement as of that date would have been approximately
$100.1 million, compared to the risk-based capital requirement of
approximately $80.8 million under the existing risk-based capital stress
test at that time. The FCA Board adopted a final rule for the Farmer
Mac risk-based capital stress test on April 10, 2008. Farmer Mac has
not seen the final rule and does not know what changes FCA has made to the
proposed rule in developing the final rule. 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 5 to the interim unaudited condensed consolidated
financial statements for further information regarding Farmer Mac’s off-balance
sheet program activities.
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 March 31, 2008, 47 percent
of the outstanding balance of all loans held and loans underlying on-balance
sheet Farmer Mac I Guaranteed Securities (including 80 percent of all loans with
fixed interest rates) were covered by yield maintenance provisions and other
prepayment penalties. Of the Farmer Mac I fixed rate loans purchased
in first quarter 2008, 7 percent had yield maintenance or another form of
prepayment protection. As of March 31, 2008, none of the
USDA-guaranteed portions underlying Farmer Mac II Guaranteed Securities had
yield maintenance provisions; however, 26.3 percent contained prepayment
penalties. Of the USDA-guaranteed portions purchased in first quarter
2008, 1.4 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.
Cash
equivalents and investment securities pose only limited interest rate risk to
Farmer Mac, due to their closely matched funding. Farmer Mac’s cash
equivalents mature within three months and are match-funded with discount notes
having similar maturities. As of March 31, 2008, $1.9 billion of the
$3.1 billion of investment securities (62.6 percent) were floating rate
securities with rates that adjust within one year or fixed rate securities with
original maturities between three months and one year.
The goal
of interest rate risk management at Farmer Mac is to create and maintain a
portfolio that generates stable earnings and value across a variety of interest
rate environments. Farmer Mac’s primary strategy for managing
interest rate risk is to fund asset purchases with liabilities that have similar
durations and cash flows so that they will perform similarly as interest rates
change. To achieve this match, Farmer Mac issues discount notes and
both callable and non-callable medium-term notes across a spectrum of
maturities. Farmer Mac issues callable debt to offset the prepayment
risk associated with some mortgage assets. By using a blend of
liabilities that includes callable debt, the interest rate sensitivities of the
liabilities tend to increase or decrease as interest rates change in a manner
similar to changes in the interest rate sensitivities of the
assets. Farmer Mac also uses financial derivatives to alter the
duration of its assets and liabilities to better match their durations, thereby
reducing overall interest rate sensitivity.
An
important “stress test” of Farmer Mac’s exposure to long-term interest rate risk
is the measurement of the sensitivity of its market value of equity (“MVE”) to
yield curve shocks. MVE represents the present value of all future
cash flows from on- and off-balance sheet assets, liabilities and financial
derivatives, discounted at current interest rates and spreads. The
following schedule summarizes the results of Farmer Mac’s MVE sensitivity
analysis as of March 31, 2008 and December 31, 2007 to an immediate
and instantaneous uniform or “parallel” shift in the yield
curve. During first quarter 2008, 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
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Scenario
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
+
300bp
|
|
|
-13.9%
|
|
|
-10.6%
|
|
|
+
200bp
|
|
|
-8.1%
|
|
|
-6.3%
|
|
|
+
100bp
|
|
|
-3.1%
|
|
|
-2.5%
|
|
|
-
100bp
|
|
|
0.3%
|
|
|
-0.1%
|
|
|
-
200bp
|
|
|
N/A*
|
|
|
-1.4%
|
|
|
-
300bp
|
|
|
N/A*
|
|
|
-3.4%
|
|
|
|
|
|
|
|
|
|
|
*
|
As
of March 31, 2008, a parallel shift of -200 and -300 basis points of the
U.S. Treasury yield curve produced negative interest rates for maturities
of 2 years and shorter.
|
|
As of
March 31, 2008, a parallel increase of 100 basis points would have
decreased Farmer Mac’s net interest income (“NII”), a shorter-term measure of
interest rate risk, by 3.0 percent, while a parallel decrease of 100 basis
points would have decreased NII by 0.8 percent. Farmer
Mac also measures the sensitivity of both MVE and NII to a variety of
non-parallel interest rate shocks, including flattening and steepening yield
curve scenarios. As of March 31, 2008, both MVE and NII showed
similar or lesser sensitivity to non-parallel shocks than to the parallel
shocks. As of March 31, 2008, Farmer Mac’s effective duration gap,
another standard measure of interest rate risk that measures the difference
between the sensitivities of assets compared to that of liabilities, was plus
0.8 months, compared to plus 0.7 months as of December 31,
2007. Duration matching helps to maintain the correlation of cash
flows and stable portfolio earnings even when interest rates are not
stable. Farmer Mac believes the relative insensitivity of its MVE and
NII to both parallel and non-parallel interest rate shocks, and its duration
gap, indicate that Farmer Mac’s approach to managing its interest rate risk
exposures is effective.
