As filed
with the Securities and Exchange Commission on
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, 2009
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
Washington,
D.C.
|
|
20036
|
(Address
of principal executive offices)
|
|
(Zip
code)
|
(202)
872-7700
|
(Registrant’s
telephone number, including area
code)
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
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
|
o
|
Accelerated
filer x
|
|
|
|
Non-accelerated
filer
|
o
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
As of May
1, 2009 the registrant had 1,030,780 shares of Class A Voting Common
Stock, 500,301 shares of Class B Voting Common Stock and 8,606,617
shares of Class C Non-Voting Common Stock outstanding.
PART
I - FINANCIAL INFORMATION
Item
1.
|
Condensed Consolidated
Financial Statements
|
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, 2009 and
December 31, 2008
|
3
|
Condensed
Consolidated Statements of Operations for the three months ended March 31,
2009 and 2008
|
4
|
Condensed
Consolidated Statements of Cash Flows for the three months ended March 31,
2009 and 2008
|
5
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
283,801 |
|
|
$ |
278,412 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair
value
|
|
|
867,942 |
|
|
|
1,072,096 |
|
Trading, at fair
value
|
|
|
178,752 |
|
|
|
163,763 |
|
Total investment
securities
|
|
|
1,046,694 |
|
|
|
1,235,859 |
|
Farmer Mac Guaranteed
Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair
value
|
|
|
1,564,907 |
|
|
|
1,511,694 |
|
Trading, at fair
value
|
|
|
925,747 |
|
|
|
939,550 |
|
Total Farmer Mac Guaranteed
Securities
|
|
|
2,490,654 |
|
|
|
2,451,244 |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of
cost or fair value
|
|
|
590,343 |
|
|
|
66,680 |
|
Loans held for investment, at
amortized cost
|
|
|
80,338 |
|
|
|
718,845 |
|
Allowance for loan
losses
|
|
|
(13,228 |
) |
|
|
(10,929 |
) |
Total loans, net of
allowance
|
|
|
657,453 |
|
|
|
774,596 |
|
|
|
|
|
|
|
|
|
|
Real estate owned, at lower of
cost or fair value
|
|
|
606 |
|
|
|
606 |
|
Financial derivatives, at fair
value
|
|
|
24,545 |
|
|
|
27,069 |
|
Interest
receivable
|
|
|
46,939 |
|
|
|
73,058 |
|
Guarantee and commitment fees
receivable
|
|
|
56,339 |
|
|
|
61,109 |
|
Deferred tax asset,
net
|
|
|
72,668 |
|
|
|
87,793 |
|
Prepaid expenses and other
assets
|
|
|
91,178 |
|
|
|
117,561 |
|
Total
Assets
|
|
$ |
4,770,877 |
|
|
$ |
5,107,307 |
|
|
|
|
|
|
|
|
|
|
Liabilities, Mezzanine Equity and
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due within one
year
|
|
$ |
3,286,336 |
|
|
$ |
3,757,099 |
|
Due after one
year
|
|
|
1,005,981 |
|
|
|
887,999 |
|
Total notes
payable
|
|
|
4,292,317 |
|
|
|
4,645,098 |
|
|
|
|
|
|
|
|
|
|
Financial derivatives, at fair
value
|
|
|
163,666 |
|
|
|
181,183 |
|
Accrued interest
payable
|
|
|
34,821 |
|
|
|
40,470 |
|
Guarantee and commitment
obligation
|
|
|
51,790 |
|
|
|
54,954 |
|
Accounts payable and accrued
expenses
|
|
|
15,576 |
|
|
|
20,532 |
|
Reserve for
losses
|
|
|
8,025 |
|
|
|
5,506 |
|
Total
Liabilities
|
|
|
4,566,195 |
|
|
|
4,947,743 |
|
|
|
|
|
|
|
|
|
|
Mezzanine
Equity:
|
|
|
|
|
|
|
|
|
Series B redeemable preferred
stock, par value $1,000,
|
|
|
|
|
|
|
|
|
150,000 shares authorized, issued
and outstanding
|
|
|
144,216 |
|
|
|
144,216 |
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
|
|
|
|
Series C, stated at
redemption/liquidation value,
|
|
|
|
|
|
|
|
|
$1000 per share, 75,000 shares
authorized, 20,000 and 9,200 issued and
|
|
|
|
|
|
|
|
|
outstanding as of March 31, 2009
and December 31, 2008, respectively
|
|
|
20,000 |
|
|
|
9,200 |
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class A Voting, $1 par value, no
maximum authorization
|
|
|
1,031 |
|
|
|
1,031 |
|
Class B Voting, $1 par value, no
maximum authorization
|
|
|
500 |
|
|
|
500 |
|
Class C Non-Voting, $1 par value,
no maximum authorization
|
|
|
8,604 |
|
|
|
8,601 |
|
Additional paid-in
capital
|
|
|
95,073 |
|
|
|
95,572 |
|
Accumulated other comprehensive
loss
|
|
|
(45,609 |
) |
|
|
(47,412 |
) |
Accumulated
deficit
|
|
|
(19,133 |
) |
|
|
(52,144 |
) |
Total Stockholders'
Equity
|
|
|
60,466 |
|
|
|
15,348 |
|
Total Liabilities, Mezzanine
Equity and Stockholders' Equity
|
|
$ |
4,770,877 |
|
|
$ |
5,107,307 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in thousands, except per share
amounts)
|
|
Interest
income:
|
|
|
|
|
|
|
Investments and cash
equivalents
|
|
$ |
8,909 |
|
|
$ |
41,508 |
|
Farmer Mac Guaranteed
Securities
|
|
|
27,759 |
|
|
|
18,770 |
|
Loans
|
|
|
10,485 |
|
|
|
11,831 |
|
Total interest
income
|
|
|
47,153 |
|
|
|
72,109 |
|
Total interest
expense
|
|
|
23,713 |
|
|
|
54,171 |
|
Net interest
income
|
|
|
23,440 |
|
|
|
17,938 |
|
Provision for loan
losses
|
|
|
(3,534 |
) |
|
|
- |
|
Net interest income after
provision for loan losses
|
|
|
19,906 |
|
|
|
17,938 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income/(loss):
|
|
|
|
|
|
|
|
|
Guarantee and commitment
fees
|
|
|
7,410 |
|
|
|
6,634 |
|
Gains/(losses) on financial
derivatives
|
|
|
1,711 |
|
|
|
(41,720 |
) |
Gains on trading
assets
|
|
|
31,625 |
|
|
|
10,111 |
|
Impairment losses on
available-for-sale investment securities
|
|
|
(81 |
) |
|
|
- |
|
Gains on sale of
available-for-sale investment securities
|
|
|
3,150 |
|
|
|
1 |
|
Gains on sale of loans and Farmer
Mac Guaranteed Securities
|
|
|
1,581 |
|
|
|
- |
|
Other
income
|
|
|
234 |
|
|
|
460 |
|
Non-interest
income/(loss)
|
|
|
45,630 |
|
|
|
(24,514 |
) |
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Compensation and employee
benefits
|
|
|
4,025 |
|
|
|
3,650 |
|
General and
administrative
|
|
|
2,914 |
|
|
|
2,028 |
|
Regulatory
fees
|
|
|
513 |
|
|
|
513 |
|
Real estate owned operating costs,
net
|
|
|
21 |
|
|
|
49 |
|
Provision for
losses
|
|
|
2,519 |
|
|
|
- |
|
Non-interest
expense
|
|
|
9,992 |
|
|
|
6,240 |
|
Income/(loss) before income
taxes
|
|
|
55,544 |
|
|
|
(12,816 |
) |
Income tax
expense/(benefit)
|
|
|
18,090 |
|
|
|
(5,119 |
) |
Net
income/(loss)
|
|
|
37,454 |
|
|
|
(7,697 |
) |
Preferred stock
dividends
|
|
|
(3,936 |
) |
|
|
(560 |
) |
Net income/(loss) available to
common stockholders
|
|
$ |
33,518 |
|
|
$ |
(8,257 |
) |
|
|
|
|
|
|
|
|
|
Earnings per common share and
dividends:
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per common
share
|
|
$ |
3.31 |
|
|
$ |
(0.84 |
) |
Diluted earnings/(loss) per common
share
|
|
$ |
3.31 |
|
|
$ |
(0.84 |
) |
Common stock dividends per common
share
|
|
$ |
0.05 |
|
|
$ |
0.10 |
|
See
accompanying notes to condensed consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
37,454 |
|
|
$ |
(7,697 |
) |
Adjustments to reconcile
net income to net cash provided by operating
activities:
|
|
Net amortization of premiums and
discounts on loans and investments
|
|
|
1,228 |
|
|
|
1,141 |
|
Amortization of debt premiums,
discounts and issuance costs
|
|
|
4,826 |
|
|
|
28,538 |
|
Proceeds from repayment and sale
of trading investment securities
|
|
|
268 |
|
|
|
423 |
|
Purchases of loans held for
sale
|
|
|
(15,144 |
) |
|
|
(8,424 |
) |
Proceeds from repayment of loans
held for sale
|
|
|
1,538 |
|
|
|
4,095 |
|
Net change in fair value of
trading securities and financial derivatives
|
|
|
(46,617 |
) |
|
|
28,889 |
|
Amortization of SFAS 133
transition adjustment on financial derivatives
|
|
|
39 |
|
|
|
72 |
|
Impairment losses on
available-for-sale investment securities
|
|
|
81 |
|
|
|
- |
|
Gains on sale of
available-for-sale investment securities
|
|
|
(3,150 |
) |
|
|
(1 |
) |
Gains on sale of loans and Farmer
Mac Guaranteed Securities
|
|
|
(1,581 |
) |
|
|
- |
|
Total provision for
losses
|
|
|
6,053 |
|
|
|
- |
|
Deferred income
taxes
|
|
|
13,290 |
|
|
|
(10,679 |
) |
Stock-based compensation
expense
|
|
|
654 |
|
|
|
914 |
|
Decrease in interest
receivable
|
|
|
26,119 |
|
|
|
33,291 |
|
Decrease in guarantee and
commitment fees receivable
|
|
|
4,770 |
|
|
|
2,079 |
|
Decrease/(increase) in other
assets
|
|
|
25,753 |
|
|
|
(7,804 |
) |
Decrease in accrued interest
payable
|
|
|
(5,649 |
) |
|
|
(16,273 |
) |
Decrease in other
liabilities
|
|
|
(9,843 |
) |
|
|
(12,203 |
) |
Net cash provided by
operating activities
|
|
|
40,089 |
|
|
|
36,361 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale
investment securities
|
|
|
- |
|
|
|
(835,025 |
) |
Purchases of Farmer Mac Guaranteed
Securities
|
|
|
(352,078 |
) |
|
|
(60,281 |
) |
Purchases of loans held for
investment
|
|
|
(14,670 |
) |
|
|
(29,044 |
) |
Purchases of defaulted
loans
|
|
|
(5,030 |
) |
|
|
(1,163 |
) |
Proceeds from repayment of
available-for-sale investment securities
|
|
|
82,531 |
|
|
|
367,527 |
|
Proceeds from repayment of Farmer
Mac Guaranteed Securities
|
|
|
67,277 |
|
|
|
69,697 |
|
Proceeds from repayment of
loans
|
|
|
34,034 |
|
|
|
41,983 |
|
Proceeds from sale of
available-for-sale investment securities
|
|
|
128,400 |
|
|
|
- |
|
Proceeds from sale of loans
held
|
|
|
358,953 |
|
|
|
- |
|
Proceeds from sale of Farmer Mac
Guaranteed Securities
|
|
|
17,124 |
|
|
|
6,118 |
|
Net cash provided
by/(used in) investing activities
|
|
|
316,541 |
|
|
|
(440,188 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of discount
notes
|
|
|
16,997,175 |
|
|
|
34,398,361 |
|
Proceeds from issuance of
medium-term notes
|
|
|
919,427 |
|
|
|
639,974 |
|
Payments to redeem discount
notes
|
|
|
(17,111,209 |
) |
|
|
(33,934,610 |
) |
Payments to redeem medium-term
notes
|
|
|
(1,163,000 |
) |
|
|
(599,000 |
) |
Proceeds from common stock
issuance
|
|
|
9 |
|
|
|
22 |
|
Purchases of common
stock
|
|
|
- |
|
|
|
(830 |
) |
Proceeds from preferred stock
issuance
|
|
|
10,800 |
|
|
|
- |
|
Dividends
paid
|
|
|
(4,443 |
) |
|
|
(1,546 |
) |
Net cash (used
in)/provided by financing activities
|
|
|
(351,241 |
) |
|
|
502,371 |
|
Net increase in cash and cash
equivalents
|
|
|
5,389 |
|
|
|
98,544 |
|
Cash and cash equivalents at
beginning of period
|
|
|
278,412 |
|
|
|
101,445 |
|
Cash and cash equivalents at end
of period
|
|
$ |
283,801 |
|
|
$ |
199,989 |
|
See
accompanying notes to condensed consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1.
|
Accounting
Policies
|
The
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 the annual consolidated financial
statements have been condensed or omitted as permitted by SEC rules and
regulations. The December 31, 2008 condensed consolidated balance
sheet presented in this report has been derived from the Corporation’s audited
2008 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 2008 consolidated
financial statements of Farmer Mac included in the Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2008 filed with the SEC on March
16, 2009. Results for interim periods are not necessarily indicative
of those that may be expected for the fiscal year. Below is a summary
of Farmer Mac’s significant 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, 2009 and 2008.
|
|
For the Three Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
(in
thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
23,172 |
|
|
$ |
40,171 |
|
Income
taxes
|
|
|
- |
|
|
|
16,000 |
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Loans acquired and securitized as
Farmer Mac Guaranteed
Securities
|
|
|
17,124 |
|
|
|
577 |
|
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 |
|
Transfers of Farmer Mac I
Guaranteed Securities to loans held for
sale
|
|
|
288,012 |
|
|
|
- |
|
Transfers
of loans held for investment to loans held for sale
|
|
|
617,072 |
|
|
|
- |
|
(b) Allowance for
Losses
As of
March 31, 2009, Farmer Mac maintained an allowance for losses to cover estimated
probable losses on loans held, real estate owned and loans underlying LTSPCs,
Farmer Mac I Guaranteed Securities and Farmer Mac Guaranteed Securities – Rural
Utilities 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 automated loan classification system. That system
scores loans based on criteria such as historical repayment performance,
indicators of current financial condition, 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
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 Farmer Mac I Guaranteed
Securities. The calculated loss rates are applied to the current
classification distribution of unimpaired loans in 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.
|
Farmer
Mac separately evaluates the cooperative lender obligations and loans underlying
its Farmer Mac Guaranteed Securities – Rural Utilities to determine if there are
probable losses inherent in the securities or the underlying rural utilities
loans.
Farmer
Mac also analyzes impaired assets in its portfolio for impairment under SFAS
114. Farmer Mac’s impaired assets include:
·
|
non-performing
assets (loans 90 days or more past due, in foreclosure, restructured,
in bankruptcy – including loans performing under either their original
loan terms or a court-approved bankruptcy plan – and real estate
owned);
|
·
|
loans
for which Farmer Mac had adjusted the timing of borrowers’ payment
schedules, but still expects to collect all amounts due and has not made
economic concessions; and
|
·
|
additional
performing loans that have previously been delinquent or are secured by
real estate that produces agricultural commodities or products currently
under stress.
|
For loans
with an updated appraised value, other updated collateral valuation or
management’s estimate of discounted collateral value, this analysis includes the
measurement of the fair value of the underlying collateral for individual loans
relative to the total recorded investment, including principal, interest and
advances. In the event that the collateral value does not support the
total recorded investment, Farmer Mac specifically provides an allowance for the
loan for the difference between the recorded investment and its fair value, less
estimated costs to liquidate the collateral. For the remaining
impaired assets without updated valuations, this analysis is performed in the
aggregate in consideration of the similar risk characteristics of the assets and
historical statistics.
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 Farmer Mac I Guaranteed Securities and LTSPCs and
Farmer Mac Guaranteed Securities - Rural Utilities 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, 2009 and
2008:
|
|
For the Three Months Ended March
31, 2009
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for Losses
|
|
|
for Losses
|
|
|
|
(in
thousands)
|
|
Beginning
balance
|
|
$ |
10,929 |
|
|
$ |
- |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision for
losses
|
|
|
3,534 |
|
|
|
- |
|
|
|
2,519 |
|
|
|
6,053 |
|
Charge-offs
|
|
|
(2,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,000 |
) |
Recoveries
|
|
|
765 |
|
|
|
- |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
13,228 |
|
|
$ |
- |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
|
|
For the Three Months Ended 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 for
losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(39 |
) |
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
1,651 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
No
allowance for losses has been provided for loans underlying AgVantage securities
or securities issued under the Farmer Mac II program (“Farmer Mac II Guaranteed
Securities”). Each AgVantage security is a general obligation of an
issuing institution approved by Farmer Mac and is collateralized by eligible
loans in an amount at least equal to the outstanding principal amount of the
security. As of March 31, 2009, there were no probable losses
inherent in Farmer Mac’s AgVantage securities due to the credit quality of the
obligors, as well as the underlying collateral. As of March 31, 2009,
Farmer Mac had not experienced any credit losses on any AgVantage
securities. 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,
2009, Farmer Mac had not experienced any credit losses on any Farmer Mac II
Guaranteed Securities.
The table
below summarizes the components of Farmer Mac’s allowance for losses as of March
31, 2009 and December 31, 2008:
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Allowance for loan
losses
|
|
$ |
13,228 |
|
|
$ |
10,929 |
|
Real estate owned valuation
allowance
|
|
|
- |
|
|
|
- |
|
Reserve for
losses:
|
|
|
|
|
|
|
|
|
On-balance sheet Farmer Mac I
Guaranteed Securities
|
|
|
519 |
|
|
|
869 |
|
Off-balance sheet Farmer Mac I
Guaranteed Securities
|
|
|
1,692 |
|
|
|
535 |
|
LTSPCs
|
|
|
5,814 |
|
|
|
4,102 |
|
Farmer Mac Guaranteed Securities -
Rural Utilities
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
21,253 |
|
|
$ |
16,435 |
|
As of
March 31, 2009, Farmer Mac individually analyzed $94.9 million of its
$131.9 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $37.0 million of
impaired assets for which updated valuations were not available in the aggregate
in consideration of their similar risk characteristics and historical
statistics. Farmer Mac’s specific allowance for under-collateralized
assets was $12.1 million as of March 31, 2009 and $8.6 million as of
December 31, 2008. Farmer Mac’s non-specific or general allowance was
$9.2 million as of March 31, 2009 and $7.8 million as of December 31,
2008.
Farmer
Mac recognized interest income of approximately $1.1 million and $1.2 million on
impaired loans during the three months ended March 31, 2009 and 2008,
respectively. During the three months ended March 31, 2009 and 2008,
Farmer Mac’s average investment in impaired loans was $125.7 million and $38.9
million, respectively.