As of
March 31, 2008, Farmer Mac had $2.7 billion combined notional amount of interest
rate swaps with terms ranging from 1 to 15 years. Of those interest
rate swaps, $1.4 billion were floating-to-fixed rate interest rate swaps, $1.2
billion were fixed-to-floating interest rate swaps and $0.1 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(d) to the condensed
consolidated financial statements, Farmer Mac accounts for its financial
derivatives as undesignated financial derivatives. All of Farmer
Mac’s financial derivative transactions are conducted under standard
collateralized agreements that limit Farmer Mac’s potential credit exposure to
any counterparty. As of March 31, 2008, Farmer Mac had
uncollateralized net exposure of $2.3 million to one counterparty.
Credit
Risk. Farmer Mac’s
primary exposure to credit risk is the risk of loss resulting from the inability
of borrowers to repay their mortgages in conjunction with a deficiency in the
value of the collateral relative to the amount outstanding on the mortgage and
the costs of liquidation. Farmer Mac has established underwriting,
collateral valuation (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 sheets:
|
·
|
an
“Allowance for loan losses” on loans
held;
|
|
·
|
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 condensed
consolidated statements of operations:
|
·
|
a
“Provision for loan losses,” which represents losses on Farmer Mac’s loans
held; 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.
Prior to
third quarter 2007, no allowance for losses had been made for loans underlying
Pre-1996 Act Farmer Mac I Guaranteed Securities, AgVantage securities or Farmer
Mac II Guaranteed Securities. Pre-1996 Act Farmer Mac I Guaranteed
Securities are supported by unguaranteed first loss subordinated interests,
which are expected to exceed the estimated credit losses on those
loans. Through June 30, 2007, Farmer Mac had not experienced any
credit losses on any Pre-1996 Act Farmer Mac I Guaranteed
Securities. In third quarter 2007, Farmer Mac charged off $0.4
million related to one loan underlying Pre-1996 Act Farmer Mac I Guaranteed
Securities. The remaining $2.4 million of Pre-1996 Act Farmer
Mac I Guaranteed Securities represent interests in seasoned performing loans
with low loan-to-value ratios. Farmer Mac does not expect to incur
any further losses on the remaining Pre-1996 Act Farmer Mac I Guaranteed
Securities in the future. Each AgVantage security is a general
obligation of an issuing institution approved by Farmer Mac and is
collateralized by eligible mortgage loans. As of March 31, 2008,
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. As of March 31, 2008, Farmer Mac had not experienced any
credit losses on any AgVantage securities and does not expect to incur any such
losses in the future. The guaranteed portions collateralizing Farmer
Mac II Guaranteed Securities are guaranteed by the USDA. Each USDA
guarantee is an obligation backed by the full faith and credit of the United
States. As of March 31, 2008, Farmer Mac had not experienced any
credit losses on 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 ended March 31, 2008 and
2007:
|
|
|
|
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,690 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,887 |
|
Provision/(recovery)
for losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(39 |
) |
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
1,651 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,945 |
|
|
$ |
- |
|
|
$ |
2,610 |
|
|
$ |
4,555 |
|
Provision/(recovery)
for losses
|
|
|
(215 |
) |
|
|
- |
|
|
|
(413 |
) |
|
|
(628 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
1,730 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,927 |
|
During
first quarter 2008, Farmer Mac made no provision for its allowance for losses,
compared to a release of $0.6 million in first quarter 2007. During
first quarter 2008, Farmer Mac had $39,000 of charge-offs against the allowance
for losses and no recoveries. Farmer Mac did not have any recoveries
or charge-offs against the allowance for losses during first quarter
2007. There was no previously accrued or advanced interest on loans
or Farmer Mac I Guaranteed Securities charged off in first quarter 2008 or first
quarter 2007. As of March 31, 2008, Farmer Mac’s allowance for losses
totaled $3.8 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
$3.9 million (8 basis points) as of December 31,
2007.
As of
March 31, 2008, Farmer Mac’s 90-day delinquencies totaled $11.0 million and
represented 0.22 percent of the principal balance of all loans held and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities (excluding AgVantage
securities) and LTSPCs, compared to $28.3 million (0.58 percent) as of
March 31, 2007. As of March 31, 2008, Farmer Mac’s non-performing
assets (which include 90-day delinquencies, loans performing in bankruptcy, and
real estate owned) totaled $31.6 million and represented 0.64 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 $50.0 million (1.02 percent) as of March 31,
2007. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
$ |
4,933,720 |
|
|
$ |
31,640 |
|
|
|
0.64 |
% |
|
$ |
20,666 |
|
|
$ |
10,974 |
|
|
|
0.22 |
% |
December 31,
2007
|
|
|
5,063,164 |
|
|
|
31,924 |
|
|
|
0.63 |
% |
|
|
21,340 |
|
|
|
10,584 |
|
|
|
0.21 |
% |
September 30,
2007
|
|
|
4,891,525 |
|
|
|
37,364 |
|
|
|
0.76 |
% |
|
|
20,341 |
|
|
|
17,023 |
|
|
|
0.35 |
% |
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 |
% |
(1)
|
Excludes
loans underlying AgVantage
securities.
|
As of
March 31, 2008, approximately $1.3 billion (26.4 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 $1.5 billion (30.7 percent) as of March 31,
2007.
As of
March 31, 2008, Farmer Mac individually analyzed $13.3 million of its
$41.2 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $27.9 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 $13.3 million of assets analyzed individually
were adequately collateralized. Accordingly, Farmer Mac did not
record any specific allowances for any of its impaired assets as of March 31,
2008. Farmer Mac’s non-specific or general allowances were $3.8
million as of March 31, 2008.
As of
March 31, 2008, the weighted-average original loan-to-value (“LTV”) ratio for
all loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities (excluding AgVantage securities) and LTSPCs was 49.8 percent, and the
weighted-average original LTV ratio for all post-1996 Act non-performing assets
was 56.7 percent. The following table summarizes the post-1996 Act
non-performing assets by original LTV ratio:
Distribution
of Post-1996 Act Non-performing
|
|
Assets
by Original LTV Ratio
|
|
as
of March 31, 2008
|
|
(dollars
in thousands)
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
Non-performing
|
|
|
|
|
Original
LTV Ratio
|
|
Assets
|
|
|
Percentage
|
|
0.00% to 40.00%
|
|
$ |
2,576 |
|
|
|
8 |
% |
40.01%
to 50.00%
|
|
|
6,154 |
|
|
|
19 |
% |
50.01%
to 60.00%
|
|
|
12,326 |
|
|
|
40 |
% |
60.01%
to 70.00%
|
|
|
9,963 |
|
|
|
31 |
% |
70.01%
to 80.00%
|
|
|
402 |
|
|
|
1 |
% |
80.01%
+
|
|
|
219 |
|
|
|
1 |
% |
Total
|
|
$ |
31,640 |
|
|
|
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 March 31, 2008 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
|
|
|
11 |
% |
|
$ |
528,448 |
|
|
$ |
7,421 |
|
|
|
1.40 |
% |
1997
|
|
|
4 |
% |
|
|
205,181 |
|
|
|
3,350 |
|
|
|
1.63 |
% |
1998
|
|
|
7 |
% |
|
|
339,507 |
|
|
|
5,291 |
|
|
|
1.56 |
% |
1999
|
|
|
8 |
% |
|
|
390,434 |
|
|
|
4,348 |
|
|
|
1.11 |
% |
2000
|
|
|
4 |
% |
|
|
208,568 |
|
|
|
3,045 |
|
|
|
1.46 |
% |
2001
|
|
|
8 |
% |
|
|
383,081 |
|
|
|
3,145 |
|
|
|
0.82 |
% |
2002
|
|
|
9 |
% |
|
|
464,209 |
|
|
|
837 |
|
|
|
0.18 |
% |
2003
|
|
|
10 |
% |
|
|
483,884 |
|
|
|
777 |
|
|
|
0.16 |
% |
2004
|
|
|
7 |
% |
|
|
356,961 |