(c) Financial
Derivatives
Farmer
Mac enters into financial derivative transactions principally to protect against
risk from the effects of market price or interest rate movements on the value of
certain assets, future cash flows or debt issuance, not for trading or
speculative purposes. Farmer Mac enters into interest rate swap
contracts to adjust the characteristics of its short-term debt to match more
closely the cash flow and duration characteristics of its longer-term mortgage
and other assets, and also to adjust the characteristics of its long-term debt
to match more closely the cash flow and duration characteristics of its
short-term assets, thereby reducing interest rate risk and often times deriving
an overall lower effective cost of borrowing than would otherwise be available
to Farmer Mac in the conventional debt market. Farmer Mac also
recognizes 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 swap contracts. Farmer Mac uses
forward sale contracts on GSE securities to reduce its interest rate exposure to
changes in both U.S. Treasury
rates and spreads on Farmer Mac debt 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 tables summarize information related to Farmer Mac’s financial
derivatives as of March 31, 2009 and December 31, 2008:
|
|
March 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
Average
|
|
Remaining
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Pay
|
|
|
Receive
|
|
Forward
|
|
Life
|
|
|
|
Amount
|
|
|
Asset
|
|
|
(Liability)
|
|
|
Rate
|
|
|
Rate
|
|
Price
|
|
(in Years)
|
|
|
|
(dollars in
thousands)
|
|
Interest rate
swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed
callable
|
|
$ |
145,246 |
|
|
$ |
- |
|
|
$ |
(5,305 |
) |
|
|
5.52 |
% |
|
|
1.21 |
% |
|
|
|
7.77 |
|
Pay fixed
non-callable
|
|
|
1,296,551 |
|
|
|
- |
|
|
|
(153,943 |
) |
|
|
5.20 |
% |
|
|
1.24 |
% |
|
|
|
5.08 |
|
Receive fixed
callable
|
|
|
425,000 |
|
|
|
516 |
|
|
|
(77 |
) |
|
|
1.23 |
% |
|
|
1.77 |
% |
|
|
|
0.77 |
|
Receive fixed
non-callable
|
|
|
2,268,981 |
|
|
|
23,823 |
|
|
|
(87 |
) |
|
|
1.22 |
% |
|
|
1.79 |
% |
|
|
|
1.75 |
|
Basis swaps
|
|
|
220,474 |
|
|
|
30 |
|
|
|
(4,248 |
) |
|
|
2.84 |
% |
|
|
1.78 |
% |
|
|
|
3.56 |
|
Agency
forwards
|
|
|
77,109 |
|
|
|
176 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
108.30
|
|
|
|
|
Treasury
futures
|
|
|
2,100 |
|
|
|
- |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
123.78
|
|
|
|
|
Total financial
derivatives
|
|
$ |
4,435,461 |
|
|
$ |
24,545 |
|
|
$ |
(163,666 |
) |
|
|
2.63 |
% |
|
|
1.61 |
% |
|
|
|
|
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
Average
|
|
Remaining
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Pay
|
|
|
Receive
|
|
Forward
|
|
Life
|
|
|
|
Amount
|
|
|
Asset
|
|
|
(Liability)
|
|
|
Rate
|
|
|
Rate
|
|
Price
|
|
(in Years)
|
|
|
|
(dollars in
thousands)
|
|
Interest rate
swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed
callable
|
|
$ |
208,958 |
|
|
$ |
- |
|
|
$ |
(6,646 |
) |
|
|
5.51 |
% |
|
|
3.23 |
% |
|
|
|
7.66 |
|
Pay fixed
non-callable
|
|
|
1,311,218 |
|
|
|
- |
|
|
|
(169,040 |
) |
|
|
5.21 |
% |
|
|
3.05 |
% |
|
|
|
5.33 |
|
Receive fixed
callable
|
|
|
606,500 |
|
|
|
1,727 |
|
|
|
(65 |
) |
|
|
2.91 |
% |
|
|
3.20 |
% |
|
|
|
1.28 |
|
Receive fixed
non-callable
|
|
|
1,347,069 |
|
|
|
25,269 |
|
|
|
(94 |
) |
|
|
2.23 |
% |
|
|
2.28 |
% |
|
|
|
1.43 |
|
Basis swaps
|
|
|
206,863 |
|
|
|
45 |
|
|
|
(3,734 |
) |
|
|
3.84 |
% |
|
|
3.28 |
% |
|
|
|
4.31 |
|
Agency
forwards
|
|
|
74,998 |
|
|
|
- |
|
|
|
(1,604 |
) |
|
|
|
|
|
|
|
|
105.85
|
|
|
|
|
Treasury
futures
|
|
|
2,500 |
|
|
|
28 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
126.88
|
|
|
|
|
Total financial
derivatives
|
|
$ |
3,758,106 |
|
|
$ |
27,069 |
|
|
$ |
(181,183 |
) |
|
|
3.68 |
% |
|
|
2.82 |
% |
|
|
|
|
|
In the
normal course of business, collateral requirements contained in Farmer Mac’s
derivative contracts are enforced by Farmer Mac and its
counterparties. Upon enforcement of the collateral requirements, the
amount of collateral posted is typically based on the net fair value of all
derivative contracts with the counterparty, i.e., derivative assets net of
derivative liabilities at the counterparty level. If Farmer Mac were
to be in violation of certain provisions of the derivative contracts, the
related counterparty could request payment or full collateralization on the
derivative contracts. As of March 31, 2009, the fair value of Farmer
Mac’s derivatives in a net liability position at the counterparty level, which
includes accrued interest but excludes any adjustment for nonperformance risk,
was $156.8 million. As of March 31, 2009, Farmer Mac posted assets
with a fair value of $85.2 million as collateral for its derivatives in net
liability positions. If Farmer Mac had breached certain provisions of
the derivative contracts as of March 31, 2009, it could have been required to
settle its obligations under the agreements or post additional collateral of
$71.6 million.
The
following table summarizes the effects of Farmer Mac’s financial derivatives on
the condensed consolidated statements of operations for the three months ended
March 31, 2009 and 2008:
|
|
Gains/(Losses) on Financial
Derivatives
|
|
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$ |
2,659 |
|
|
$ |
(41,148 |
) |
Agency
forwards
|
|
|
(879 |
) |
|
|
(318 |
) |
Treasury
futures
|
|
|
(9 |
) |
|
|
(143 |
) |
|
|
|
1,771 |
|
|
|
(41,609 |
) |
Amortization of SFAS
133
|
|
|
|
|
|
|
|
|
transition
adjustment
|
|
|
(60 |
) |
|
|
(111 |
) |
Total
|
|
$ |
1,711 |
|
|
$ |
(41,720 |
) |
As of
March 31, 2009 and December 31, 2008, Farmer Mac had approximately
$0.2 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 $0.1 million of the amount currently reported in accumulated other
comprehensive loss will be reclassified into earnings.
As of
March 31, 2009, Farmer Mac had outstanding basis swaps with Zions First National
Bank, a related party, with total notional amount of $120.5 million and a fair
value of $(4.2) million. As of December 31, 2008, those basis
swaps had a total notional amount of $131.9 million and a fair value of
$(3.7) million. Under the terms of those basis swaps, Farmer Mac
pays Constant Maturity Treasury-based rates and receives LIBOR. Those
swaps economically 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 unrealized losses on those
outstanding basis swaps of $0.5 million for first quarter 2009,
$2.5 million for fourth quarter 2008 and $2.4 million for first quarter
2008.
(d) Earnings/(Loss) Per Common
Share
Basic
earnings/(loss) per common share are based on the weighted-average number of
shares of common stock outstanding. Diluted earnings/(loss) 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
and stock appreciation rights (“SARs”). The following schedule
reconciles basic and diluted earnings/(loss) per common share (“EPS”) for the
three months ended March 31, 2009 and 2008:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
March 31,
2008
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
$ per Share
|
|
Net (Loss)
|
|
|
Shares
|
|
|
$ per Share
|
|
|
|
(in thousands, except per share
amounts)
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to common
stockholders
|
|
$ |
33,518 |
|
|
|
10,135 |
|
|
$ |
3.31 |
|
|
$ |
(8,257 |
) |
|
|
9,867 |
|
|
$ |
(0.84 |
) |
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and SARs
(1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Diluted EPS
|
|
$ |
33,518 |
|
|
|
10,135 |
|
|
$ |
3.31 |
|
|
$ |
(8,257 |
) |
|
|
9,867 |
|
|
$ |
(0.84 |
) |
(1)
|
For the three months ended
March 31, 2009 and 2008, stock options and SARs of 1,697,829 and
2,218,199, respectively, were outstanding but not included in the
computation of diluted earnings per share of common stock because they
were anti-dilutive.
|
(e) Stock-Based
Compensation
In 1997,
Farmer Mac adopted a stock option plan for directors, officers and other
employees to acquire shares of Class C Non-Voting Common
Stock. Upon stock option exercise, new shares are issued by the
Corporation. Under the plan, stock options awarded vest annually in
thirds, with the first third vesting one year after the date of
grant. If not exercised, any options granted under the 1997 plan
expire ten 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. 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. As of June 30, 2008, the plan had
terminated pursuant to its terms and no further grants will be made under
it.
During 2008, Farmer
Mac’s stockholders approved the 2008 Omnibus Incentive Compensation Plan that
authorizes the grants of restricted stock, stock options and SARs, among other
alternative forms of equity-based compensation, to directors, officers and other
employees. SARs awarded to officers and employees vest annually in
thirds and SARs awarded to directors vest fully after approximately one
year. If not exercised or terminated earlier due to the termination
of employment or service on the Board, SARs granted to officers or employees
expire after ten years and those granted to directors expire after seven
years. For all SARs granted, the exercise price is equal to the
closing price of the Class C Non-Voting Common Stock on the date of
grant. SARs granted during 2008 have exercise prices ranging from
$7.35 to $28.94 per share.
For the
three months ended March 31, 2009, Farmer Mac recognized $0.7 million of
compensation expense related to stock options and SARs, compared to
$0.9 million for the three months ended March 31, 2008.
The
following table summarizes stock option and SARs activity for the three months
ended March 31, 2009 and 2008:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
Stock
|
|
|
Weighted-
|
|
|
Stock
|
|
|
Weighted-
|
|
|
|
Options
|
|
|
Average
|
|
|
Options
|
|
|
Average
|
|
|
|
and
|
|
|
Exercise
|
|
|
and
|
|
|
Exercise
|
|
|
|
SARs
|
|
|
Price
|
|
|
SARs
|
|
|
Price
|
|
Outstanding, beginning of
period
|
|
|
2,237,711 |
|
|
$ |
25.54 |
|
|
|
2,218,199 |
|
|
$ |
25.48 |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Canceled
|
|
|
(539,882 |
) |
|
|
28.30 |
|
|
|
- |
|
|
|
- |
|
Outstanding, end of
period
|
|
|
1,697,829 |
|
|
$ |
24.66 |
|
|
|
2,218,199 |
|
|
$ |
25.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and SARs exercisable at
end of period
|
|
|
1,308,518 |
|
|
$ |
24.93 |
|
|
|
1,360,222 |
|
|
$ |
24.46 |
|
The
cancellations of stock options during first quarter 2009 were due to unvested
options or SARs terminating and the cancellation of a portion of vested options
upon employee and officers’ departures from Farmer Mac. There were no
cancellations of stock options or SARs during first quarter
2008. There were no stock options or SARs exercised during first
quarter 2009 or first quarter 2008.
The
following table summarizes information regarding stock options and SARs
outstanding as of March 31, 2009:
|
|
Outstanding
|
|
Exercisable
|
|
Vested or Expected to
Vest
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
Range
of
|
|
|
|
Remaining
|
|
|
|
Remaining
|
|
|
|
Remaining
|
Exercise
|
|
Stock
Options
|
Contractual
|
|
Stock
Options
|
Contractual
|
|
Stock
Options
|
Contractual
|
Prices
|
|
and
SARS
|
|
Life
|
|
and
SARS
|
|
Life
|
|
and
SARS
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.00 - $
9.99
|
|
90,000
|
|
9.5 years
|
|
-
|
|
-
|
|
63,000
|
|
9.5
years
|
10.00 -
14.99
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
15.00 -
19.99
|
|
81,722
|
|
5.0 years
|
|
81,722
|
|
5.0 years
|
|
81,722
|
|
5.0
years
|
20.00 -
24.99
|
|
656,952
|
|
4.3 years
|
|
646,114
|
|
4.3 years
|
|
653,700
|
|
4.3
years
|
25.00 -
29.99
|
|
655,487
|
|
5.6 years
|
|
383,017
|
|
4.4 years
|
|
620,574
|
|
5.5
years
|
30.00 -
34.99
|
|
213,668
|
|
2.9 years
|
|
197,665
|
|
2.4 years
|
|
208,867
|
|
2.8
years
|
|
|
1,697,829
|
|
|
|
1,308,518
|
|
|
|
1,627,863
|
|
|
There
were no stock options or SARS granted during first quarter 2009. The
weighted-average grant date fair value of options and SARs granted during the
year ended December 31, 2008 was $9.71 per share. The fair values
were estimated using the Black-Scholes option pricing model based on the
following assumptions:
|
|
2008
|
|
Risk-free interest
rate
|
|
|
2.4 |
% |
Expected years until
exercise
|
|
6 years
|
|
Expected stock
volatility
|
|
|
52.2 |
% |
Dividend
yield
|
|
|
2.2 |
% |
(f) Reclassifications
Certain
reclassifications of prior period information were made to conform to the
current period presentation.
(g) Fair
Value
Effective
January 1, 2008, Farmer Mac adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and establishes
a fair value hierarchy that ranks the quality and reliability of the inputs to
valuation techniques used to measure fair value. The hierarchy gives
highest rank to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest rank to unobservable inputs
(Level 3 measurements). Effective January 1, 2009, Farmer Mac
adopted FASB Statement of Position No. 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”) for all non-recurring fair value measurements of
non-financial assets and liabilities. FSP 157-2 had delayed the
effective date of SFAS 157 for non-recurring, non-financial assets and
liabilities.
Farmer
Mac’s assessment of the significance of the input to the fair value measurement
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 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.
Effective
January 1, 2008, Farmer Mac adopted Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115 (“SFAS 159”). SFAS 159 provides companies an
irrevocable option to report financial instruments at fair value with changes in
fair value recorded in earnings as they occur. On January 1, 2008,
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. The fair value option election was made for
certain available-for-sale investment securities and certain Farmer Mac II
Guaranteed Securities that were classified as held-to-maturity on January 1,
2008.
See Note
7 for more information regarding fair value measurement.
(h) New Accounting
Standards
In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS
No. 160, Noncontrolling
Interests in Consolidated Financial Statements. This statement
applies to all entities that prepare consolidated financial statements, except
not-for-profit organizations, but affects only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. Farmer Mac adopted this statement prospectively on
January 1, 2009 and the impact of adoption was not material to its financial
condition, results of operations or cash flows.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 (“SFAS 161”). 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 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. Farmer Mac adopted this statement in first quarter
2009. Since SFAS 161 only required additional disclosures, it did not
have an impact on Farmer Mac’s financial condition, results of operations or
cash flows.
In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements that are presented in conformity
with GAAP. This statement will be effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning
of Present Fairly in Conformity With
Generally Accepted Accounting Principles. Farmer Mac does not
expect the adoption of this statement to have a material impact on the
Corporation’s financial condition, results of operations or cash flows in future
periods.
In
September 2008, the FASB issued three separate but related Exposure Drafts for
public comment. The proposed FASB Statements, Accounting for Transfers of
Financial Assets and
Amendments to FASB Interpretation No. 46(R) (“FIN 46(R)”), address amendments to
FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities and to
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities. The two proposed FASB statements would be effective
for fiscal years beginning after November 15, 2009. The proposed
statements, amending SFAS 140 and FIN 46(R), would remove the concept of a
qualifying special-purpose entity (“QSPE”) from SFAS 140 and remove the
exception from applying FIN 46(R) to QSPEs. While the proposed
standards have not been finalized, these changes may result in the consolidation
of assets and liabilities onto Farmer Mac’s condensed consolidated balance
sheet in connection with trusts that currently qualify for the QSPE exception.
Farmer Mac is currently evaluating the impact of this proposed
standard.
In
October 2008, FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active, which clarifies the
application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not
active. The example emphasizes the principles of SFAS 157,
including the objective of fair value, the necessary considerations pertaining
to distressed transactions, the relevance of observable data, management’s
assumptions about nonperformance and liquidity risks, third-party pricing quotes
and disclosure requirements. The FSP became effective on October 10,
2008 and applies to prior periods for which financial statements have not yet
been issued. Entities must account for revisions to fair value
estimates resulting from the adoption of the FSP as a change in accounting
estimate under SFAS 154, Accounting Changes and Error
Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3,
but do not need to provide the disclosures required by that
Statement. Farmer Mac adopted the provisions of FSP 157-3 on
September 30, 2008 for its investments in GSE preferred stock issued by CoBank,
ACB and AgFirst Farm Credit Bank.
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46R-8, Disclosures by Public Entities
(Enterprises) About Transfers of Financial Assets and Interests in Variable
Interest Entities (“FSP No. FAS 140-4 and FIN 46R-8”). FSP No.
FAS 140-4 and FIN 46R-8 amends the disclosure requirements of SFAS 140 and
FIN 46R and is effective for the first reporting period ending after
December 15, 2008, or December 31, 2008 for Farmer Mac. The
adoption of FSP No. FAS 140-4 and FIN 46R-8 did not have a material impact on
Farmer Mac’s financial condition, results of operations or cash
flows.
In
January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20 (“FSP 99-20-1”). FSP 99-20-1 amends the
impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets.
The objective of FSP 99-20-1 was to achieve more consistent
determination of whether an other-than-temporary impairment has
occurred. An entity with beneficial interests within the scope of
FSP 99-20-1 is no longer required to solely consider market participant
assumptions when evaluating cash flows for an adverse change that would be
indicative of other-than-temporary impairment. FSP 99-20-1 also
retains and emphasizes the objective of an other-than-temporary impairment
assessment and the related disclosure requirements of SFAS 115 and other
related guidance. FSP 99-20-1 is effective for interim and
annual reporting periods ending after December 15, 2008. The impact of
adoption was not material to Farmer Mac’s financial condition, results of
operations or cash flows.
In April
2009, the FASB issued three final FSPs intended to provide additional
application guidance and enhance disclosures regarding fair value measurements
and impairments of securities. FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides
guidelines for making fair value measurements more consistent with the
principles presented in FASB Statement No. 157, Fair Value Measurements. FSP
FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, enhances consistency in financial reporting by
increasing the frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation
of Other-Than-Temporary Impairments, provides additional guidance
designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities. The FSPs are
effective for interim and annual periods ending after June 15, 2009, but
entities may early adopt the FSPs for the interim and annual periods ending
after March 15, 2009. Farmer Mac will adopt the FSPs for the interim
period ending June 30, 2009. Farmer Mac does not expect the adoption
of this guidance to have a material impact on its financial condition, results
of operations or cash flows.
In April
2009, the FASB issued FSP FAS
141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. This FSP amends and clarifies FASB
Statement No. 141 (revised 2007), Business Combinations, to
address application issues relating to the initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This FSP shall
be effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. Farmer Mac’s
adoption of this guidance did not have a material impact on its financial
condition, results of operations or cash flows.