|
|
|
299 |
|
|
|
0.08 |
% |
2005
|
|
|
11 |
% |
|
|
541,532 |
|
|
|
697 |
|
|
|
0.13 |
% |
2006
|
|
|
12 |
% |
|
|
565,779 |
|
|
|
1,821 |
|
|
|
0.32 |
% |
2007
|
|
|
8 |
% |
|
|
416,177 |
|
|
|
609 |
|
|
|
0.15 |
% |
2008
|
|
|
1 |
% |
|
|
49,959 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
$ |
4,933,720 |
|
|
$ |
31,640 |
|
|
|
0.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
16 |
% |
|
$ |
797,491 |
|
|
$ |
23,355 |
|
|
|
2.93 |
% |
Southwest
|
|
|
38 |
% |
|
|
1,908,843 |
|
|
|
2,133 |
|
|
|
0.11 |
% |
Mid-North
|
|
|
23 |
% |
|
|
1,112,035 |
|
|
|
1,779 |
|
|
|
0.16 |
% |
Mid-South
|
|
|
11 |
% |
|
|
549,402 |
|
|
|
2,134 |
|
|
|
0.39 |
% |
Northeast
|
|
|
8 |
% |
|
|
380,901 |
|
|
|
828 |
|
|
|
0.22 |
% |
Southeast
|
|
|
4 |
% |
|
|
185,048 |
|
|
|
1,411 |
|
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
$ |
4,933,720 |
|
|
$ |
31,640 |
|
|
|
0.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
41 |
% |
|
$ |
2,015,523 |
|
|
$ |
16,507 |
|
|
|
0.82 |
% |
Permanent
plantings
|
|
|
19 |
% |
|
|
948,608 |
|
|
|
10,676 |
|
|
|
1.13 |
% |
Livestock
|
|
|
26 |
% |
|
|
1,288,979 |
|
|
|
3,064 |
|
|
|
0.24 |
% |
Part-time
farm/rural housing
|
|
|
7 |
% |
|
|
356,883 |
|
|
|
1,246 |
|
|
|
0.35 |
% |
Ag
storage and processing (including ethanol
facilities)
|
|
|
6 |
% |
|
|
284,045 |
|
|
|
- |
|
|
|
0.00 |
% |
Other
|
|
|
1 |
% |
|
|
39,682 |
|
|
|
147 |
|
|
|
0.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
$ |
4,933,720 |
|
|
$ |
31,640 |
|
|
|
0.64 |
% |
(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 March 31, 2008, 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
|
|
$ |
3,433,997 |
|
|
$ |
1,589 |
|
|
|
0.05 |
% |
1997
|
|
|
758,090 |
|
|
|
2,493 |
|
|
|
0.33 |
% |
1998
|
|
|
1,132,337 |
|
|
|
3,895 |
|
|
|
0.34 |
% |
1999
|
|
|
1,155,461 |
|
|
|
1,291 |
|
|
|
0.11 |
% |
2000
|
|
|
742,578 |
|
|
|
2,285 |
|
|
|
0.31 |
% |
2001
|
|
|
1,082,370 |
|
|
|
701 |
|
|
|
0.06 |
% |
2002
|
|
|
1,070,784 |
|
|
|
- |
|
|
|
0.00 |
% |
2003
|
|
|
872,958 |
|
|
|
- |
|
|
|
0.00 |
% |
2004
|
|
|
613,925 |
|
|
|
- |
|
|
|
0.00 |
% |
2005
|
|
|
734,965 |
|
|
|
49 |
|
|
|
0.01 |
% |
2006
|
|
|
692,852 |
|
|
|
- |
|
|
|
0.00 |
% |
2007
|
|
|
482,421 |
|
|
|
- |
|
|
|
0.00 |
% |
2008
|
|
|
50,744 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,823,482 |
|
|
$ |
12,303 |
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,383,787 |
|
|
$ |
6,896 |
|
|
|
0.29 |
% |
Southwest
|
|
|
5,182,573 |
|
|
|
4,784 |
|
|
|
0.09 |
% |
Mid-North
|
|
|
2,188,662 |
|
|
|
57 |
|
|
|
0.00 |
% |
Mid-South
|
|
|
1,078,991 |
|
|
|
336 |
|
|
|
0.03 |
% |
Northeast
|
|
|
1,098,804 |
|
|
|
1 |
|
|
|
0.00 |
% |
Southeast
|
|
|
890,665 |
|
|
|
229 |
|
|
|
0.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,823,482 |
|
|
$ |
12,303 |
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
5,196,662 |
|
|
$ |
11 |
|
|
|
0.00 |
% |
Permanent
plantings
|
|
|
2,898,366 |
|
|
|
9,359 |
|
|
|
0.32 |
% |
Livestock
|
|
|
3,264,012 |
|
|
|
2,676 |
|
|
|
0.08 |
% |
Part-time
farm/rural housing
|
|
|
914,187 |
|
|
|
257 |
|
|
|
0.03 |
% |
Ag
storage and processing (including ethanol
facilities)
|
|
|
411,389 |
(3) |
|
|
- |
|
|
|
0.00 |
% |
Other
|
|
|
138,866 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,823,482 |
|
|
$ |
12,303 |
|
|
|
0.10 |
% |
(1)
|
Excludes
loans underlying AgVantage
securities.
|
(2)
|
Geographic
regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA, WY);Southwest (AZ,
CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN,MO, WI); Mid-South
(KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY, OH, PA,
RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS,
SC).
|
(3)
|
Several
of the loans underlying agricultural storage and processing LTSPCs are for
facilities under construction, and as of March 31, 2008, approximately
$64.1 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 12 months and for the foreseeable future and, in accordance with Farmer
Mac’s commitment to FCA, has a liquidity contingency plan to manage
unanticipated disruptions in its access to the capital
markets. Consistent with FCA regulations, Farmer Mac maintains a
minimum of 60 days of liquidity and a target of 90 days of
liquidity. During first quarter 2008, Farmer Mac maintained an
average of 85 days of liquidity.
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 $5.1 billion was outstanding
as of March 31, 2008), 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 had ready access to the capital markets at favorable
rates. Farmer Mac’s access to capital markets funding has remained
strong despite recent market volatility. Farmer Mac has also used
floating-to-fixed interest rate swaps, combined with discount note issuances, as
a source of fixed-rate funding. While the swap market may provide
favorable fixed rates, swap transactions expose Farmer Mac to the risk of future
widening of its own issuance spreads versus corresponding LIBOR
rates. If the spreads on the Farmer Mac discount notes were to
increase relative to LIBOR, Farmer Mac would be exposed to a commensurate
reduction on its net interest yield on the notional amount of its
floating-to-fixed interest rate swaps and other LIBOR-based floating rate
assets.
Farmer
Mac maintains cash and liquidity investments in cash equivalents (including
commercial paper and other short-term money market instruments) and liquid
investment securities that can be drawn upon for liquidity needs. As
of March 31, 2008, Farmer Mac’s portfolio of non-program investments consisted
of: $200.0 million of cash and cash equivalents; $689.1 million of
securities issued or guaranteed by GSEs or the U.S. Government and its agencies;
$2.0 million of commercial paper; $178.0 million of commercial bank certificates
of deposit; $300.5 million of asset-backed securities (principally backed by
Government guaranteed student loans); and $527.6 million of corporate debt
securities, including financial institutions. In addition, Farmer Mac
held $1.4 billion of mission-related investments authorized by
FCA. Farmer Mac did not hold any investments in securities backed by
sub-prime or Alt-A residential or commercial mortgages or home-equity
loans.
Farmer
Mac’s asset-backed investment securities include callable, AAA-rated
auction-rate certificates (“ARCs”), the interest rates on which are reset
through an auction process, most commonly at intervals of 28
days. Farmer Mac held $229.4 million of ARCs as of March 31, 2008 and
$131.5 million as of December 31, 2007. From mid-February
through mid-May 2008, there were widespread failures of the auction mechanism
designed to provide regular liquidity to these types of
securities. Consequently, Farmer Mac has not sold any of its ARCs
into the auctions since that time and there may be no efficient auction
mechanism for selling these securities in the near term. All ARCs
held by Farmer Mac are collateralized entirely by pools of Federal Family
Education Loan Program (“FFELP”) guaranteed student loans that are backed by the
full faith and credit of the United States. Farmer Mac continues to
believe that the credit quality of these securities is high, based on that
guarantee and the securities’ continued AAA ratings. To date, Farmer
Mac has received all interest due on ARCs it holds and expects to continue to do
so. Farmer Mac does not believe that the auction failures will affect
the Corporation’s liquidity or its ability to fund its operations or make
dividend payments. All ARCs held by Farmer Mac are callable by the
issuers at par at any time and Farmer Mac believes it is likely they will be
called or repurchased during the next twelve months. Due to the
absence of an active auction market or other market trading in ARCs, during
first quarter 2008 Farmer Mac transferred all of its ARCs from Level 2 to Level
3 and recorded the ARCs as of March 31, 2008 at fair values of between 99
percent of par and par. The discounted values reflect uncertainty
regarding the ability to obtain par in the absence of any active market
trading. The par valuations reflect actual par tender offers received
on some of Farmer Mac’s ARC holdings. On April 22, 2008, Farmer Mac
received a par tender offer for $20.0 million of its ARC
holdings. Farmer Mac has tendered those bonds and will receive par
upon settlement on May 21, 2008.