The
following tables present the amortized cost and estimated fair values of Farmer
Mac’s investments as of March 31, 2009 and December 31, 2008.
|
|
March 31,
2009
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates backed
|
|
|
|
|
|
|
|
|
|
|
by Government guaranteed student
loans
|
|
$ |
74,100 |
|
|
$ |
- |
|
|
$ |
(6,464 |
) |
|
$ |
67,636 |
|
Floating rate asset-backed
securities
|
|
|
78,350 |
|
|
|
- |
|
|
|
(2,032 |
) |
|
|
76,318 |
|
Floating rate corporate debt
securities
|
|
|
396,831 |
|
|
|
- |
|
|
|
(46,138 |
) |
|
|
350,693 |
|
Floating rate
Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed mortgage-backed
securities
|
|
|
319,243 |
|
|
|
96 |
|
|
|
(3,223 |
) |
|
|
316,116 |
|
Fixed rate GSE guaranteed
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
7,077 |
|
|
|
270 |
|
|
|
- |
|
|
|
7,347 |
|
Floating rate GSE subordinated
debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(20,868 |
) |
|
|
49,132 |
|
Floating rate GSE preferred
stock
|
|
|
700 |
|
|
|
- |
|
|
|
- |
|
|
|
700 |
|
Total
available-for-sale
|
|
|
946,301 |
|
|
|
366 |
|
|
|
(78,725 |
) |
|
|
867,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities
|
|
|
7,226 |
|
|
|
- |
|
|
|
(5,264 |
) |
|
|
1,962 |
|
Fixed rate GSE preferred
stock
|
|
|
180,231 |
|
|
|
- |
|
|
|
(3,441 |
) |
|
|
176,790 |
|
Total
trading
|
|
|
187,457 |
|
|
|
- |
|
|
|
(8,705 |
) |
|
|
178,752 |
|
Total investment
securities
|
|
$ |
1,133,758 |
|
|
$ |
366 |
|
|
$ |
(87,430 |
) |
|
$ |
1,046,694 |
|
|
|
December 31,
2008
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates backed
|
|
|
|
|
|
|
|
|
|
|
|
|
by Government guaranteed
student loans (1)
|
|
$ |
193,950 |
|
|
$ |
- |
|
|
$ |
(15,373 |
) |
|
$ |
178,577 |
|
Floating rate asset-backed
securities
|
|
|
85,005 |
|
|
|
1 |
|
|
|
(3,750 |
) |
|
|
81,256 |
|
Floating rate corporate debt
securities
|
|
|
458,428 |
|
|
|
- |
|
|
|
(39,363 |
) |
|
|
419,065 |
|
Floating rate
Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed mortgage-backed
securities
|
|
|
338,907 |
|
|
|
270 |
|
|
|
(3,512 |
) |
|
|
335,665 |
|
Fixed rate GSE guaranteed
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
7,375 |
|
|
|
188 |
|
|
|
- |
|
|
|
7,563 |
|
Floating rate GSE subordinated
debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(20,811 |
) |
|
|
49,189 |
|
Floating rate GSE preferred
stock
|
|
|
781 |
|
|
|
- |
|
|
|
- |
|
|
|
781 |
|
Total
available-for-sale
|
|
|
1,154,446 |
|
|
|
459 |
|
|
|
(82,809 |
) |
|
|
1,072,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities
|
|
|
7,494 |
|
|
|
- |
|
|
|
(5,283 |
) |
|
|
2,211 |
|
Fixed rate GSE preferred
stock
|
|
|
180,579 |
|
|
|
- |
|
|
|
(19,027 |
) |
|
|
161,552 |
|
Total
trading
|
|
|
188,073 |
|
|
|
- |
|
|
|
(24,310 |
) |
|
|
163,763 |
|
Total investment
securities
|
|
$ |
1,342,519 |
|
|
$ |
459 |
|
|
$ |
(107,119 |
) |
|
$ |
1,235,859 |
|
The table
below presents the outstanding principal balances for Farmer Mac Guaranteed
Securities, loans, and LTSPCs as of March 31, 2009 and December 31,
2008.
Outstanding Balance of Farmer Mac
Loans and Loans Underlying
|
|
Farmer Mac Guaranteed Securities
and LTSPCs
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer Mac
I:
|
|
|
|
|
|
|
Loans
|
|
$ |
668,893 |
|
|
$ |
781,305 |
|
Guaranteed
Securities
|
|
|
5,835 |
|
|
|
282,185 |
|
AgVantage
|
|
|
53,300 |
|
|
|
53,300 |
|
Farmer Mac
II
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
1,051,185 |
|
|
|
1,013,330 |
|
Farmer Mac
Guaranteed
|
|
|
|
|
|
|
|
|
Securities - Rural
Utilities
|
|
|
1,319,033 |
|
|
|
1,054,941 |
|
Total on-balance
sheet
|
|
$ |
3,098,246 |
|
|
$ |
3,185,061 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer Mac
I:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
$ |
1,640,652 |
|
|
$ |
1,697,983 |
|
AgVantage
|
|
|
2,945,000 |
|
|
|
2,945,000 |
|
LTSPCs
|
|
|
2,216,564 |
|
|
|
2,224,181 |
|
Farmer Mac
II
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
31,030 |
|
|
|
30,095 |
|
Total off-balance
sheet
|
|
$ |
6,833,246 |
|
|
$ |
6,897,259 |
|
Total
|
|
$ |
9,931,492 |
|
|
$ |
10,082,320 |
|
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. The following table presents information related to
Farmer Mac’s acquisition of defaulted loans for the three months ended March 31,
2009 and 2008 and the outstanding balances and carrying amounts of all such
loans as of March 31, 2009 and December 31, 2008, respectively.
|
|
For the Three Months
Ended
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Fair value at acquisition
date
|
|
$ |
5,064 |
|
|
$ |
1,163 |
|
Contractually required
payments
|
|
|
|
|
|
|
|
|
receivable
|
|
|
5,074 |
|
|
|
1,326 |
|
Impairment recognized
subsequent
|
|
|
|
|
|
|
|
|
to
acquisition
|
|
|
2,000 |
|
|
|
- |
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
78,571 |
|
|
$ |
91,942 |
|
Carrying
amount
|
|
|
57,821 |
|
|
|
69,308 |
|
Net credit losses and 90-day
delinquencies as of and for the periods indicated for Farmer Mac Guaranteed
Securities, loans and LTSPCs are presented in the table
below. Information is not presented for loans underlying AgVantage
securities or Farmer Mac II Guaranteed Securities. Each AgVantage
security is a general obligation of an issuing institution approved by Farmer
Mac and is secured by eligible loans in an amount at least equal to the
outstanding principal amount of the security. As of March 31, 2009,
there were no probable losses inherent in Farmer Mac’s AgVantage securities due
to the credit quality of the obligors, as well as the underlying
collateral. As of March 31, 2009, Farmer Mac had not experienced any
credit losses on any AgVantage securities. 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, 2009, Farmer Mac has
not experienced any credit losses on any Farmer Mac II Guaranteed
Securities.
|
|
90-Day
|
|
|
Net Credit
|
|
|
|
Delinquencies
(1)
|
|
|
Losses (2)
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
For the Three Months
Ended
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
On-balance sheet
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
80,964 |
|
|
$ |
65,060 |
|
|
$ |
6,989 |
|
|
$ |
1,235 |
|
|
$ |
39 |
|
Total on-balance
sheet
|
|
$ |
80,964 |
|
|
$ |
65,060 |
|
|
$ |
6,989 |
|
|
$ |
1,235 |
|
|
$ |
39 |
|
Off-balance sheet
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
5,270 |
|
|
$ |
2,060 |
|
|
$ |
3,985 |
|
|
$ |
- |
|
|
$ |
- |
|
Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total off-balance
sheet
|
|
$ |
5,270 |
|
|
$ |
2,060 |
|
|
$ |
3,985 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
86,234 |
|
|
$ |
67,120 |
|
|
$ |
10,974 |
|
|
$ |
1,235 |
|
|
$ |
39 |
|
(1)
|
Includes loans and loans
underlying 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 Farmer Mac I Guaranteed Securities and
LTSPCs.
|
|
|
Note
4. Comprehensive
Income/(Loss)
Comprehensive
income/(loss) represents all changes in stockholders’ equity except those
resulting from investments by or distributions to stockholders, and is comprised
primarily of net income and unrealized gains and losses on securities
available-for-sale, net of related taxes. The following table sets
forth Farmer Mac’s comprehensive income/(loss) for the three months ended March
31, 2009 and 2008:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$ |
37,454 |
|
|
$ |
(7,697 |
) |
Available-for-sale securities, net
of tax:
|
|
|
|
|
|
|
|
|
Net unrealized holding
gains/(losses) (1)
|
|
|
1,764 |
|
|
|
(15,435 |
) |
|
|
|
|
|
|
|
|
|
Financial derivatives, net of
tax:
|
|
|
|
|
|
|
|
|
Reclassification for amortization
of SFAS 133
|
|
|
|
|
|
|
|
|
transition adjustment
(2)
|
|
|
39 |
|
|
|
72 |
|
Other comprehensive income/(loss),
net of tax
|
|
|
1,803 |
|
|
|
(15,363 |
) |
Comprehensive
income/(loss)
|
|
$ |
39,257 |
|
|
$ |
(23,060 |
) |
(1)
|
Unrealized holding gains/(losses)
on available-for-sale securities is shown net of income tax
(expense)/benefit of $(0.9) million and $8.3 million for the three months
ended March 31, 2009 and 2008, respectively.
|
(2)
|
Amortization of SFAS 133
transition adjustment is shown net of income tax expense of $21,000 and
$39,000 for the three months ended March 31, 2009 and 2008,
respectively.
|
The
following table presents Farmer Mac’s accumulated other comprehensive loss as of
March 31, 2009 and December 31, 2008 and changes in the components of
accumulated other comprehensive loss for the three months ended March 31, 2009
and the year ended December 31, 2008.
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
(in
thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(47,214 |
) |
|
$ |
(2,320 |
) |
Reclassification adjustment
to retained earnings
|
|
|
|
|
|
|
|
|
for SFAS
159 adoption, net of tax
|
|
|
- |
|
|
|
(11,237 |
) |
Adjusted beginning
balance
|
|
|
(47,214 |
) |
|
|
(13,557 |
) |
Net unrealized
gains/(losses), net of tax
|
|
|
1,764 |
|
|
|
(33,657 |
) |
Ending
balance
|
|
$ |
(45,450 |
) |
|
$ |
(47,214 |
) |
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(198 |
) |
|
$ |
(473 |
) |
Amortization of SFAS 133
transition adjustment on financial
|
|
|
|
|
|
|
|
|
derivatives, net
of tax
|
|
|
39 |
|
|
|
275 |
|
Ending
balance
|
|
$ |
(159 |
) |
|
$ |
(198 |
) |
Accumulated other comprehensive
loss, net of tax
|
|
$ |
(45,609 |
) |
|
$ |
(47,412 |
) |
Note
5.
|
Off-Balance
Sheet Guarantees and Long-Term Standby Purchase
Commitments
|
Overview
Farmer
Mac offers approved 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 each of the Farmer Mac I, Farmer Mac II and Rural Utilities
programs; and (2) LTSPCs, which are available only through the Farmer Mac I and
Rural Utilities programs. 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 and rural utilities loans.
Off-Balance
Sheet Farmer Mac Guaranteed Securities
Eligible
loans and other eligible 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. During first quarter 2009, Farmer Mac transferred
$17.1 million of agricultural mortgage loans held on balance sheet into a
trust as part of a securitization transaction in which guaranteed agricultural
mortgage-backed securities were sold to Zions First National Bank, a related
party. The following table summarizes cash flows received from and
paid to trusts used for securitizations:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
Proceeds from new
securitizations
|
|
$ |
17,124 |
|
|
$ |
577 |
|
Guarantee fees
received
|
|
|
3,609 |
|
|
|
3,547 |
|
Servicing
advances
|
|
|
4 |
|
|
|
- |
|
Repayment of servicing
advances
|
|
|
2 |
|
|
|
1 |
|
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, 2009 and December
31, 2008, 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,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Farmer Mac I Guaranteed
Securities
|
|
$ |
1,640,652 |
|
|
$ |
1,697,983 |
|
AgVantage
|
|
|
2,945,000 |
|
|
|
2,945,000 |
|
Farmer Mac II Guaranteed
Securities
|
|
|
31,030 |
|
|
|
30,095 |
|
Total off-balance sheet Farmer Mac
I and II
|
|
$ |
4,616,682 |
|
|
$ |
4,673,078 |
|
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 $34.0 million as of March 31, 2009
and $37.1 million as of December 31, 2008. As of
March 31, 2009, the weighted-average remaining maturity of all loans
underlying off-balance sheet Farmer Mac Guaranteed Securities, excluding
AgVantage securities, was 13.8 years.
Long-Term
Standby Purchase Commitments (LTSPCs)
An LTSPC
is a commitment by Farmer Mac to purchase eligible loans from a segregated pool
of loans under enumerated circumstances, either for cash or in exchange for
Farmer Mac I Guaranteed Securities, on one or more undetermined future
dates. As consideration for its assumption of the credit risk on
loans underlying an LTSPC, Farmer Mac receives a commitment fee payable monthly
in arrears in an amount approximating what would have been the guarantee fee if
the transaction were structured as Farmer Mac Guaranteed
Securities.
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 $2.2 billion as of both March 31, 2009 and December
31, 2008.
As of
March 31, 2009, the weighted-average remaining maturity of all loans underlying
LTSPCs was 15.2 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 $17.8 million as of March 31, 2009 and $17.9 million as
of December 31, 2008.
Note
6.
|
Stockholders’
Equity and Mezzanine Equity
|
Common
Stock
Farmer Mac
has three classes of common stock outstanding:
·
|
Class
A Voting Common Stock, which may be held only by banks, insurance
companies and other financial institutions or similar entities that are
not institutions of the Farm Credit System. By federal statute,
no holder of Class A Voting Common Stock may directly or indirectly be a
beneficial owner of more than 33 percent of the outstanding shares of that
class of stock;
|
·
|
Class
B Voting Common Stock, which may be held only by institutions of the Farm
Credit System. There are no restrictions on the maximum
holdings of Class B Voting Common Stock;
and
|
·
|
Class
C Non-Voting Common Stock, which has no ownership
restrictions.
|
From
fourth quarter 2004 through fourth quarter 2008, Farmer Mac paid a quarterly
dividend of $0.10 per share on all classes of the Corporation’s common
stock. On March 11, 2009, Farmer Mac’s board of directors declared a
quarterly dividend of $0.05 per share on the Corporation’s common stock payable
on April 3, 2009. Farmer Mac’s ability to declare and pay a dividend
could be restricted if it failed to comply with regulatory capital
requirements.
Preferred
Stock
Farmer
Mac has had three series of preferred stock outstanding:
·
|
Series
A, which was permanent equity, was a component of Stockholders’ Equity on
the condensed consolidated balance sheets, and was repurchased and retired
on December 15, 2008, such that none was outstanding on March 31,
2009 or December 31, 2008;
|
·
|
Series
B, which was newly issued on September 30, 2008 and on December 15, 2008,
is temporary equity and is reported as Mezzanine Equity on the
condensed consolidated balance sheets because it contains redemption
features that, although remote, are not solely within the control of
Farmer Mac; and
|
·
|
Series
C, which was newly issued during fourth quarter 2008, is a component of
Stockholders’ Equity on the condensed consolidated balance
sheets.
|
During
first quarter 2009, Farmer Mac sold 10,800 shares of its Series C Preferred
Stock to National Rural Cooperative Finance Corporation (“National Rural”)
pursuant to a program under which any participant who uses Farmer Mac for a
credit enhancement or purchase transaction in excess of $20.0 million is
required to purchase an equity interest in Farmer Mac in the form of shares of
Series C, thereby enabling Farmer Mac to raise additional capital to support its
mission of providing liquidity and lending capacity to agricultural and rural
utilities lenders. Farmer Mac sold the 10,800 shares of Series C
without registration under the Securities Act of 1933, as amended, in reliance
upon the exemption provided by Section 3(a)(2), for an aggregate purchase price
of $10.8 million or $1,000 per share. There were 20,000 shares of
Series C Preferred Stock outstanding as of March 31, 2009, all held by National
Rural.
Farmer
Mac’s ability to declare and pay dividends on its outstanding preferred stock
could be restricted if it failed to comply with regulatory capital
requirements. All series of Farmer Mac’s preferred stock are included
as components of core capital for regulatory and statutory capital compliance
measurements.
Statutory
and Regulatory Capital Requirements
Farmer
Mac is subject to, and as of March 31, 2009 was in compliance with, its three
statutory and regulatory capital requirements:
·
|
Minimum
capital – Farmer Mac’s minimum capital level is equal to the sum of
2.75 percent of Farmer Mac’s aggregate on-balance sheet assets, as
calculated for regulatory purposes, plus 0.75 percent of the aggregate
off-balance sheet obligations of Farmer Mac, including Farmer Mac
Guaranteed Securities and LTSPCs;
|
·
|
Critical
capital – Farmer Mac’s critical capital level is equal to 50 percent
of the minimum capital requirement at that time;
and
|
·
|
Risk-based
capital – the Farm Credit Administration (“FCA”) has established a
risk-based capital stress test for Farmer
Mac.
|
As of
March 31, 2009, Farmer Mac’s minimum and critical capital requirements were
$182.9 million and $91.4 million, respectively, and Farmer Mac’s core
capital level was $250.3 million, $67.4 million above the minimum capital
requirement and $158.9 million above the critical capital
requirement. As of December 31, 2008, Farmer Mac’s minimum and
critical capital requirements were $193.5 million and $96.7 million,
respectively, and its actual core capital level was $207.0 million, $13.5
million above the minimum capital requirement and $110.2 million above the
critical capital requirement.
Based on
the risk-based capital stress test, Farmer Mac’s risk-based capital requirement
as of March 31, 2009 was $40.0 million and Farmer Mac’s regulatory capital (core
capital plus the allowance for losses) of $271.5 million exceeded that
requirement by approximately $231.5 million.
Note
7.
|
Fair
Value Disclosures
|
Fair
Value Measurement
Effective
January 1, 2008, Farmer Mac adopted SFAS 157 which defines fair value,
establishes a hierarchy for ranking fair value measurements, and expands
disclosures about fair value measurements. SFAS 157 defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (also referred to as an exit price).
In
determining fair value, Farmer Mac uses various valuation approaches, including
market, income and/or cost approaches. The fair value hierarchy
established in SFAS 157 requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair
value. When available, the fair value of Farmer Mac’s financial
instruments is based on quoted market prices, valuation techniques that use
observable market-based inputs or unobservable inputs that are corroborated by
market data. Pricing information obtained from third parties is
internally validated for reasonableness prior to use in the consolidated
financial statements.
When
observable market prices are not readily available, Farmer Mac estimates the
fair value using techniques that rely on alternate market data or internally
developed models using significant inputs that are generally less readily
observable. Market data includes prices of financial instruments with
similar maturities and characteristics, duration, interest rate yield curves,
measures of volatility and prepayment rates. If market data needed to
estimate fair value is not available, Farmer Mac estimates fair value using
internally-developed models that employ a discounted cash flow
approach. Even when market assumptions are not readily available,
Farmer Mac’s assumptions reflect those that market participants would use in
pricing the asset or liability at the measurement date.