Capital. During
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 the 2005 program reached the maximum number of
authorized shares, thereby terminating that 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. During first quarter 2008, the aggregate number of shares
repurchased by Farmer Mac under the 2007 program reached the maximum number of
authorized shares, thereby terminating that program according to its
terms. During first quarter 2008 and first quarter 2007, Farmer Mac repurchased
31,691 and 360,482 shares, respectively, of its Class C Non-Voting Common Stock at
an average price of $26.13 and $26.24 per share, respectively, pursuant to the
Corporation’s stock repurchase programs. These repurchases reduced
the Corporation’s stockholders’
equity by
approximately $0.8 million and $9.5 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 a fixed day at least two weeks prior to the
dividend payment date. On April 3, 2008, Farmer Mac’s board of
directors declared a quarterly dividend of $0.10 per share on the Corporation’s
three classes of common stock payable on June 30, 2008 to holders of record as
of June 13, 2008. 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, 2007, as filed
with the SEC on March 17, 2008. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
$ |
37,468 |
|
|
$ |
53,281 |
|
|
$ |
53,114 |
|
|
$ |
143,863 |
|
December 31,
2007
|
|
|
40,664 |
|
|
|
265,135 |
|
|
|
48,294 |
|
|
|
354,093 |
|
September
30, 2007
|
|
|
25,545 |
|
|
|
156,930 |
|
|
|
49,049 |
|
|
|
231,524 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
1,127,709 |
|
|
|
970,789 |
|
|
|
210,040 |
|
|
|
2,308,538 |
|
December 31,
2006
|
|
|
1,598,673 |
|
|
|
1,139,699 |
|
|
|
234,684 |
|
|
|
2,973,056 |
|
(1)
|
During
2005, Farmer Mac began issuing LTSPCs for the construction of agricultural
storage and processing facilities. As of March 31, 2008,
approximately $64.1 million of the loans underlying those $284.0 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
$ |
5,519,539 |
|
|
$ |
1,943,181 |
|
|
$ |
2,406 |
|
|
$ |
959,444 |
|
|
$ |
8,424,570 |
|
December 31,
2007
|
|
|
5,645,023 |
|
|
|
1,948,941 |
|
|
|
3,174 |
|
|
|
946,617 |
|
|
|
8,543,755 |
|
September 30,
2007
|
|
|
5,691,797 |
|
|
|
1,724,328 |
|
|
|
3,174 |
|
|
|
943,183 |
|
|
|
8,362,482 |
|
June 30,
2007
|
|
|
5,783,879 |
|
|
|
1,644,413 |
|
|
|
3,611 |
|
|
|
942,443 |
|
|
|
8,374,346 |
|
March 31,
2007
|
|
|
4,508,595 |
|
|
|
1,920,848 |
|
|
|
3,748 |
|
|
|
932,056 |
|
|
|
7,365,247 |
|
December 31,
2006
|
|
|
4,338,698 |
|
|
|
1,969,734 |
|
|
|
5,057 |
|
|
|
925,799 |
|
|
|
7,239,288 |
|
September 30,
2006
|
|
|
4,267,309 |
|
|
|
1,884,223 |
|
|
|
5,802 |
|
|
|
900,835 |
|
|
|
7,058,169 |
|
June 30,
2006
|
|
|
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 |
|
The Loans
and Guaranteed Securities and LTSPCs amounts in the table above reflect the
following conversions of existing LTSPCs to Farmer Mac I Guaranteed Securities
at the request of program participants.