The fair
value hierarchy established in SFAS 157 ranks the quality and reliability of the
information used to determine fair values. The hierarchy gives
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable
inputs. The standard describes the following three levels used to
classify fair value measurements:
|
Level
1
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities.
|
|
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
3
|
Prices
or valuations that require unobservable inputs that are significant to the
fair value measurement.
|
Farmer
Mac performed a detailed analysis of the assets and liabilities carried at fair
value to determine the appropriate level based on the transparency of the inputs
used in the valuation techniques. In certain cases, the inputs used
to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, an instrument’s level within the fair value
hierarchy is based on the lowest level of input that is significant to the fair
value measurement. Farmer Mac’s assessment of the significance of a
particular input to the fair value measurement of an instrument requires
judgment and consideration of factors specific to the
instrument. While Farmer Mac believes its valuation methods are
appropriate and consistent with those of other market participants, using
different methodologies or assumptions to determine fair value could result in a
materially different estimate of the fair value of some financial
instruments.
The
following is a description of the fair value techniques used for instruments
measured at fair value as well as the general classification of such instruments
pursuant to the valuation hierarchy described above. Fair value
measurements related to financial instruments that are reported at fair value in
the consolidated financial statements each period are referred to as recurring
fair value measurements. Fair value measurements related to assets
and liabilities that are not reported at fair value each period but are subject
to fair value adjustments in certain circumstances are referred to as
non-recurring fair value measurements.
Recurring
Fair Value Measurements and Classification
Available-for-Sale and
Trading Investment Securities
Fair
value is primarily determined using a reputable and nationally recognized third
party pricing service for a significant portion of Farmer Mac’s investment
portfolio, including most asset-backed securities, corporate debt securities,
Government/GSE guaranteed mortgage-backed securities and preferred stock issued
by Fannie Mae. The prices obtained are non-binding and generally
representative of recent market trades. The fair values of certain
asset-backed and Government guaranteed mortgage-backed securities are estimated
based on quotations from brokers or dealers. Farmer Mac corroborates
its primary valuation source by obtaining a secondary price from another
independent third party pricing service. Farmer Mac classifies these
fair value measurements as Level 2.
For
investment securities which are thinly traded or not quoted, Farmer Mac
estimates fair value using internally-developed models that employ a discounted
cash flow approach. Farmer Mac maximizes the use of observable market
data, including prices of financial instruments with similar maturities and
characteristics, interest rate yield curves, measures of volatility and
prepayment rates. Farmer Mac generally considers a market to be
inactive if the following conditions exist: (1) there are few transactions
for the financial instruments; (2) the prices in the market are not
current; (3) the price quotes vary significantly either over time or among
independent pricing services or dealers; or (4) there is a limited
availability of public market information. Farmer Mac classifies
these fair value measurements as Level 3.
Due to
the lack of an active market for Farmer Mac’s investments in ARCs and GSE
preferred stock issued by CoBank, ACB and AgFirst Farm Credit Bank with current
par values of $74.1 million, $88.5 million and $88.0 million, respectively,
Farmer Mac transferred these securities from Level 2 to Level 3 during
2008. Farmer Mac’s transfers in and out of Level 3 are as of the
beginning of the reporting period on a quarterly basis. During first
quarter 2009, Farmer Mac changed the inputs to its discounted cash flow model
used to estimate the fair value of its investments in thinly traded GSE
preferred stock. The benchmark securities previously used to derive
credit spreads for estimates of fair value as of September 30, 2008 and December
31, 2008 were preferred stock issued by large national financial
institutions. The preferred stock securities of these large financial
institutions experienced significant volatility during first quarter 2009 due to
changes in the credit quality of the issuers and the market expectations
regarding projected cash flows for the securities. The change in the
market expectations of projected future cash flows for those securities was
inconsistent with the Farm Credit System preferred stock owned by Farmer
Mac. Had Farmer Mac estimated the fair value of the Farm Credit
System preferred stock as of December 31, 2008 using the new methodology in
place as of March 31, 2009, the fair values of those securities would have been
$175.0 million, an increase of approximately $13.4 million from the estimated
fair value of $161.6 million as of December 31, 2008.
Available-for-Sale and
Trading Farmer Mac Guaranteed Securities
Farmer
Mac estimates the fair value of its Farmer Mac Guaranteed Securities by
discounting the projected cash flows of these instruments at projected interest
rates. The fair values are based on the present value of expected
cash flows using management’s best estimate of certain key assumptions, which
include prepayment speeds, forward yield curves and discount rates commensurate
with the risks involved. Farmer Mac classifies these measurements as
Level 3 because there is limited market activity and therefore little or no
price transparency. On a sample basis, Farmer Mac corroborates the
fair value of its Farmer Mac Guaranteed Securities by obtaining a secondary
valuation from an independent third party pricing service.
Financial
Derivatives
The fair
value of exchange-traded U.S. Treasury futures is based on unadjusted quoted
prices for identical financial instruments. Farmer Mac classifies
these fair value measurements as Level 1.
Farmer
Mac’s derivative portfolio consists primarily of interest rate swaps and forward
sales contracts on mortgage-backed securities and the debt of other
GSEs. Farmer Mac estimates the fair value of these financial
instruments based upon the counterparty valuations. Farmer Mac
internally values its derivative portfolio using a discounted cash flow
valuation technique and obtains a secondary valuation for certain interest rate
swaps to corroborate the counterparty valuations. Farmer Mac also
regularly reviews the counterparty valuations as part of the collateral exchange
process. Farmer Mac classifies these fair value measurements as
Level 2.
Certain
basis swaps are nonstandard interest rate swap structures and are therefore
internally modeled using significant assumptions and unobservable inputs,
resulting in Level 3 classification. Farmer Mac uses a discounted
cash flow valuation technique, using management’s best estimates of certain key
assumptions, which include prepayment speeds, forward yield curves and discount
rates commensurate with the risks involved.
As of
March 31, 2009, the consideration of credit risk, Farmer Mac’s or the
counterparties’, did not result in a material adjustment to the valuations of
Farmer Mac’s derivative portfolio.
Nonrecurring
Fair Value Measurements and Classification
Loans Held for
Sale
Loans
held for sale are reported at the lower of cost or fair value in
the condensed consolidated balance sheets. Farmer Mac internally
models the fair value of loans by discounting the projected cash flows of these
instruments at projected interest rates. The fair values are based on
the present value of expected cash flows using management’s best estimate of
certain key assumptions, which include prepayment speeds, forward yield curves
and discount rates commensurate with the risks involved. The fair
values of these instruments are classified as Level 3
measurements. As of March 31, 2009 and December 31, 2008, Farmer
Mac’s loans held for sale were reported at cost.
Real Estate Owned
Properties
Real
estate owned (REO) properties are reported at the lower of cost or market in
the condensed consolidated balance sheets. Farmer Mac initially
records REO properties at fair value less costs to sell and subsequently carries
them at the lower of cost or fair value less costs to sell. As of
both March 31, 2009 and December 31, 2008, Farmer Mac’s REO properties were
reported at cost.
Fair
Value Classification and Transfers
As of
March 31, 2009, Farmer Mac’s assets and liabilities recorded at fair value
included financial instruments valued at $2.7 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 57 percent of total assets and 74 percent of financial
instruments measured at fair value as of March 31, 2009.
As of
December 31, 2008, Farmer Mac’s assets and liabilities recorded at fair value
included financial instruments valued at $2.8 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 55 percent of total assets and 72 percent of financial
instruments measured at fair value as of December 31, 2008.
The
following tables present information about Farmer Mac’s assets and liabilities
measured at fair value on a recurring and nonrecurring basis as of March 31,
2009 and December 31, 2008, respectively, and indicates the fair value hierarchy
of the valuation techniques used by Farmer Mac to determine such fair
value.
Assets and Liabilities Measured at
Fair Value as of March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Recurring:
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates backed
|
|
|
|
|
|
|
|
|
|
|
by Government guaranteed
student loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
67,636 |
|
|
$ |
67,636 |
|
Floating rate asset-backed
securities
|
|
|
- |
|
|
|
76,318 |
|
|
|
- |
|
|
|
76,318 |
|
Floating rate corporate debt
securities
|
|
|
- |
|
|
|
350,693 |
|
|
|
- |
|
|
|
350,693 |
|
Floating rate
Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed mortgage-backed
securities
|
|
|
- |
|
|
|
316,116 |
|
|
|
- |
|
|
|
316,116 |
|
Fixed rate GSE guaranteed
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
- |
|
|
|
7,347 |
|
|
|
- |
|
|
|
7,347 |
|
Floating rate GSE subordinated
debt
|
|
|
- |
|
|
|
49,132 |
|
|
|
- |
|
|
|
49,132 |
|
Floating rate GSE preferred
stock
|
|
|
- |
|
|
|
700 |
|
|
|
- |
|
|
|
700 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
800,306 |
|
|
|
67,636 |
|
|
|
867,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities
|
|
|
- |
|
|
|
- |
|
|
|
1,962 |
|
|
|
1,962 |
|
Fixed rate GSE preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
176,790 |
|
|
|
176,790 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
178,752 |
|
|
|
178,752 |
|
Total investment
securities
|
|
|
- |
|
|
|
800,306 |
|
|
|
246,388 |
|
|
|
1,046,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac Guaranteed
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
I
|
|
|
- |
|
|
|
- |
|
|
|
63,216 |
|
|
|
63,216 |
|
Farmer Mac
II
|
|
|
- |
|
|
|
- |
|
|
|
588,996 |
|
|
|
588,996 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
912,695 |
|
|
|
912,695 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
1,564,907 |
|
|
|
1,564,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
II
|
|
|
- |
|
|
|
- |
|
|
|
476,681 |
|
|
|
476,681 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
449,066 |
|
|
|
449,066 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
925,747 |
|
|
|
925,747 |
|
Total Farmer Mac Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
2,490,654 |
|
|
|
2,490,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
|
- |
|
|
|
24,545 |
|
|
|
- |
|
|
|
24,545 |
|
Total Assets at fair
value
|
|
$ |
- |
|
|
$ |
824,851 |
|
|
$ |
2,737,042 |
|
|
$ |
3,561,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
$ |
6 |
|
|
$ |
159,424 |
|
|
$ |
4,236 |
|
|
$ |
163,666 |
|
Total Liabilities at fair
value
|
|
$ |
6 |
|
|
$ |
159,424 |
|
|
$ |
4,236 |
|
|
$ |
163,666 |
|
Assets and Liabilities Measured at
Fair Value as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Recurring:
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates backed
|
|
|
|
|
|
|
|
|
|
|
|
|
by Government guaranteed
student loans (1)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
178,577 |
|
|
$ |
178,577 |
|
Floating rate asset-backed
securities
|
|
|
- |
|
|
|
81,256 |
|
|
|
- |
|
|
|
81,256 |
|
Floating rate corporate debt
securities
|
|
|
- |
|
|
|
419,065 |
|
|
|
- |
|
|
|
419,065 |
|
Floating rate
Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed mortgage-backed
securities
|
|
|
- |
|
|
|
335,665 |
|
|
|
- |
|
|
|
335,665 |
|
Fixed rate GSE guaranteed
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
- |
|
|
|
7,563 |
|
|
|
- |
|
|
|
7,563 |
|
Floating rate GSE subordinated
debt
|
|
|
- |
|
|
|
49,189 |
|
|
|
- |
|
|
|
49,189 |
|
Floating rate GSE preferred
stock
|
|
|
- |
|
|
|
781 |
|
|
|
- |
|
|
|
781 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
893,519 |
|
|
|
178,577 |
|
|
|
1,072,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities
|
|
|
- |
|
|
|
- |
|
|
|
2,211 |
|
|
|
2,211 |
|
Fixed rate GSE preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
161,552 |
|
|
|
161,552 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
163,763 |
|
|
|
163,763 |
|
Total investment
securities
|
|
|
- |
|
|
|
893,519 |
|
|
|
342,340 |
|
|
|
1,235,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac Guaranteed
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
I
|
|
|
- |
|
|
|
- |
|
|
|
349,292 |
|
|
|
349,292 |
|
Farmer Mac
II
|
|
|
- |
|
|
|
- |
|
|
|
522,565 |
|
|
|
522,565 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
639,837 |
|
|
|
639,837 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
1,511,694 |
|
|
|
1,511,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac
II
|
|
|
- |
|
|
|
- |
|
|
|
496,863 |
|
|
|
496,863 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
442,687 |
|
|
|
442,687 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
939,550 |
|
|
|
939,550 |
|
Total Farmer Mac Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
2,451,244 |
|
|
|
2,451,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
|
28 |
|
|
|
27,041 |
|
|
|
- |
|
|
|
27,069 |
|
Total Assets at fair
value
|
|
$ |
28 |
|
|
$ |
920,560 |
|
|
$ |
2,793,584 |
|
|
$ |
3,714,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
$ |
- |
|
|
$ |
177,464 |
|
|
$ |
3,719 |
|
|
$ |
181,183 |
|
Total Liabilities at fair
value
|
|
$ |
- |
|
|
$ |
177,464 |
|
|
$ |
3,719 |
|
|
$ |
181,183 |
|
(1) Includes the fair value of
Farmer Mac's put rights related to $119.9 million (par value) of its ARC
holdings.
|
The
following tables present additional information about assets and liabilities
measured at fair value on a recurring and nonrecurring basis for which Farmer
Mac has used significant Level 3 inputs to determine fair value for the three
months ended March 31, 2009 and March 31, 2008, respectively.
Level 3 Assets and Liabilities
Measured at Fair Value for the Three Months Ended March 31,
2009
|
|
|
|
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
|
|
|
Ending
Balance
|
|
Recurring:
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed by Government
guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
student
loans
|
|
$ |
178,577 |
|
|
$ |
(119,850 |
) |
|
$ |
- |
|
|
$ |
8,909 |
|
|
$ |
- |
|
|
$ |
67,636 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities(1)
|
|
|
2,211 |
|
|
|
(268 |
) |
|
|
19 |
|
|
|
- |
|
|
|
- |
|
|
|
1,962 |
|
Fixed rate GSE preferred
stock(1)
|
|
|
161,552 |
|
|
|
(348 |
) |
|
|
15,586 |
|
|
|
- |
|
|
|
- |
|
|
|
176,790 |
|
Total
trading
|
|
|
163,763 |
|
|
|
(616 |
) |
|
|
15,605 |
|
|
|
- |
|
|
|
- |
|
|
|
178,752 |
|
Total investment
securities
|
|
|
342,340 |
|
|
|
(120,466 |
) |
|
|
15,605 |
|
|
|
8,909 |
|
|
|
- |
|
|
|
246,388 |
|
Farmer Mac Guaranteed
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac I
(2)
|
|
|
349,292 |
|
|
|
2,889 |
|
|
|
- |
|
|
|
(953 |
) |
|
|
(288,012 |
) |
|
|
63,216 |
|
Farmer Mac
II
|
|
|
522,565 |
|
|
|
61,491 |
|
|
|
- |
|
|
|
4,940 |
|
|
|
- |
|
|
|
588,996 |
|
Rural
Utilities
|
|
|
639,837 |
|
|
|
270,000 |
|
|
|
- |
|
|
|
2,858 |
|
|
|
- |
|
|
|
912,695 |
|
Total
available-for-sale
|
|
|
1,511,694 |
|
|
|
334,380 |
|
|
|
- |
|
|
|
6,845 |
|
|
|
(288,012 |
) |
|
|
1,564,907 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac II
(3)
|
|
|
496,863 |
|
|
|
(23,914 |
) |
|
|
3,732 |
|
|
|
- |
|
|
|
- |
|
|
|
476,681 |
|
Rural
Utilities(1)
|
|
|
442,687 |
|
|
|
(5,909 |
) |
|
|
12,288 |
|
|
|
- |
|
|
|
- |
|
|
|
449,066 |
|
Total
trading
|
|
|
939,550 |
|
|
|
(29,823 |
) |
|
|
16,020 |
|
|
|
- |
|
|
|
- |
|
|
|
925,747 |
|
Total Farmer Mac
Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
2,451,244 |
|
|
|
304,557 |
|
|
|
16,020 |
|
|
|
6,845 |
|
|
|
(288,012 |
) |
|
|
2,490,654 |
|
Total Assets at fair
value
|
|
$ |
2,793,584 |
|
|
$ |
184,091 |
|
|
$ |
31,625 |
|
|
$ |
15,754 |
|
|
$ |
(288,012 |
) |
|
$ |
2,737,042 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Derivatives
(4)
|
|
$ |
(3,719 |
) |
|
$ |
- |
|
|
$ |
(517 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(4,236 |
) |
Total Liabilities at fair
value
|
|
$ |
(3,719 |
) |
|
$ |
- |
|
|
$ |
(517 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(4,236 |
) |
|
(1)
|
Unrealized gains are attributable
to assets still held as of March 31, 2009 and are recorded in gains on
trading assets.
|
|
(2)
|
Includes,
as a result of the release of Farmer Mac’s guarantee, the reclassification
of certain Farmer Mac Guaranteed Securities to loans held for
sale. As of March 31, 2009, loans held for sale are reported at
cost on the condensed consolidated balance
sheets.
|
|
(3)
|
Includes unrealized gains of
approximately $3.4 million attributable to assets still held as of March
31, 2009 that are recorded in gains on trading
assets.
|
|
(4)
|
Unrealized losses are attributable
to liabilities still held as of March 31, 2009 and are recorded in
gains/(losses) on financial
derivatives.
|
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
|
|
|
338,958 |
|
|
|
(19,753 |
) |
|
|
- |
|
|
|
6,067 |
|
|
|
- |
|
|
|
325,272 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer Mac II
(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 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 on trading
assets.
|
(3)
|
Unrealized losses are attributable
to liabilities still held as of March 31, 2008 and are recorded in
gains/(losses) on financial derivatives.
|
|
(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.
|
For first
quarter 2009 and first quarter 2008, Farmer Mac recorded net gains on trading
assets of $31.6 million and $10.7 million, respectively, for changes in
fair values of the assets selected for the fair value option. These
gains are recognized as “Gains on trading assets” in the condensed consolidated
statements of operations.
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, 2008 filed with the SEC on March 16,
2009.
The
discussion below is not necessarily indicative of future results.
Special Note Regarding
Forward-Looking Statements
Some
statements made in this report are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 pertaining to
management’s current expectations as to Farmer Mac’s future financial results,
business prospects and business developments. Forward-looking
statements include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance or achievements, and
typically are accompanied by, and identified with, such terms as “anticipates,”
“believes,” “expects,” “intends,” “should” and similar phrases. The
following management’s discussion and analysis includes forward-looking
statements addressing Farmer Mac’s:
·
|
prospects
for earnings;
|
·
|
prospects
for growth in loan purchase, guarantee, securitization and LTSPC
volume;
|
·
|
trends
in net interest income;
|
·
|
trends
in portfolio credit quality, delinquencies and provisions for
losses;
|
·
|
trends
in non-program investments;
|
·
|
prospects
for asset impairments and allowance for
losses;
|
·
|
changes
in capital position; and
|
·
|
other
business and financial matters.
|
Management’s
expectations for Farmer Mac’s future necessarily involve a number of assumptions
and estimates and the evaluation of risks and uncertainties. Various
factors or events could cause Farmer Mac’s actual results to differ materially
from the expectations as expressed or implied by the forward-looking statements,
including the factors discussed under “Risk Factors” in Part I, Item 1A of
Farmer Mac’s Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the SEC on March 16, 2009, as well as
uncertainties regarding:
·
|
the
ability of Farmer Mac to increase its capital in an amount sufficient to
enable it to continue to operate profitably and provide a secondary market
for agricultural mortgage and rural utilities
loans;
|
·
|
the
availability of reasonable rates and terms of debt financing to Farmer
Mac;
|
·
|
fluctuations
in the fair value of assets held by Farmer Mac, particularly in volatile
markets;
|
·
|
the
rate and direction of development of the secondary market for agricultural
mortgage and rural utilities loans, including lender interest in Farmer
Mac credit products and the Farmer Mac secondary
market;
|
·
|
the
general rate of growth in agricultural mortgage and rural utilities
indebtedness;
|
·
|
borrower
preferences for fixed rate agricultural mortgage
indebtedness;
|
·
|
legislative
or regulatory developments that could affect Farmer
Mac;
|
·
|
increases
in general and administrative expenses attributable to changes in the
business and regulatory environment, including the hiring of additional
personnel with expertise in key functional
areas;
|
·
|
the
willingness of investors to invest in Farmer Mac Guaranteed
Securities;
|
·
|
the
severity and duration of current economic and financial conditions;
and
|
·
|
developments
in the financial markets, including possible investor, analyst and rating
agency reactions to events involving GSEs, including 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
preparation of Farmer Mac’s consolidated financial statements in conformity with
GAAP requires the use of estimates and assumptions that affect the amounts
reported in the consolidated financial statements and related notes for the
periods presented. Actual results could differ from those
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: (1) the allowance for losses, (2) fair value measurement,
and (3) other-than-temporary impairment.
For a
discussion of Farmer Mac’s critical accounting policies 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 Policies and Estimates” in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2008 filed with the
SEC on March 16, 2009.
Results of
Operations
Overview. Farmer
Mac’s net income to common stockholders for first quarter 2009 was
$33.5 million or $3.31 per diluted common share, compared to a net loss of
$8.3 million or $0.84 per diluted common share for first quarter
2008.
During
first quarter 2009, Farmer Mac’s guarantee and commitment fees associated with
its core business increased, as the average level of guarantees and commitments
outstanding during the quarter was higher than the level for first quarter
2008. For first quarter 2009, guarantee and commitment fees were
$7.4 million, compared to $6.6 million for first quarter
2008. Farmer Mac also maintained access to the capital markets at
favorable rates throughout 2008 and to date in 2009, and the Corporation’s
short-term borrowing costs continued at more advantageous than historical
levels. For first quarter 2009, net interest income including income
and expense related to financial derivatives was $12.9 million, compared to
$15.9 million for first quarter 2008. Given the volatility in
the debt markets, the federal government’s effective guarantee of certain
corporate debt and questions concerning the status of all GSEs, it is uncertain
whether Farmer Mac’s advantageous short-term borrowing costs will continue and,
if so, for how long.
Farmer
Mac’s overall delinquencies and non-performing assets increased during first
quarter 2009 due primarily to continued adverse developments in Farmer Mac’s
ethanol portfolio. As of March 31, 2009, Farmer Mac’s ethanol
portfolio, which includes loans subject to LTSPCs, consisted of loan
participations with a cumulative principal balance of $293.3 million with
exposure to 29 different plants in 11 states. As of that date,
Farmer Mac also had $38.3 million of undisbursed commitments with respect to
ethanol loans. During first quarter 2009, Farmer Mac recorded
provisions for losses of $6.1 million and charge-offs of $2.0 million, both
primarily related to ethanol loans, compared to no provisions for losses and
charge-offs of $39,000 during first quarter 2008. The allowance for
losses was $21.3 million as of March 31, 2009 and $16.4 million as of
December 31, 2008. Other than the ethanol portfolio, the loans
underlying the Corporation’s guarantees and commitments continued to perform
well during first quarter 2009, with delinquencies on non-ethanol loans
remaining near historically low levels, consistent with the strength of the U.S.
agricultural economy over the past several years. However, based on
the potential decline in the profitability of certain agricultural industries,
Farmer Mac expects that delinquencies are likely to increase during the
remainder of 2009 and beyond, although any such delinquencies are expected to
remain within manageable levels. See “—Results of Operations—Outlook”
and “—Risk Management—Credit Risk – Loans” for more detail about the outlook for
certain agricultural industries.
Farmer
Mac’s first quarter 2009 results benefited from two transactions. The
first was the conversion of certain Farmer Mac Guaranteed Securities into loans
and the subsequent sale of a pool of loans consisting of a portion of the loans
previously underlying those securities and other loans previously classified on
the balance sheet as loans. The total principal balance of loans sold
was $354.5 million. The sale resulted in a gain of $1.6 million and a
recovery of previously charged off losses of $0.8 million. The
primary purpose of the sale was to eliminate the need to hold capital in support
of the loans under Farmer Mac’s statutory minimum capital requirements, thereby
reducing Farmer Mac’s overall statutory minimum capital requirement by
approximately $9.7 million. The second transaction was the sale of
Lehman Brothers Holdings Inc. senior debt securities that had been written down
to $5.4 million as of December 31, 2008. The sale of the
securities during first quarter 2009 for $8.6 million resulted in a $3.2 million
recovery of previously written off losses. That recovery was recorded
as “Gains
on sale of available-for-sale investment securities”
on the condensed consolidated statements of operations.
Farmer
Mac’s results also included gains due to increases in the fair values of
financial derivatives and assets classified as trading
securities. The first quarter gain on financial derivatives of $1.7
million compared to a loss of $41.7 million during first quarter
2008. The $1.7 million first quarter 2009 gain included $13.2 million
for expenses related to payments on interest rate swaps and payments to settle
forward contracts. Those expenses were more than offset by the
increase in the fair value of financial derivatives of $15.0
million. That $15.0 million gain compares to a $39.0 million
loss during first quarter 2008. Gains on trading assets totaled
$31.6 million for first quarter 2009, compared to gains of $10.1 million
for first quarter 2008. These changes in fair value for financial
derivatives and trading assets have historically contributed significant
volatility to Farmer Mac’s periodic earnings. While such changes may
at times produce significant income, as was the case in first quarter 2009, they
may also produce significant losses, as has been the case in other previous
reporting periods. Future changes in those values cannot be reliably
predicted; however, as of March 31, 2009 the cumulative fair value after-tax
losses recorded on financial derivatives was $90.4 million. As
those financial derivatives approach maturity over approximately the next
5 years, those negative fair values will be restored to earnings and
capital.
To assist
in the comparison of results to prior periods, the table below summarizes many
of the significant items discussed above as they relate to Farmer Mac’s results
of operations for the three month periods ended March 31, 2009 and 2008 and
reconciles those items as separate components of net income/(loss) available to
common stockholders, distinct from the recurring items during the periods
presented.
|
|
For the Three Months
Ended
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
|
(in
thousands)
|
|
Recurring
Items:
|
|
|
|
|
|
|
Guarantee and commitment
fees
|
|
$ |
7,410 |
|
|
$ |
6,634 |
|
Net interest income including
realized
|
|
|
|
|
|
|
|
|
gains on financial
derivatives
|
|
|
10,159 |
|
|
|
15,217 |
|
Other
income
|
|
|
234 |
|
|
|
460 |
|
Credit related
charges
|
|
|
(6,074 |
) |
|
|
(49 |
) |
Operating
costs
|
|
|
(7,452 |
) |
|
|
(6,191 |
) |
Related tax
expense
|
|
|
(986 |
) |
|
|
(4,991 |
) |
Preferred stock
dividends
|
|
|
(3,936 |
) |
|
|
(560 |
) |
Subtotal
|
|
|
(645 |
) |
|
|
10,520 |
|
Items resulting from fair value
fluctuations:
|
|
|
|
|
|
|
|
|
Fair values changes in financial
derivatives
|
|
|
14,992 |
|
|
|
(38,999 |
) |
Fair value changes in trading
assets
|
|
|
31,625 |
|
|
|
10,111 |
|
Related tax
(expense)/benefit
|
|
|
(16,316 |
) |
|
|
10,110 |
|
Subtotal
|
|
|
30,301 |
|
|
|
(18,778 |
) |
Unusual
items:
|
|
|
|
|
|
|
|
|
Impairment losses on
available-for-sale
|
|
|
|
|
|
|
|
|
investment
securities
|
|
|
(81 |
) |
|
|
- |
|
Gains on asset
sales
|
|
|
4,731 |
|
|
|
1 |
|
Related tax
expense
|
|
|
(788 |
) |
|
|
- |
|
Subtotal
|
|
|
3,862 |
|
|
|
1 |
|
Net income/(loss) available to
common stockholders
|
|
$ |
33,518 |
|
|
$ |
(8,257 |
) |
Set forth
below is a more detailed discussion of Farmer Mac’s results of
operations.
Net
Interest Income. Net interest income was $23.4 million for
first quarter 2009, compared to $17.9 million for first quarter
2008. The net interest yield was 187 basis points for the three
months ended March 31, 2009, compared to 131 basis points for the three
months ended March 31, 2008.
The
following table provides information regarding interest-earning assets and
funding for the three months ended March 31, 2009 and 2008. 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. The
average rate earned on cash and investments reflects lower short-term market
rates during the three months ended March 31, 2009 compared to the three months
ended March 31, 2008. The lower average rate on loans and Farmer
Mac Guaranteed Securities during the three months ended March 31, 2009 reflects
the decline in market rates reflected in the rates on loans acquired or reset
during the past year. 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 the latter
part of 2008 and 2009.
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
|
(dollars in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
investments
|
|
$ |
1,665,594 |
|
|
$ |
8,909 |
|
|
|
2.14 |
% |
|
$ |
3,428,911 |
|
|
$ |
41,508 |
|
|
|
4.84 |
% |
Loans and Farmer
Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
3,355,026 |
|
|
|
38,244 |
|
|
|
4.56 |
% |
|
|
2,028,091 |
|
|
|
30,601 |
|
|
|
6.04 |
% |
Total interest-earning
assets
|
|
|
5,020,620 |
|
|
|
47,153 |
|
|
|
3.76 |
% |
|
|
5,457,002 |
|
|
|
72,109 |
|
|
|
5.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable due within one
year
|
|
|
3,469,080 |
|
|
|
8,853 |
|
|
|
1.02 |
% |
|
|
3,741,942 |
|
|
|
35,809 |
|
|
|
3.83 |
% |
Notes payable due after one
year
|
|
|
1,368,059 |
|
|
|
14,860 |
|
|
|
4.34 |
% |
|
|
1,484,186 |
|
|
|
18,362 |
|
|
|
4.95 |
% |
Total interest-bearing
liabilities
|
|
|
4,837,139 |
|
|
|
23,713 |
|
|
|
1.96 |
% |
|
|
5,226,128 |
|
|
|
54,171 |
|
|
|
4.15 |
% |
Net non-interest-bearing
funding
|
|
|
183,481 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
230,874 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
funding
|
|
$ |
5,020,620 |
|
|
|
23,713 |
|
|
|
1.89 |
% |
|
$ |
5,457,002 |
|
|
|
54,171 |
|
|
|
3.97 |
% |
Net interest
income/yield
|
|
|
|
|
|
$ |
23,440 |
|
|
|
1.87 |
% |
|
|
|
|
|
$ |
17,938 |
|
|
|
1.31 |
% |
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 lower interest rates in the debt
markets.
|
|
For the Three Months Ended March
31, 2009
|
|
|
|
Compared to the Three Months
Ended
|
|
|
|
March 31,
2008
|
|
|
|
Increase/(Decrease) Due
to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Income from interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Cash and
investments
|
|
$ |
(16,967 |
) |
|
$ |
(15,632 |
) |
|
$ |
(32,599 |
) |
Loans and Farmer Mac Guaranteed
Securities
|
|
|
(8,815 |
) |
|
|
16,458 |
|
|
|
7,643 |
|
Total
|
|
|
(25,782 |
) |
|
|
826 |
|
|
|
(24,956 |
) |
Expense from interest-bearing
liabilities
|
|
|
(26,689 |
) |
|
|
(3,769 |
) |
|
|
(30,458 |
) |
Change in net interest
income
|
|
$ |
907 |
|
|
$ |
4,595 |
|
|
$ |
5,502 |
|
Farmer
Mac’s net interest yield excludes income and expense related to financial
derivatives and includes yield maintenance payments received upon the early
payoff of certain borrower’s loans. The following paragraphs describe
the effects of these items on the net interest yield and the table below
presents them as adjustments to reconcile to the net effective spread Farmer Mac
earns on the difference between its interest-earning assets and its net funding
costs, including payments for income and expense related to financial
derivatives.
As
discussed in Note 1(c) to the interim unaudited condensed consolidated financial
statements, Farmer Mac accounts for its financial derivatives as undesignated
financial derivatives. Accordingly, the Corporation classifies the
income or expense related to financial derivatives as gains and losses on
financial derivatives. For the three months ended March 31, 2009,
this classification resulted in an increase of the net interest yield of
$10.6 million (84 basis points), compared to an increase of the net
interest yield of $2.1 million (15 basis points) for the three months ended
March 31, 2008.
The net
interest yields for the three months ended March 31, 2009 and 2008 included the
benefits of yield maintenance payments of $0.3 million (2 basis points) and $1.4
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.
The
following table presents the net effective spread between Farmer Mac’s
interest-earning assets and its net funding costs. This spread is
measured by including income or expense related to financial derivatives and
subtracting yield maintenance payments.
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income/yield
|
|
$ |
23,440 |
|
|
|
1.87 |
% |
|
$ |
17,938 |
|
|
|
1.31 |
% |
Expense related to financial
derivatives
|
|
|
(10,588 |
) |
|
|
-0.84 |
% |
|
|
(2,055 |
) |
|
|
-0.15 |
% |
Yield maintenance
payments
|
|
|
(264 |
) |
|
|
-0.02 |
% |
|
|
(1,397 |
) |
|
|
-0.10 |
% |
Net
spread
|
|
$ |
12,588 |
|
|
|
1.01 |
% |
|
$ |
14,486 |
|
|
|
1.06 |
% |
Provision
for Loan Losses. During first quarter 2009, Farmer Mac
provided for $3.5 million of loan losses compared to no provision in first
quarter 2008. The provisions for loan losses in first quarter 2009
were largely attributable to defaulted ethanol loans previously purchased from
AgStar Financial Services, a related party, pursuant to the terms of an LTSPC
agreement. See “—Risk Management—Credit Risk – Loans.”
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 $7.4 million for first quarter 2009
compared to $6.6 million for the first quarter 2008. The amounts of
these fees have risen with increases in the average balance of outstanding
Farmer Mac Guaranteed Securities and LTSPCs.
Gains
and Losses on Financial Derivatives. As discussed in Note 1(c)
to the interim unaudited condensed consolidated financial statements, Farmer Mac
accounts for its financial derivatives as undesignated financial derivatives and
does not apply hedge accounting available under SFAS 133. The
net effect of gains and losses on financial derivatives was a net gain of $1.7
million for the three months ended March 31, 2009, compared to a net loss of
$41.7 million for the three months ended March 31, 2008. The
components of gains and losses on financial derivatives for the three months
ended March 31, 2009 and 2008 are summarized in the following
table:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Realized:
|
|
|
|
|
|
|
Expense related
to financial derivatives
|
|
$ |
(10,588 |
) |
|
$ |
(2,055 |
) |
Losses due to
terminations or net settlements
|
|
|
(2,633 |
) |
|
|
(555 |
) |
Unrealized gains/(losses) due to
fair value changes
|
|
|
14,992 |
|
|
|
(38,999 |
) |
Amortization of SFAS 133
transition adjustment
|
|
|
(60 |
) |
|
|
(111 |
) |
Gains/(losses)
on financial derivatives
|
|
$ |
1,711 |
|
|
$ |
(41,720 |
) |
The
accrual of periodic cash settlements for interest paid or received from Farmer
Mac’s interest rate swap portfolio is shown as expense related to financial
derivatives in the table above. Payments or receipts to terminate
derivative positions or net cash settle forward sales contracts on
mortgage-backed securities and the debt of other GSEs and U.S. Treasury futures
are included in losses due to terminations or net
settlements. Changes in the fair value of Farmer Mac’s open
derivative positions are captured in unrealized gains/(losses) due to fair value
changes and are primarily the result of fluctuations in market interest
rates. The amortization of the SFAS 133 transition adjustment
reflects the reclassification into earnings of the unrealized losses on
financial derivatives included in accumulated other comprehensive (loss)/income
as a result of the adoption of SFAS 133. The remaining SFAS 133
transition adjustment of $0.2 million 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.
Gains on
Trading Assets. During first quarter 2009, Farmer Mac
recognized gains on trading assets of $31.6 million, compared to gains of $10.1
million during first quarter 2008. Gains on trading assets are
discussed further in Note 7 to the interim unaudited condensed consolidated
financial statements. During first quarter 2009, Farmer Mac changed
the inputs to its discounted cash flow model used to estimate the fair value of
its investments in thinly traded GSE preferred stock. The benchmark
securities previously used to derive credit spreads for estimates of fair value
as of September 30, 2008 and December 31, 2008 were preferred stock issued by
large national financial institutions. The preferred stock securities
of these large financial institutions experienced significant volatility during
first quarter 2009 due to changes in the credit quality of the issuers and the
market expectations regarding projected cash flows for the
securities. The change in the market expectations of projected future
cash flows for those securities was inconsistent with the Farm Credit System
preferred stock owned by Farmer Mac. Had Farmer Mac estimated the
fair value of the Farm Credit System preferred stock as of December 31, 2008
using the new methodology in place as of March 31, 2009, the fair values of
those securities would have been $175.0 million, an increase of approximately
$13.4 million from the estimated fair value of $161.6 million as of December 31,
2008.
Gains on
Sale of Available-for-Sale Investment Securities. During first
quarter 2009 and 2008, Farmer Mac realized gains of $3.2 million and $1,000,
respectively, from the sale of securities from its available-for-sale
portfolio. The gain in 2009 was attributable to Farmer Mac’s sale of
all of its remaining investment in Lehman Brothers Holdings, Inc. senior debt
securities as to which the Corporation had recorded $54.5 million in
other-than-temporary impairment losses during 2008.
Gains on
Sale of Loans and Farmer Mac Guaranteed Securities. During first
quarter 2009, Farmer Mac recognized a $1.6 million gain on the sale of
$354.5 million of loans to one of its central servicers. Prior to
that sale but also during first quarter 2009, Farmer Mac released its guarantee
on certain Farmer Mac Guaranteed Securities owned by the Corporation and
reclassified the underlying assets to loans. There were no gains or
losses on the sale of loans and Farmer Mac Guaranteed Securities during first
quarter 2008.
General
and Administrative Expenses. General and administrative
expenses, including legal, independent audit, and consulting fees, were
$2.9 million for first quarter 2009, compared to $2.0 million for
first quarter 2008. The increases in those expenses were largely
attributable to legal and consulting fees related to the development of Farmer
Mac programs and corporate governance matters.
Regulatory
Fees.
Regulatory fees for first quarter 2009 and first quarter 2008 were
$0.5 million. FCA has advised Farmer Mac that its estimated fees
for the federal fiscal year ending September 30, 2009 will be $2.1 million,
compared to $2.1 million for the federal fiscal year ended September 30,
2008. 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.