Conversions
of LTSPCs to
|
|
Farmer
Mac I Guaranteed Securities
|
|
(in
thousands)
|
|
|
|
|
|
During
the quarter ended:
|
|
|
|
March 31,
2008
|
|
$ |
- |
|
December 31,
2007
|
|
|
- |
|
September 30,
2007
|
|
|
17,189 |
|
June 30,
2007
|
|
|
360,777 |
|
March 31,
2007
|
|
|
303,766 |
|
December 31,
2006
|
|
|
143,582 |
|
September 30,
2006
|
|
|
341,164 |
|
June 30,
2006
|
|
|
550,114 |
|
March 31,
2006
|
|
|
- |
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
$ |
963,336 |
|
|
$ |
748,584 |
|
|
$ |
342,496 |
|
|
$ |
2,054,416 |
|
December 31,
2007
|
|
|
962,320 |
|
|
|
750,472 |
|
|
|
352,250 |
|
|
|
2,065,042 |
|
September 30,
2007
|
|
|
932,134 |
|
|
|
735,704 |
|
|
|
366,573 |
|
|
|
2,034,411 |
|
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 |
|
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—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(d) to the interim unaudited condensed consolidated
financial statements contained in this report. See “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” for further information regarding
Farmer Mac’s debt issuance and liquidity risks.
Item
4.
|
Controls and
Procedures
|
(a) Management’s Evaluation of
Disclosure Controls and Procedures. Farmer Mac maintains
disclosure controls and procedures designed to ensure that information required
to be disclosed in the Corporation’s periodic filings under the Securities
Exchange Act of 1934 (the “Exchange Act”), including this report, is recorded,
processed, summarized and reported on a timely basis. These
disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed under the Exchange Act is
accumulated and communicated to the Corporation’s management on a timely basis
to allow decisions regarding required disclosure. Management,
including Farmer Mac’s Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Corporation’s
disclosure controls and procedures (as defined under Rules 13a-15(e) and
15d-15(e) of the Exchange Act) as of March 31, 2008. Based on
management’s assessment, the Chief Executive Officer and the Chief Financial
Officer have concluded that Farmer Mac’s disclosure controls and procedures were
effective as of March 31, 2008.
(b) Changes in Internal Control
Over Financial Reporting. There were no changes in Farmer
Mac’s internal control over financial reporting during the quarter ended March
31, 2008 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, 2007, as filed
with the SEC on March 17, 2008.
Item
2.
|
Unregistered Sales of
Equity Securities and Use of
Proceeds
|
|
(a)
|
Farmer
Mac is a federally chartered instrumentality of the United States and its
Common Stock is exempt from registration pursuant to Section 3(a)(2)
of the Securities Act of 1933.
|
On
January 8, 2008, 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
810 shares of its Class C Non-Voting Common Stock, at an issue price of
$26.32 per share, to the seven directors who elected to receive such stock in
lieu of their cash retainers.
|
(c)
|
As
shown in the table below, Farmer Mac repurchased 31,691 shares of its
Class C Non-Voting Common Stock during first quarter 2008 at an
average price of $26.13 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
Number
|
|
|
|
Total
Number
|
|
|
Average
|
|
|
Purchased
as Part
|
|
|
of
Class C Shares
|
|
|
|
of
Class C
|
|
|
Price
Paid
|
|
|
of
Publicly
|
|
|
that
May Yet Be
|
|
|
|
Shares
|
|
|
per
Class
|
|
|
Announced
|
|
|
Purchased
Under
|
|
Period
|
|
Purchased
|
|
|
C
Share
|
|
|
Program1
|
|
|
the
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2008 - January 31, 2008
|
|
|
31,691 |
|
|
$ |
26.13 |
|
|
|
31,691 |
|
|
|
- |
|
February 1,
2008 - February 29, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
March 1,
2008 - March 31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
31,691 |
|
|
$ |
26.13 |
|
|
|
31,691 |
|
|
|
- |
|
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 aggregate number of shares
purchased by Farmer Mac under this stock repurchase program reached the
maximum number of authorized shares during first quarter 2008, thereby
terminating the program according to its
terms.
|
Item
3.
|
Defaults Upon Senior
Securities
|
Item
4.
|
Submission of Matters
to a Vote of Security
Holders
|
None.