Provision
for Losses. During first quarter 2009, Farmer Mac recorded
$2.5 million in provisions for losses, compared to no such provision for
first quarter 2008. The provision in first quarter 2009 was largely
attributable to Farmer Mac’s exposure to the ethanol industry through
off-balance sheet LTSPCs. This provision for losses was in addition
to the $3.5 million provision for loan losses largely attributable to
defaulted ethanol loans previously purchased by Farmer Mac and held as of March
31, 2009. See “—Risk Management—Credit Risk – Loans” 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, 2009, Farmer Mac’s total allowance for losses
was $21.3 million, compared to $16.4 million as of December 31,
2008.
Income
Tax Expense/(Benefit). Income tax expense totaled $18.1
million in first quarter 2009, compared to an income tax benefit of $5.1 million
in first quarter 2008. Farmer Mac’s effective tax rates for first
quarter 2009 and 2008 were approximately 32.6 percent and (39.9) percent,
respectively. The negative tax rate for first quarter 2008 was
attributable to significant pre-tax losses recognized on Farmer Mac’s derivative
portfolio.
Business
Volume. During first
quarter 2009, Farmer Mac added $444.6 million of new program volume,
compared to $143.9 million during first quarter 2008. Farmer
Mac’s outstanding program volume was $9.9 billion as of March 31, 2009, compared
to $10.1 billion as of December 31, 2008 and $8.4 billion as of March
31, 2008. During first quarter 2009, Farmer Mac:
·
|
added
$65.7 million of Farmer Mac I loans under
LTSPCs;
|
·
|
purchased
$29.8 million of newly originated and current seasoned Farmer Mac I
loans;
|
·
|
purchased
$79.1 million of Farmer Mac II USDA-guaranteed portions of loans;
and
|
·
|
purchased
$270.0 million of Farmer Mac Guaranteed Securities – Rural
Utilities.
|
This new
business volume was offset by the sale of $354.5 million of loans, as well as
principal paydowns on outstanding loans and loans underlying Farmer Mac
Guaranteed Securities and LTSPCs.
The
following table sets forth Farmer Mac’s loan purchase, guarantee, and commitment
activities for newly originated and current seasoned loans during the periods
indicated:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
Loan purchase and guarantee
and
|
|
|
|
|
|
|
commitment
activity:
|
|
|
|
|
|
|
Farmer Mac
I:
|
|
|
|
|
|
|
Loans
|
|
$ |
29,814 |
|
|
$ |
37,468 |
|
LTSPCs
|
|
|
65,720 |
|
|
|
53,281 |
|
AgVantage
|
|
|
- |
|
|
|
- |
|
Farmer Mac II Guaranteed
Securities
|
|
|
79,055 |
|
|
|
53,114 |
|
Farmer Mac Guaranteed Securities
-
|
|
|
|
|
|
|
|
|
Rural
Utilities
|
|
|
270,000 |
|
|
|
- |
|
Total purchases,
guarantees
|
|
|
|
|
|
|
|
|
and
commitments
|
|
$ |
444,589 |
|
|
$ |
143,863 |
|
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 or
in material non-monetary default 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, 2008 filed with the SEC on March 16,
2009.
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:
|
|
For the Three Months
Ended
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
|
(in
thousands)
|
|
Farmer Mac I newly
originated
|
|
|
|
|
|
|
and current seasoned loan
purchases
|
|
$ |
29,814 |
|
|
$ |
37,468 |
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,216 |
|
|
|
859 |
|
|
|
|
|
|
|
|
|
|
Defaulted loans
purchased
|
|
|
|
|
|
|
|
|
underlying
LTSPCs
|
|
|
2,814 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total loan
purchases
|
|
$ |
34,844 |
|
|
$ |
38,631 |
|
Outlook. In
early 2009, there have only been faint signs of recovery from the disruptions in
the capital markets during 2008 that led to a sharp downturn in the national
economy. To date in 2009, conditions in the agricultural sector have
been relatively better and more stable than the national economy in general, but
the sector is not insulated from the effects of the economic
downturn. The agricultural sector is made up of diverse industries
that respond in different ways to changes in economic conditions and, in fact,
often compete with one another. While some industries continue to
prosper, others, such as ethanol producers and the protein sector
(i.e., cattle, poultry and pork producers) are being pressured by falling
prices for their products and elevated input costs. In addition, the
dairy sector is currently experiencing operating losses due to oversupply and
the worldwide economic slowdown, and significant portions of California and
Texas are facing issues related to persistent drought. Farmer Mac
will continue to monitor closely developments in those industries and areas
experiencing stress, but anticipates that loan problems in those industries and
areas are likely to increase throughout 2009, which could lead to higher
delinquencies, provisions for losses and charge-offs, although any such credit
issues are expected to remain within manageable levels.
With
respect to the agricultural operating and lending markets, recent farmland sales
have not reflected the level of buyer confidence that has been evident over the
past several years, though farm real estate values appear stable to slightly
lower in most U.S. agricultural regions. Farm input costs and current
commodity prices have significantly squeezed profits and the related demand for
farmland, especially in the protein sector and stressed irrigation water
areas. Additionally, non-farmer investors who bought farmland during
the past several years contributed to the rise in farm real estate values over
that time, and these farmland buyers are notably fewer under current economic
and market conditions. Based on these factors, Farmer Mac does not
expect the rapid farm real estate value appreciation of the past several years
to continue in 2009.
Farmer
Mac foresees opportunities for business growth in the rural utilities segment, a
new area for Farmer Mac as a result of the legislative expansion of its charter
in May 2008. For more information about the rural utilities industry
and Farmer Mac’s business prospects in that area, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Results of
Operations—Outlook for 2009” in the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2008 filed with the SEC on March 16,
2009.
Balance Sheet
Review
Assets. Total
assets as of March 31, 2009 were $4.8 billion, compared to $5.1 billion as
of December 31, 2008. During first quarter 2009, Farmer Mac’s
on-balance sheet program assets (Farmer Mac Guaranteed Securities and loans)
decreased $77.7 million to a total of $3.1 billion and non-program assets
decreased $258.5 million to $1.7 billion as of March 31,
2009. The decrease in program assets resulted from the sale of $354.5
million of loans and borrower paydowns of loans and loans underlying Farmer Mac
Guaranteed Securities, partially offset by new purchases. Prior to
the sale of loans and also during first quarter 2009, Farmer Mac transferred
certain loans classified as held for investment and certain loans underlying
Farmer Mac Guaranteed Securities to loans held for sale.
As of
March 31, 2009, Farmer Mac had $283.8 million of cash and cash equivalents
compared to $278.4 million as of December 31, 2008. As of
March 31, 2009, Farmer Mac had $1.0 billion of investment securities
compared to $1.2 billion as of December 31, 2008.
The following table summarizes Farmer
Mac’s $1.0 billion of investment securities and the unrealized gains and
losses as of March 31, 2009.
|
|
March 31,
2009
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate auction-rate
certificates backed
|
|
|
|
|
|
|
|
|
|
|
by Government guaranteed
student loans
|
|
$ |
74,100 |
|
|
$ |
- |
|
|
$ |
(6,464 |
) |
|
$ |
67,636 |
|
Floating rate asset-backed
securities
|
|
|
78,350 |
|
|
|
- |
|
|
|
(2,032 |
) |
|
|
76,318 |
|
Floating rate corporate debt
securities
|
|
|
396,831 |
|
|
|
- |
|
|
|
(46,138 |
) |
|
|
350,693 |
|
Floating rate
Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed mortgage-backed
securities
|
|
|
319,243 |
|
|
|
96 |
|
|
|
(3,223 |
) |
|
|
316,116 |
|
Fixed rate GSE guaranteed
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
7,077 |
|
|
|
270 |
|
|
|
- |
|
|
|
7,347 |
|
Floating rate GSE subordinated
debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(20,868 |
) |
|
|
49,132 |
|
Floating rate GSE preferred
stock
|
|
|
700 |
|
|
|
- |
|
|
|
- |
|
|
|
700 |
|
Total
available-for-sale
|
|
|
946,301 |
|
|
|
366 |
|
|
|
(78,725 |
) |
|
|
867,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate asset-backed
securities
|
|
|
7,226 |
|
|
|
- |
|
|
|
(5,264 |
) |
|
|
1,962 |
|
Fixed rate GSE preferred
stock
|
|
|
180,231 |
|
|
|
- |
|
|
|
(3,441 |
) |
|
|
176,790 |
|
Total
trading
|
|
|
187,457 |
|
|
|
- |
|
|
|
(8,705 |
) |
|
|
178,752 |
|
Total investment
securities
|
|
$ |
1,133,758 |
|
|
$ |
366 |
|
|
$ |
(87,430 |
) |
|
$ |
1,046,694 |
|
The
unrealized losses on the investment securities classified as trading have been
recognized in retained earnings and, as such, reduced Farmer Mac’s core capital
for regulatory compliance purposes. The unrealized losses on
available-for-sale investment securities are recorded as reductions to
Accumulated other comprehensive income in the equity section of Farmer Mac’s
balance sheet. Accumulated other comprehensive income is not a
component of Farmer Mac’s core capital for regulatory capital compliance
purposes. Therefore, such losses do not impact Farmer Mac’s
regulatory capital compliance measures. If such losses were realized,
either through sale or determination that the unrealized losses were
other-than-temporary, Farmer Mac’s regulatory capital compliance measures would
be affected as such items would be recorded through retained earnings, which is
a component of Farmer Mac’s core capital for regulatory capital compliance
purposes.
As shown
in the table above, unrealized losses on the investment securities are
concentrated in two categories: floating rate corporate debt
securities and floating rate GSE subordinated debt securities. The
GSE subordinated debt securities are investments in CoBank, ACB, an institution
of the Farm Credit System, a government-sponsored enterprise. The
floating rate corporate debt securities with significant unrealized losses, the
issuers of which are primarily financial institutions, are summarized in the
following table:
|
|
March 31,
2009
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
S&P
Credit
|
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
Rating
|
|
Maturity
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC
Finance
|
|
$ |
49,900 |
|
|
$ |
(16,008 |
) |
|
$ |
33,892 |
|
|
A
|
|
Various through July
2012
|
Merrill Lynch & Co.,
Inc. (1)
|
|
|
49,988 |
|
|
|
(9,102 |
) |
|
|
40,886 |
|
|
A
|
|
November
2011
|
Goldman
Sachs
|
|
|
61,718 |
|
|
|
(8,257 |
) |
|
|
53,461 |
|
|
A
|
|
Februrary
2012
|
CIT Group Inc.
(2)
|
|
|
35,000 |
|
|
|
(3,726 |
) |
|
|
31,274 |
|
|
BBB
|
|
August
2009
|
Morgan
Stanley
|
|
|
34,934 |
|
|
|
(2,867 |
) |
|
|
32,067 |
|
|
A
|
|
Various through January
2011
|
Credit Suisse USA
Inc.
|
|
|
55,000 |
|
|
|
(2,215 |
) |
|
|
52,785 |
|
|
A+
|
|
Various through August
2011
|
Wachovia Corp.
(3)
|
|
|
9,942 |
|
|
|
(1,076 |
) |
|
|
8,866 |
|
|
AA
|
|
October
2011
|
Sallie Mae
|
|
|
25,002 |
|
|
|
(916 |
) |
|
|
24,086 |
|
|
BBB-
|
|
July
2009
|
Other (4)
|
|
|
75,347 |
|
|
|
(1,971 |
) |
|
|
73,376 |
|
|
A(minimum)
|
|
Various through January
2011
|
|
|
$ |
396,831 |
|
|
$ |
(46,138 |
) |
|
$ |
350,693 |
|
|
|
|
|
(1) Merrill Lynch & Co., Inc.
was acquired by Bank of America in January 2009.
|
|
|
(2) CIT Group Inc. was downgraded
to BBB- on April 24, 2009.
|
|
|
|
|
(3) Wachovia Corp. was acquired by
Wells Fargo in January 2009.
|
|
|
|
|
(4) Consists of 6 corporate debt
securities with unrealized losses ranging from $9,000 to $688,000. These
include an investment of $10.5 million in debt securities issued by
American Express Credit Corp., which was downgraded to BBB+ in April
2009.
|
Farmer
Mac continues to evaluate the inherent risks of holding each of the investment
securities in an unrealized loss position. That evaluation includes
the assessment of the potential losses that could be realized (including
other-than-temporary impairment charges), the likelihood of recovery (including
an evaluation of the time to maturity and likelihood of repayment), the impact
of recent and planned interventions by several governments and their agencies to
support financial institutions, as well as the adequacy of Farmer Mac’s core
capital to absorb a realized loss on the sale of a security. Farmer
Mac currently has the intent and ability to retain all of the investments
identified above until either the market values recover or the securities
mature. Management will continue to evaluate each of these investment
positions in light of the inherent risks and Farmer Mac’s capital
position.
Beginning
in fourth quarter 2008, management implemented changes to the Corporation’s
liquidity investment portfolio practices and related funding strategies with the
goal of reducing the Corporation’s exposure to financial market volatility,
preserving capital and maintaining the Corporation’s access to the debt
markets.
Liabilities. Consistent
with the net decrease in total assets of $336.4 million during the three months
ended March 31, 2009, total liabilities also decreased $381.5 million during the
same period. The decrease in liabilities was primarily due to the
intentional reduction in total assets, as described above, which were used to
reduce outstanding borrowings. For further information regarding
off-balance sheet program activities, see “—Off-Balance Sheet Program
Activities” below.
Capital. Farmer
Mac was in compliance with its statutory minimum capital requirement and its
risk-based capital standard as of March 31, 2009. Farmer Mac is
required to hold capital at the higher of its statutory minimum capital
requirement or the amount required by its risk-based capital stress
test. As of March 31, 2009, Farmer Mac’s core capital totaled $250.3
million and exceeded its statutory minimum capital requirement of $182.9 million
by $67.4 million. As of December 31, 2008, Farmer Mac’s core capital
totaled $207.0 million and exceeded its statutory minimum capital requirement of
$193.5 million by $13.5 million. As of March 31, 2009, Farmer Mac’s
risk-based capital stress test generated a risk-based capital requirement of
$40.0 million. Farmer Mac’s regulatory capital of $271.5 million
exceeded that amount by approximately $231.5 million. Accumulated
other comprehensive (loss)/income is not a component of Farmer Mac’s core
capital or regulatory capital.
Farmer
Mac is currently evaluating its capital position and structure with respect to
its statutory and regulatory capital requirements and prospective business
opportunities. In addition to the ongoing issuance of its Series C
Preferred Stock, in conjunction with the placement of pools of loans in excess
of $20.0 million into a Farmer Mac program, the Corporation is exploring other
potential strategies to strengthen Farmer Mac’s capital position. The
strategies under consideration include additional asset sales as well as
offerings of common or preferred equity securities by Farmer Mac and/or one or
more offerings of trust securities that would be supported primarily by the cash
flows from selected Farmer Mac program assets. Strengthening Farmer
Mac’s capital position will provide greater assurance of Farmer Mac’s continued
compliance with its statutory and regulatory capital requirements and ability to
accomplish its Congressional mission.
Off-Balance Sheet Program
Activities
Farmer
Mac offers approved 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 each of the Farmer Mac I, Farmer Mac II and Rural Utilities
programs; and (2) LTSPCs, which are available only through the Farmer Mac I
and Rural Utilities programs. 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
·
|
loans
underlying Farmer Mac Guaranteed Securities;
and
|
·
|
loans
underlying LTSPCs.
|
Farmer
Mac generally assumes 100 percent of the credit risk on loans held and
loans underlying Farmer Mac I Guaranteed Securities, LTSPCs and Farmer Mac
Guaranteed Securities – Rural Utilities. Farmer Mac’s credit
exposure on USDA-guaranteed portions is covered by the full faith and credit of
the United States. Farmer Mac believes it has little or no credit
risk exposure to USDA-guaranteed portions because of the USDA
guarantee. As of March 31, 2009, 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.
Farmer
Mac AgVantage securities are general obligations of institutions approved by
Farmer Mac and are secured by eligible loans in an amount at least equal to the
outstanding principal amount of the security. Farmer Mac excludes the
loans that secure AgVantage securities from the credit risk metrics it discloses
because of the credit quality of the issuing institutions, the collateralization
level for the securities, and because delinquent loans are required to be
removed from the pool of pledged loans and replaced with current eligible
loans. As of March 31, 2009, Farmer Mac had not experienced any
credit losses on any AgVantage securities and does not expect to incur any such
losses in the future.
Farmer
Mac has established underwriting, collateral valuation and documentation
standards for eligible 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. Detailed information regarding Farmer Mac’s
underwriting and collateral valuation standards and seller eligibility
requirements are presented in “Business—Farmer Mac Programs—Farmer Mac
I—Underwriting and Collateral Valuation (Appraisal) Standards,” “Business—Farmer
Mac Programs—Farmer Mac I—Sellers” and “Business—Farmer Mac Programs—Rural
Utilities” in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the SEC on March 16, 2009.
Farmer
Mac maintains an allowance for losses to cover estimated probable losses on
loans held, real estate owned, and loans underlying Farmer Mac I Guaranteed
Securities, LTSPCs and Farmer Mac Guaranteed Securities – Rural Utilities in
accordance with SFAS 5 and SFAS 114. The methodology that
Farmer Mac uses to determine the level of its allowance for losses is described
in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates—Allowance for Losses” in
the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008 filed with the SEC on March 16, 2009. Management believes that
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
Farmer Mac Guaranteed Securities and LTSPCs, in accordance with SFAS 5 and
SFAS 114.
The
following table summarizes the components of Farmer Mac’s allowance for losses
as of March 31, 2009 and December 31, 2008:
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Allowance for loan
losses
|
|
$ |
13,228 |
|
|
$ |
10,929 |
|
Real estate owned valuation
allowance
|
|
|
- |
|
|
|
- |
|
Reserve for
losses:
|
|
|
|
|
|
|
|
|
On-balance sheet Farmer Mac I
Guaranteed Securities
|
|
|
519 |
|
|
|
869 |
|
Off-balance sheet Farmer Mac I
Guaranteed Securities
|
|
|
1,692 |
|
|
|
535 |
|
LTSPCs
|
|
|
5,814 |
|
|
|
4,102 |
|
Farmer Mac Guaranteed Securities -
Rural Utilities
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
21,253 |
|
|
$ |
16,435 |
|
The
following table summarizes the changes in the components of Farmer Mac’s
allowance for losses for the three months ended March 31, 2009 and
2008:
|
|
For the Three Months Ended March
31, 2009
|
|
|
|
Allowance
|
|
|
REO
|
|
|
|
|
|
Total
|
|
|
|
for Loan
|
|
|
Valuation
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
Allowance
|
|
|
for Losses
|
|
|
for Losses
|
|
|
|
(in
thousands)
|
|
Beginning
balance
|
|
$ |
10,929 |
|
|
$ |
- |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision for
losses
|
|
|
3,534 |
|
|
|
- |
|
|
|
2,519 |
|
|
|
6,053 |
|
Charge-offs
|
|
|
(2,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,000 |
) |
Recoveries
|
|
|
765 |
|
|
|
- |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
13,228 |
|
|
$ |
- |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
|
|
For the Three Months Ended 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 for
losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(39 |
) |
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
1,651 |
|
|
$ |
- |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
During
first quarter 2009, Farmer Mac made provisions for its allowance for losses of
$6.1 million, compared to no provision in first quarter
2008. The provisions in first quarter 2009 were largely attributable
to Farmer Mac’s exposure to the ethanol industry. During first
quarter 2009, Farmer Mac recorded charge-offs of $2.0 million against the
allowance for losses and recorded recoveries of $0.8 million. During
first quarter 2008, Farmer Mac recorded charge-offs of $39,000 against the
allowance for losses and recorded no recoveries. There was no
previously accrued or advanced interest on loans or Farmer Mac I Guaranteed
Securities charged off in first quarter 2009 or first quarter
2008. As of March 31, 2009, Farmer Mac’s allowance for losses totaled
$21.3 million, or 47 basis points of the outstanding principal balance of loans
held and loans underlying Farmer Mac I Guaranteed Securities (excluding
AgVantage securities) and LTSPCs, compared to $16.4 million
(33 basis points) as of December 31, 2008.
As of
March 31, 2009, Farmer Mac’s 90-day delinquencies were $86.2 million
(1.90 percent), compared to $11.0 million (0.22 percent) as of
March 31, 2008. Those delinquencies are concentrated in the
Corporation’s ethanol portfolio, with ethanol loans comprising
$58.5 million of all 90-day delinquencies as of March 31,
2009. Other than the ethanol portfolio, the loans underlying the
Corporation’s guarantees and commitments continued to perform well during first
quarter 2009, with delinquencies on non-ethanol loans remaining near
historically low levels, consistent with the strength of the U.S. agricultural
economy over the past several years. As of March 31, 2009, there were
no delinquencies or non-performing assets in Farmer Mac’s portfolio of rural
utilities loans. As of March 31, 2009, Farmer Mac’s non-performing
assets totaled $96.2 million (2.12 percent), compared to $31.6 million
(0.64 percent) as of March 31, 2008. Loans that have been restructured 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.
As of
March 31, 2009, Farmer Mac’s ethanol portfolio, which includes loans subject to
LTSPCs, consisted of loan participations with a cumulative principal balance of
$293.3 million with exposure to 29 different plants in 11
states. As of that date, Farmer Mac also had $38.3 million of
undisbursed commitments with respect to ethanol loans. Other than the
undisbursed commitments, Farmer Mac is not seeking to add additional ethanol
loan exposure to its portfolio. During fourth quarter 2008, VeraSun
Energy Corporation and its subsidiaries filed for Chapter 11
bankruptcy. VeraSun’s subsidiaries operated four ethanol plants that,
as of March 31, 2009, secured $43.9 million of outstanding loan
participations in Farmer Mac’s portfolio, with the largest single exposure to
any one plant of $12.4 million. In April 2009, the lending group
that includes Farmer Mac acquired those four ethanol plants as part of the
VeraSun bankruptcy proceedings, with the lender credit bid prevailing at the
bankruptcy auction. The lending group is actively engaged in
marketing the four plants with the goal of selling the plants for fair market
value in the near term. As of March 31, 2009, Farmer Mac provided a
specific allowance for loan losses of $12.1 million for the VeraSun subsidiary
loans, which is a component of Farmer Mac’s total allowance for losses of $21.3
million as of March 31, 2009. During first quarter 2009, Farmer Mac
also charged off an additional $2.0 million on a non-VeraSun ethanol
loan.
The
following table presents historical information regarding Farmer Mac’s
non-performing assets and 90-day delinquencies in the Farmer Mac I program
compared to the principal balance of all loans held and loans underlying Farmer
Mac I Guaranteed Securities (excluding AgVantage securities) and
LTSPCs:
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2009
|
|
$ |
4,530,892 |
|
|
$ |
96,175 |
|
|
|
2.12 |
% |
|
$ |
9,941 |
|
|
$ |
86,234 |
|
|
|
1.90 |
% |
December 31,
2008
|
|
|
4,983,963 |
|
|
|
80,032 |
|
|
|
1.61 |
% |
|
|
12,912 |
|
|
|
67,120 |
|
|
|
1.35 |
% |
September 30,
2008
|
|
|
4,989,755 |
|
|
|
32,883 |
|
|
|
0.66 |
% |
|
|
21,402 |
|
|
|
11,481 |
|
|
|
0.23 |
% |
June 30,
2008
|
|
|
4,937,870 |
|
|
|
28,230 |
|
|
|
0.57 |
% |
|
|
23,060 |
|
|
|
5,170 |
|
|
|
0.11 |
% |
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 |
% |
(1) Excludes loans underlying AgVantage
securities.
As of
March 31, 2009, Farmer Mac individually analyzed $94.9 million of its
$131.9 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $37.0 million of
impaired assets for which updated valuations were not available in the aggregate
in consideration of their similar risk characteristics and historical
statistics. Farmer Mac recorded specific allowances of $12.1 million
for under-collateralized assets as of March 31, 2009. Farmer Mac’s
non-specific or general allowances were $9.2 million as of March 31,
2009.
As of
March 31, 2009, the weighted-average original loan-to-value ratio (“LTV”) for
loans held and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities
(excluding AgVantage securities) was 50.6 percent, and the weighted-average
original LTV for all non-performing assets was 54.6 percent.
The
following table presents outstanding loans held and loans underlying LTSPCs and
Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and
non-performing assets as of March 31, 2009 by year of origination, geographic
region and commodity/collateral type.
Farmer Mac I Non-performing Assets
as of March 31, 2009
|
|
|
|
Distribution
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
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
|
|
|
10 |
% |
|
$ |
385,616 |
|
|
$ |
7,152 |
|
|
|
1.85 |
% |
1997
|
|
|
3 |
% |
|
|
143,565 |
|
|
|
2,637 |
|
|
|
1.84 |
% |
1998
|
|
|
5 |
% |
|
|
207,326 |
|
|
|
4,806 |
|
|
|
2.32 |
% |
1999
|
|
|
6 |
% |
|
|
272,806 |
|
|
|
3,223 |
|
|
|
1.18 |
% |
2000
|
|
|
3 |
% |
|
|
141,623 |
|
|
|
1,951 |
|
|
|
1.38 |
% |
2001
|
|
|
6 |
% |
|
|
266,958 |
|
|
|
2,726 |
|
|
|
1.02 |
% |
2002
|
|
|
8 |
% |
|
|
368,258 |
|
|
|
2,059 |
|
|
|
0.56 |
% |
2003
|
|
|
9 |
% |
|
|
406,112 |
|
|
|
2,513 |
|
|
|
0.62 |
% |
2004
|
|
|
7 |
% |
|
|
318,031 |
|
|
|
444 |
|
|
|
0.14 |
% |
2005
|
|
|
10 |
% |
|
|
474,326 |
|
|
|
493 |
|
|
|
0.10 |
% |
2006
|
|
|
12 |
% |
|
|
562,763 |
|
|
|
55,951 |
|
|
|
9.94 |
% |
2007
|
|
|
10 |
% |
|
|
462,247 |
|
|
|
5,557 |
|
|
|
1.20 |
% |
2008
|
|
|
10 |
% |
|
|
474,292 |
|
|
|
6,663 |
|
|
|
1.40 |
% |
2009
|
|
|
1 |
% |
|
|
46,969 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,530,892 |
|
|
$ |
96,175 |
|
|
|
2.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By geographic region
(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
15 |
% |
|
$ |
660,746 |
|
|
$ |
43,507 |
|
|
|
6.58 |
% |
Southwest
|
|
|
38 |
% |
|
|
1,767,378 |
|
|
|
7,301 |
|
|
|
0.41 |
% |
Mid-North
|
|
|
22 |
% |
|
|
979,052 |
|
|
|
37,359 |
|
|
|
3.82 |
% |
Mid-South
|
|
|
13 |
% |
|
|
567,020 |
|
|
|
3,178 |
|
|
|
0.56 |
% |
Northeast
|
|
|
8 |
% |
|
|
364,875 |
|
|
|
2,223 |
|
|
|
0.61 |
% |
Southeast
|
|
|
4 |
% |
|
|
191,821 |
|
|
|
2,607 |
|
|
|
1.36 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,530,892 |
|
|
$ |
96,175 |
|
|
|
2.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By commodity/collateral
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
37 |
% |
|
$ |
1,723,695 |
|
|
$ |
18,081 |
|
|
|
1.05 |
% |
Permanent
plantings
|
|
|
19 |
% |
|
|
860,257 |
|
|
|
8,907 |
|
|
|
1.04 |
% |
Livestock
|
|
|
28 |
% |
|
|
1,269,550 |
|
|
|
6,990 |
|
|
|
0.55 |
% |
Part-time farm/rural
housing
|
|
|
8 |
% |
|
|
340,802 |
|
|
|
3,516 |
|
|
|
1.03 |
% |
Ag storage and
processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
|
7 |
% |
|
|
305,952 |
|
|
|
58,538 |
|
|
|
19.13 |
% |
Other
|
|
|
1 |
% |
|
|
30,636 |
|
|
|
143 |
|
|
|
0.47 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,530,892 |
|
|
$ |
96,175 |
|
|
|
2.12 |
% |
(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
LTSPCs and Farmer Mac I Guaranteed Securities (excluding AgVantage securities)
as of March 31, 2009, by year of origination, geographic region and
commodity/collateral type. The purpose of this information is to
present information regarding losses relative to original guarantees and
commitments.
Farmer Mac I Credit Losses
Relative to all
|
|
Cumulative Original Loans,
Guarantees and LTSPCs
|
|
as of March 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Original
Loans, Guarantees and LTSPCs (1)
|
|
|
|
|
|
|
|
|
|
(dollars in
thousands)
|
|
By year of
origination:
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
$ |
3,322,002 |
|
|
$ |
1,594 |
|
|
|
0.05 |
% |
1997
|
|
|
717,213 |
|
|
|
2,493 |
|
|
|
0.35 |
% |
1998
|
|
|
1,088,183 |
|
|
|
3,885 |
|
|
|
0.36 |
% |
1999
|
|
|
1,088,879 |
|
|
|
1,291 |
|
|
|
0.12 |
% |
2000
|
|
|
700,495 |
|
|
|
2,285 |
|
|
|
0.33 |
% |
2001
|
|
|
998,743 |
|
|
|
45 |
|
|
|
0.00 |
% |
2002
|
|
|
1,025,983 |
|
|
|
- |
|
|
|
0.00 |
% |
2003
|
|
|
832,617 |
|
|
|
- |
|
|
|
0.00 |
% |
2004
|
|
|
614,401 |
|
|
|
- |
|
|
|
0.00 |
% |
2005
|
|
|
745,844 |
|
|
|
114 |
|
|
|
0.02 |
% |
2006
|
|
|
736,133 |
|
|
|
6,000 |
|
|
|
0.82 |
% |
2007
|
|
|
542,627 |
|
|
|
- |
|
|
|
0.00 |
% |
2008
|
|
|
506,107 |
|
|
|
1,200 |
|
|
|
0.24 |
% |
2009
|
|
|
57,537 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
|
|
$ |
12,976,764 |
|
|
$ |
18,907 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By geographic region
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,442,463 |
|
|
$ |
6,891 |
|
|
|
0.28 |
% |
Southwest
|
|
|
5,138,641 |
|
|
|
5,978 |
|
|
|
0.12 |
% |
Mid-North
|
|
|
2,239,392 |
|
|
|
6,057 |
|
|
|
0.27 |
% |
Mid-South
|
|
|
1,258,145 |
|
|
|
(314 |
) |
|
|
-0.02 |
% |
Northeast
|
|
|
987,228 |
|
|
|
66 |
|
|
|
0.01 |
% |
Southeast
|
|
|
910,895 |
|
|
|
229 |
|
|
|
0.03 |
% |
Total
|
|
$ |
12,976,764 |
|
|
$ |
18,907 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By commodity/collateral
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
5,339,358 |
|
|
$ |
559 |
|
|
|
0.01 |
% |
Permanent
plantings
|
|
|
2,926,723 |
|
|
|
9,350 |
|
|
|
0.32 |
% |
Livestock
|
|
|
3,323,805 |
|
|
|
2,676 |
|
|
|
0.08 |
% |
Part-time farm/rural
housing
|
|
|
874,337 |
|
|
|
322 |
|
|
|
0.04 |
% |
Ag storage and
processing
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
|
366,563 |
(3)
|
|
|
6,000 |
|
|
|
1.64 |
% |
Other
|
|
|
145,978 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
|
|
$ |
12,976,764 |
|
|
$ |
18,907 |
|
|
|
0.15 |
% |
(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, 2009,
approximately
|
$38.3
million of the loans were not yet disbursed by the
lender.
|
Historically,
losses and collateral deficiencies have been less prevalent in the loans secured
by real estate producing agricultural commodities that receive significant
government support (such as cotton, soybeans, wheat, corn and dairy) and more
prevalent in those that do not receive such support (such as the protein sector,
permanent plantings and vegetables). However, the level of government
support may vary and is not necessarily the primary factor to forecast future
losses and collateral deficiencies. In Farmer Mac’s experience,
another significant determinant of ultimate losses on loans is the degree to
which the collateral is specialized or highly improved, such as permanent
plantings and facilities. As adverse economic conditions persist for
the agricultural commodities or products related to those types of collateral,
the prospective sale value of the collateral is likely to decrease and the
related loans may become under-collateralized.
This
analysis is consistent with corresponding commodity analyses, which indicate
that Farmer Mac has experienced higher loss and collateral deficiency rates in
its loans classified as permanent plantings and storage and processing
loans. Most of the loans classified as permanent plantings do not
receive significant government support and are therefore more susceptible to
adverse commodity-specific economic trends, while the collateral for storage and
processing loans is typically highly improved and specialized. Farmer
Mac anticipates that one or more particular commodity groups will be under
economic pressure at any one time and actively manages its portfolio to mitigate
concentration risks while preserving Farmer Mac’s ability to meet the financing
needs of all commodity groups. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Results of
Operations—Outlook.”
Analysis
of portfolio performance by geographic distribution indicates that, while
commodities are the primary determinant of exposure to loss, within most
commodity groups certain geographic areas allow greater economies of scale or
proximity to markets than others and, consequently, result in more successful
farms within the commodity group. Likewise, certain geographic areas
offer better growing conditions than others and, consequently, result in more
versatile and more successful farms within a given commodity group – and the
ability to switch crops among commodity groups.
Farmer Mac’s methodologies for pricing
its guarantee and commitment fees, managing credit risks and providing adequate
allowances for losses consider all of the foregoing factors and
information.
Credit
Risk – Institutional. Farmer Mac is also exposed to credit
risk arising from its business relationships with other institutions,
including:
·
|
issuers
of AgVantage securities and other investments held or guaranteed by Farmer
Mac;
|
·
|
sellers
and servicers; and
|
·
|
interest
rate swap contract counterparties.
|
AgVantage
securities are general obligations of the AgVantage issuers and are secured by
eligible loans in an amount at least equal to the outstanding principal amount
of the security, with some level of overcollaterization also required for Farmer
Mac I AgVantage securities. For a more detailed description of
AgVantage securities, see “Business—Farmer Mac Programs—Farmer Mac I—AgVantage
Securities” in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the SEC on March 16,
2009. Outstanding AgVantage on-balance sheet Farmer Mac I Guaranteed
Securities totaled $53.3 million as of both March 31, 2009 and December 31,
2008. Farmer Mac Guaranteed Securities – Rural Utilities structured
as AgVantage transactions issued by National Rural and held by Farmer Mac
totaled $900.0 million as of March 31, 2009, compared to
$630.0 million as of December 31, 2008. In addition, outstanding
off-balance sheet AgVantage Farmer Mac I Guaranteed Securities totaled
$2.9 billion as of both March 31, 2009 and December 31,
2008. The following table provides information about the issuers of
AgVantage securities, as well as the required collateralization levels for those
transactions as of March 31, 2009 and December 31, 2008.
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
S&P
|
|
|
Required
|
|
|
|
|
|
S&P
|
|
|
Required
|
|
Counterparty
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
|
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metlife
|
|
$ |
2,500,000 |
|
|
AA-
|
|
|
|
103 |
% |
|
$ |
2,500,000 |
|
|
AA
|
|
|
|
103 |
% |
National
Rural
|
|
|
900,000 |
|
|
A
|
|
|
|
100 |
% |
|
|
630,000 |
|
|
A
|
|
|
|
100 |
% |
M&I Bank
(1)
|
|
|
475,000 |
|
|
A-
|
|
|
|
106 |
% |
|
|
475,000 |
|
|
A
|
|
|
|
106 |
% |
Other (2)
|
|
|
23,300 |
|
|
NA
|
|
|
|
(3) |
|
|
|
23,300 |
|
|
NA
|
|
|
|
(3) |
|
Total
outstanding
|
|
$ |
3,898,300 |
|
|
|
|
|
|
|
|
|
|
$ |
3,628,300 |
|
|
|
|
|
|
|
|
|
(1) M&I Bank was downgraded to
BBB in April 2009.
|
(2) Consists of AgVantage
securities issued by 7 different issuers as of March 31, 2009 and December
31, 2008.
|
(3) Ranges from 111% to
120%.
|
Farmer
Mac manages institutional credit risk related to sellers and servicers by
requiring those institutions to meet Farmer Mac’s standards for
creditworthiness. Farmer Mac monitors the financial condition of
those institutions by evaluating financial statements and bank credit rating
agency reports. For more information on Farmer Mac’s approval of
sellers, see “Business—Farmer Mac Programs—Farmer Mac I—Sellers” in the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008 filed with the SEC on March 16, 2009.
Credit
Risk – Other Investments. As of March 31, 2009, Farmer Mac had
$283.8 million of cash and cash equivalents and $1.0 billion of investment
securities. The management of the credit risk inherent in these
investments is governed by regulations promulgated by the FCA found at 12 C.F.R.
§§ 652.1-652.45 (the “Investment Regulations”), which include dollar amount,
issuer concentration, and credit quality limitations, as well as by Farmer Mac’s
own policies. In general, these regulations and policies require each
investment or issuer of an investment to be highly rated by a
nationally-recognized statistical rating organization
(“NRSRO”). Investments in mortgage securities and asset-backed
securities are required to have a rating in the highest NRSRO
category. Corporate debt securities with maturities of no more than
five years but more than three years are required to be rated in one of the two
highest categories; corporate debt securities with maturities of three years or
less are required to be rated in one of the three highest
categories. There are limited exceptions where a rating is not
required, such as obligations of the United States or diversified investment
funds regulated under the Investment Company Act
of 1940. Investments in money market funds are further limited
to those funds that are holding only instruments approved for direct purchase by
Farmer Mac.
FCA’s
Investment Regulations and Farmer Mac’s policies also establish concentration
limits, which are intended to reduce exposure to any one
counterparty. Farmer Mac’s total credit exposure to any single issuer
of securities or uncollateralized financial derivatives is limited to the
greater of 25 percent of the Corporation’s regulatory capital or $25.0 million
(as of March 31, 2009, 25 percent of Farmer Mac’s regulatory capital was
$67.9 million). This limitation is not applied to the obligations of
the United States or to qualified investment funds. The limitation
applied to the obligations of any GSE is 100 percent of Farmer Mac’s regulatory
capital.