Item
5.
|
Other
Information
|
*
|
3.1
|
-
|
Title
VIII of the Farm Credit Act of 1971, as most recently amended by the Farm
Credit System Reform Act of 1996, P.L. 104-105 (Form 10-K filed March 29,
1996).
|
|
|
|
|
*
|
3.2
|
-
|
Amended
and Restated By-Laws of the Registrant (Form 10-K filed
March 17, 2008).
|
|
|
|
|
*
|
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).
|
|
|
|
|
†*
|
10.2.16
|
-
|
Amendment
No. 16 dated as of June 7, 2007 to Employment Contract between Henry
D. Edelman and the Registrant (Form 10-Q filed August 9,
2007).
|
|
|
|
|
†*
|
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).
|
______________
*
|
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
|
†*
|
10.3.6
|
-
|
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).
|
|
|
|
|
†*
|
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).
|
|
|
|
|
†*
|
10.3.19
|
-
|
Amendment
No. 19 dated as of June 7, 2007 to Employment Contract between Nancy
E. Corsiglia and the Registrant (Form 10-Q filed August 9,
2007).
|
|
|
|
|
†*
|
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).
|
______________
*
|
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
|
†*
|
10.4.7
|
-
|
Amendment
No. 7 dated as of August 3, 2004 to Employment Contract between Tom
D. Stenson and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.4.8
|
-
|
Amendment
No. 8 dated as of June 16, 2005 to Employment Contract between
Tom D. Stenson and the Registrant (Form 10-Q filed
August 9, 2005).
|
|
|
|
|
†*
|
10.4.9
|
-
|
Amendment
No. 9 dated as of June 1, 2006 to Employment Contract between
Tom D. Stenson and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.4.10
|
-
|
Amendment
No. 10 dated as of June 7, 2007 to Employment Contract between
Tom D. Stenson and the Registrant (Form 10-Q filed August 9,
2007).
|
|
|
|
|
†*
|
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).
|
______________
*
|
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
|
-
|
Employment
Contract dated June 5, 2003 between Timothy L. Buzby and the Registrant
(Form 10-Q filed August 14, 2003).
|
|
|
|
|
†*
|
10.6.1
|
-
|
Amendment
No. 1 dated as of August 3, 2004 to Employment Contract between Timothy L.
Buzby and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
†*
|
10.6.2
|
-
|
Amendment
No. 2 dated as of June 16, 2005 to Employment Contract between
Timothy L. Buzby and the Registrant (Form 10-Q filed
August 9, 2005).
|
|
|
|
|
†*
|
10.6.3
|
-
|
Amendment
No. 3 dated as of June 1, 2006 to Employment Contract between Timothy
L. Buzby and the Registrant (Form 10-Q filed
August 9, 2006).
|
|
|
|
|
†*
|
10.6.4
|
-
|
Amendment
No. 4 dated as of June 7, 2007 to Employment Contract between Timothy
L. Buzby and the Registrant (Form 10-Q filed August 9,
2007).
|
|
|
|
|
*
|
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
|
-
|
Amended
and Restated Master Central Servicing Agreement dated as of May 1,
2004 between Zions First National Bank and the Registrant (Previously
filed as Exhibit 10.11.2 to Form 10-Q filed August 9,
2004).
|
|
|
|
|
*#
|
10.12
|
-
|
Loan
Closing File Review Agreement dated as of August 2, 2005 between
Zions First National Bank and the Registrant (Form 10-Q filed
November 9, 2005).
|
______________
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment
|
*#
|
10.13
|
-
|
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 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
|
†*
|
10.18.2
|
-
|
Amendment
No. 2 dated as of June 7, 2007 to Employment Contract between
Mary K. Waters and the Registrant (Form 10-Q filed
August 9, 2007).
|
|
|
|
|
†*
|
10.19
|
-
|
Description
of compensation agreement between the Registrant and its directors
(Form 10-Q filed August 9, 2007).
|
|
|
|
|
*#
|
10.20
|
-
|
Long
Term Standby Commitment to Purchase dated as of August 1, 2007
between Farm Credit Bank of Texas and the Registrant (Form 10-Q filed
November 8, 2007).
|
|
|
|
|
†*
|
10.21
|
-
|
Form
of Indemnification Agreement for Directors (Previously filed as Exhibit
10.1 to Form 8-K filed April 9, 2008).
|
|
|
|
|
|
21
|
-
|
Farmer
Mac Mortgage Securities Corporation, a Delaware
corporation.
|
|
|
|
|
**
|
|
-
|
Certification
of Chief Executive Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2008, 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 March 31, 2008, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
**
|
|
-
|
Certification
of Chief Executive Officer and Chief Financial Officer relating to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
______________
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
May 12,
2008
|
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 and Chief Financial Officer
|
|
|
(Principal
Financial Officer)
|
-72-