In light
of the severe impact that the historic turmoil in the nation’s capital markets
has had on Farmer Mac’s investments, Farmer Mac conducted an extensive review of
its investment policies and operations with a view to strengthening policies,
procedures and oversight of its investment portfolio and related funding
strategies. This review was concluded during first quarter 2009 and
its findings are currently being implemented, with the goals of minimizing the
Corporation’s exposure to financial market volatility, preserving capital and
supporting the Corporation’s access to the debt markets.
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, 2009, 24 percent
of the outstanding balance of retained Farmer Mac I Guaranteed Securities had
yield maintenance provisions and 4 percent had other forms of prepayment
protection (together covering 53 percent of all loans with fixed interest
rates). Of the Farmer Mac I new and current loans purchased in first
quarter 2009, none had yield maintenance or other forms of prepayment
protection. As of March 31, 2009, none of the USDA-guaranteed
portions underlying Farmer Mac II Guaranteed Securities had yield maintenance
provisions; however, 5.1 percent contained prepayment
penalties. Of the USDA-guaranteed portions purchased in first quarter
2009, 2.5 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.
Farmer
Mac’s cash equivalents mature within three months and are match-funded with
discount notes having similar maturities. As of
March 31, 2009, $862.6 million of the $1.1 billion of investment
securities (82 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. Such securities are funded with floating rate
medium term notes or discount notes that closely match the rate adjustment dates
of the associated investments.
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, 2009 and December 31, 2008 to an immediate
and instantaneous uniform or “parallel” shift in the yield
curve. During first quarter 2009, 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
|
|
2009
|
|
2008
|
|
|
|
|
|
+ 300 bp
|
|
-26.3%
|
|
-10.4%
|
+ 200 bp
|
|
-13.5%
|
|
-2.1%
|
+ 100 bp
|
|
-3.2%
|
|
3.7%
|
- 100 bp
|
|
*
|
|
*
|
- 200 bp
|
|
*
|
|
*
|
- 300 bp
|
|
*
|
|
*
|
* As of the date indicated, a
parallel shift of the U.S. Treasury
|
yield curve by
the number of basis points indicated produced
|
negative
interest rates for portions or all of this
curve.
|
As
measured by this MVE analysis, Farmer Mac’s long-term interest rate sensitivity
remained at relatively low levels despite the significant change in the yield
curve that occurred during the year. As of March 31, 2009, 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 minus 0.7 months, compared to
minus 2.4 months as of December 31, 2008. Duration
matching helps to maintain the correlation of cash flows and stabilize portfolio
earnings even when interest rates are not stable.
As of
March 31, 2009, 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 6.6 percent, while a parallel decrease of
25 basis points would have decreased NII by 8.7 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, 2009, both MVE and NII showed
similar or lesser sensitivity to non-parallel shocks than to the parallel
shocks.
The
economic effects of financial derivatives are included in the Corporation’s MVE,
NII and duration gap analyses. Farmer Mac enters into the following
financial derivative transactions principally to protect against risk from the
effects of market price or interest rate movements on the value of assets,
future cash flows and debt issuance, not for trading or speculative
purposes:
·
|
“pay-fixed”
interest rate swaps, in which it pays fixed rates of interest to, and
receives floating rates of interest from,
counterparties;
|
·
|
“receive-fixed”
interest rate swaps, in which it receives fixed rates of interest from,
and pays floating rates of interest to, counterparties;
and
|
·
|
“basis
swaps,” in which it pays variable rates of interest based on one index to,
and receives variable rates of interest based on another index from,
counterparties.
|
As of
March 31, 2009, Farmer Mac had $4.3 billion combined notional amount of
interest rate swaps, with terms ranging from one to fifteen years, of which
$1.4 billion were pay-fixed interest rate swaps, $2.7 billion were
receive-fixed interest rate swaps, and $0.2 billion were basis
swaps.
Liquidity and Capital
Resources
Farmer
Mac depends on regular access to the capital markets for liquidity, and Farmer
Mac maintained access to the capital markets at favorable rates throughout first
quarter 2009. Assuming continuation of current market conditions,
Farmer Mac believes it has sufficient liquidity and capital resources to support
its operations for the next 12 months and for the foreseeable
future. Farmer Mac also has a liquidity contingency plan to manage
unanticipated disruptions in its access to the capital markets. That
plan involves borrowing through repurchase agreement arrangements and the sale
of liquid assets. Consistent with FCA regulations, Farmer Mac
maintains a minimum of 60 days of liquidity and targets 90 days of
liquidity. In accordance with the methodology prescribed by those
regulations, Farmer Mac maintained an average of 105 days of liquidity
during first quarter 2009 and had 132 days of liquidity as of March 31,
2009.
Debt
Issuance. Farmer Mac funds its purchases of program 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. See “Business—Financing—Debt
Issuance” in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the SEC on March 16, 2009 for more information
about Farmer Mac’s debt issuance.
Farmer
Mac’s board of directors has authorized the issuance of up to $7.0 billion
of discount notes and medium-term notes (of which $4.3 billion was outstanding
as of March 31, 2009), 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, and non-program investment assets in accordance with policies
established by its board of directors and subject to regulations established by
FCA.
Liquidity. The
funding and liquidity needs of Farmer Mac’s business programs are driven by the
purchase and retention of eligible loans, USDA-guaranteed portions and Farmer
Mac Guaranteed Securities; 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, and
LTSPCs;
|
·
|
principal
and interest payments received from investment securities;
and
|
·
|
the
issuance of new discount notes and medium-term
notes.
|
Farmer
Mac’s short term borrowing costs have remained at historically low levels
despite recent market volatility. Historically, Farmer Mac has used
pay-fixed interest rate swaps, combined with a planned series of discount note
issuances, as an alternative source of effectively 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 pay-fixed interest rate swaps and other LIBOR-based
floating rate assets. Conversely, if the rates on the Farmer Mac
discount notes were to decrease relative to LIBOR, Farmer Mac would be exposed
to a commensurate increase on its net interest yield on the notional amount of
its pay-fixed interest rate swaps and other LIBOR-based floating rate
assets.
Farmer
Mac maintains cash, cash equivalents (including short-term money market
instruments) and other investment securities that can be drawn upon for
liquidity needs. As of March 31, 2009, these assets consisted of:
$283.8 million of cash and cash equivalents; $550.1 million of securities
issued or guaranteed by GSEs or the U.S. Government and its agencies;
$145.9 million of asset-backed securities (mainly backed by Government
guaranteed student loans); and $350.7 million of corporate debt securities
issued primarily by financial institutions. None of Farmer Mac’s
asset-backed securities were backed by sub-prime or Alt-A residential or
commercial mortgages or home-equity loans.
As
described above in “—Balance Sheet Review,” due to the current market turmoil
and general widening of corporate debt spreads, many of the corporate debt
securities owned by Farmer Mac are in unrealized loss positions. If
Farmer Mac needed to access those securities as a source of liquidity, Farmer
Mac would realize losses in earnings and reductions to its core capital equal to
amounts currently accounted for as unrealized losses in accumulated other
comprehensive income, which is not a component of Farmer Mac’s core capital for
statutory and regulatory compliance purposes. Currently, Farmer Mac
does not foresee the need to sell those securities as a source of
liquidity.
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 or at formula-based floating rates in the event of a
failed auction. Farmer Mac held $67.6 million of ARCs as of
March 31, 2009, compared to $178.6 million as of December 31,
2008. 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. Beginning in mid-February 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 the interest rates on the ARCs have
been set pursuant to the formulas set forth in the related transaction
documents. 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 two
years. 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. On October 31, 2008, Farmer Mac
accepted an offer of Auction Rate Securities Rights, Series B-2 from UBS AG
related to $119.9 million of the ARCs in Farmer Mac’s investment
portfolio. Farmer Mac exercised those rights during first quarter
2009 and sold the ARCs to UBS for $119.9 million. As of March
31, 2009, Farmer Mac’s carrying value of its remaining ARCs was 91.3 percent of
par. The discounted carrying value reflects uncertainty regarding the
ability to obtain par in the absence of any active market trading.
As of
March 31, 2009 and December 31, 2008, Farmer Mac had a remaining investment of
$11.9 million and $17.3 million, respectively, in The Reserve Primary Fund
(the “Fund”), a money market fund that has suspended redemptions and is being
liquidated. Farmer Mac has classified its unsettled trades with the
Fund as “Prepaid expenses and other assets” on the condensed consolidated
balance sheets. On February 26, 2009, the Fund announced its decision
to initially set aside $3.5 billion in a special reserve to cover potential
liabilities for damages and associated expenses related to lawsuits and
regulatory actions against the Fund. As part of that announcement,
the Fund indicated that it planned to continue to make interim distributions up
to $0.9172 per share unless the Fund determined the need to increase the special
reserve. In accordance with that distribution plan, Farmer Mac
received $3.7 million of additional distributions from the Fund in April
2009, reducing its outstanding investment to $8.2 million. On
May 5, 2009, the SEC filed a civil injunctive action charging the entities
and individuals who operate the Fund with several counts of securities fraud for
failing to disclose key material information to the Fund’s investors, board of
trustees, and ratings agencies after Lehman Brothers filed for bankruptcy
protection during third quarter 2008. The SEC is seeking a permanent
injunction, penalties and disgorgement of ill-gotten gains along with an order
compelling a pro rata distribution of all remaining Fund assets, including the
$3.5 billion special reserve fund that is currently being withheld from
investors. Farmer Mac believes that it is legally entitled to receive
100 percent of its remaining investment amount in the Fund, although it may
take an extended period of time to resolve Farmer Mac’s claim and some loss on
the investment is possible. Whether or not the Corporation will be
made whole on its investment in the Fund depends on how much remains in the
Fund’s asset pool compared to claims by other investors in the Fund, along with
the success of the SEC action and other litigation in recovering additional
amounts for investors in the Fund. Potential rulings or decisions by
courts or regulators will likely affect further distributions by the Fund, and
Farmer Mac will continue to monitor further developments with respect to the
expected recovery of its remaining investment in the Fund.
Capital. During
first quarter 2009, Farmer Mac issued $10.8 million of Series C Preferred
Stock. For more information about the Series C Preferred Stock, see
Note 6 to the interim unaudited condensed consolidated financial statements and
Farmer Mac’s Form 10-K for the fiscal year ended December 31, 2008 filed with
the SEC on March 16, 2009. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Balance Sheet
Review—Capital” in this report for more information about Farmer Mac’s capital
position.
Other
Matters
Dividends. Beginning
in fourth quarter 2004 and continuing through fourth quarter 2008, Farmer Mac
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. On March 11,
2009, Farmer Mac’s board of directors declared a quarterly dividend of $0.05 per
share on the Corporation’s common stock payable on April 3, 2009. The
board reduced the dividend to preserve capital based on its assessment of the
uncertain outlook for capital market conditions and to ensure that Farmer Mac
has adequate capital to meet its statutory capital requirements and support new
business. 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, 2008 filed with
the SEC on March 16, 2009. 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
|
|
|
|
|
|
Farmer
Mac
|
|
|
|
|
|
|
|
|
|
LTSPCs
(1)
|
|
|
Farmer
Mac II
|
|
|
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
For the quarter
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
$ |
29,814 |
|
|
$ |
65,720 |
|
|
$ |
79,055 |
|
|
$ |
270,000 |
|
|
$ |
444,589 |
|
December 31,
2008
|
|
|
72,137 |
|
|
|
121,440 |
|
|
|
87,455 |
|
|
|
230,000 |
|
|
|
511,032 |
|
September 30,
2008
|
|
|
508,179 |
|
|
|
239,170 |
|
|
|
83,672 |
|
|
|
- |
|
|
|
831,021 |
|
June 30,
2008
|
|
|
53,838 |
|
|
|
116,472 |
|
|
|
79,700 |
|
|
|
1,330,676 |
|
|
|
1,580,686 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
671,622 |
|
|
|
530,363 |
|
|
|
303,941 |
|
|
|
1,560,676 |
|
|
|
3,066,602 |
|
December 31,
2007
|
|
|
1,127,709 |
|
|
|
970,789 |
|
|
|
210,040 |
|
|
|
- |
|
|
|
2,308,538 |
|
(1)
|
During 2005, Farmer Mac began
issuing LTSPCs for the construction of agricultural storage and processing
facilities, primarily ethanol facilities. As of March 31, 2009,
approximately $38.3 million of the loans underlying those $295.2 million
of LTSPCs were not yet disbursed by the lender.
|
(2)
|
The enactment of the Farm Bill on
May 22, 2008 expanded Farmer Mac’s authorities to include providing a
secondary market for rural electric and telephone loans made by
cooperative lenders.
|
Outstanding Balance of Farmer Mac
Loans,
|
|
Guarantees and
LTSPCs
|
|
|
|
Farmer Mac
I
|
|
|
|
|
|
Farmer Mac
|
|
|
|
|
|
|
Loans and
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
Securities
-
|
|
|
|
|
|
|
Securities
|
|
|
LTSPCs
|
|
|
Farmer Mac
II
|
|
|
Rural
Utilities
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
As of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
$ |
5,313,680 |
|
|
$ |
2,216,564 |
|
|
$ |
1,082,215 |
|
|
$ |
1,319,033 |
|
|
$ |
9,931,492 |
|
December 31,
2008
|
|
|
5,759,773 |
|
|
|
2,224,181 |
|
|
|
1,043,425 |
|
|
|
1,054,941 |
|
|
|
10,082,320 |
|
September 30,
2008
|
|
|
5,724,867 |
|
|
|
2,264,880 |
|
|
|
995,639 |
|
|
|
824,941 |
|
|
|
9,810,327 |
|
June 30,
2008
|
|
|
5,474,303 |
|
|
|
1,997,172 |
|
|
|
960,278 |
|
|
|
1,330,676 |
|
|
|
9,762,429 |
|
March 31,
2008
|
|
|
5,521,945 |
|
|
|
1,943,181 |
|
|
|
959,444 |
|
|
|
- |
|
|
|
8,424,570 |
|
December 31,
2007
|
|
|
5,648,197 |
|
|
|
1,948,941 |
|
|
|
946,617 |
|
|
|
- |
|
|
|
8,543,755 |
|
September 30,
2007
|
|
|
5,694,971 |
|
|
|
1,724,328 |
|
|
|
943,183 |
|
|
|
- |
|
|
|
8,362,482 |
|
June 30,
2007
|
|
|
5,787,490 |
|
|
|
1,644,413 |
|
|
|
942,443 |
|
|
|
- |
|
|
|
8,374,346 |
|
March 31,
2007
|
|
|
4,512,343 |
|
|
|
1,920,848 |
|
|
|
932,056 |
|
|
|
- |
|
|
|
7,365,247 |
|
Outstanding Balance of Loans Held
and Loans Underlying
|
|
On-Balance Sheet Farmer Mac
Guaranteed Securities
|
|
|
|
|
|
|
5-to-10-Year
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
ARMs &
|
|
|
1-Month-to-
|
|
|
Held in
|
|
|
|
Fixed Rate
|
|
|
Resets
|
|
|
3 Year ARMs
|
|
|
Portfolio
|
|
|
|
(in
thousands)
|
|
As of:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
$ |
1,728,174 |
|
|
$ |
660,398 |
|
|
$ |
759,535 |
|
|
$ |
3,148,107 |
|
December 31,
2008
|
|
|
1,659,983 |
|
|
|
746,623 |
|
|
|
819,234 |
|
|
|
3,225,840 |
|
September 30,
2008
|
|
|
1,412,136 |
|
|
|
699,611 |
|
|
|
743,146 |
|
|
|
2,854,893 |
|
June 30,
2008
|
|
|
1,974,048 |
|
|
|
772,859 |
|
|
|
739,642 |
|
|
|
3,486,549 |
|
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 |
|
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 (the “CEO”) and Chief Financial
Officer (the “CFO”), 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,
2009.
The
Corporation carried out the evaluation required by paragraph (b) of Exchange Act
Rules 13a-15 and 15d-5, under the supervision and with the participation of
management, including the CEO and CFO, of the effectiveness of Farmer Mac’s
disclosure controls and procedures. Based upon this evaluation, the
CEO and CFO concluded that the Corporation’s disclosure controls and procedures
were effective as of March 31, 2009.
(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, 2009 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
|
On
December 5, 2008, a lawsuit was filed in the United States District Court for
the District of Columbia against Farmer Mac and certain of its present and
former officers and directors on behalf of purchasers of the securities of the
Corporation between March 15, 2007 and September 12, 2008. The
lawsuit alleges, among other things, violations of Section 10(b) of the
Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated
thereunder by all defendants and violations of Section 20(a) of the Exchange Act
by the individual defendants in relation to alleged statements and omissions
concerning the financial condition of the Corporation alleged to be materially
false or misleading. The complaint seeks class certification,
compensatory damages, and other remedies. On February 23, 2009, the
Court appointed lead plaintiffs for the litigation, and the lead plaintiffs are
expected to file an amended complaint, which the defendants expect to move to
dismiss. Farmer Mac intends to defend against plaintiffs’ claims
vigorously.
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, 2008 filed with
the SEC on March 16, 2009.
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
debt and equity securities are exempt from registration pursuant to
Section 3(a)(2) of the Securities Act of
1933.
|
During
first quarter 2009, one type of transaction occurred related to Farmer Mac
common stock that was not registered under the Securities Act of 1933 and not
otherwise reported on a Current Report on Form 8-K. On
January 12, 2009, 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
2,356 shares of its Class C Non-Voting Common Stock to the four
directors who elected to receive such stock in lieu of their cash
retainers. The number of shares issued to the directors was
calculated based on a price of $3.50 per share, which was the closing price of
the Class C Non-Voting Common Stock on December 31, 2008 as reported by the New
York Stock Exchange,
Item
3.
|
Defaults Upon Senior
Securities
|
Item
4.
|
Submission of Matters
to a Vote of Security
Holders
|
Item
5.
|
Other
Information
|
*
|
3.1
|
-
|
Title
VIII of the Farm Credit Act of 1971, as most recently amended by the Food,
Conservation and Energy Act of 2008 (Form 10-Q filed August 12,
2008).
|
*
|
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
|
-
|
Second
Amended and Restated Certificate of Designation of Terms and Conditions of
Farmer Mac Senior Cumulative Perpetual Preferred Stock, Series B-1 (Form
10-K filed March 16, 2009).
|
*
|
4.5
|
-
|
Second
Amended and Restated Certificate of Designation of Terms and Conditions of
Farmer Mac Senior Cumulative Perpetual Preferred Stock, Series B-2 (Form
10-K filed March 16, 2009).
|
*
|
4.6
|
-
|
Certificate
of Designation of Terms and Conditions of Farmer Mac Senior Cumulative
Perpetual Preferred Stock, Series B-3 (Form 10-K filed March 16,
2009).
|
**
|
4.7
|
-
|
Certificate
of Designation of Terms and Conditions of Non-Voting Cumulative Preferred
Stock, Series C.
|
†*
|
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).
|
†*
|
10.1.2
|
-
|
2008
Omnibus Incentive Plan (Form 10-Q filed August 12,
2008).
|
†*
|
10.1.3
|
-
|
Form
of SAR Agreement under the 2008 Omnibus Incentive Plan (Previously filed
as Exhibit 10 to Form 8-K filed June 11,
2008).
|
__________________
*
|
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
|
-
|
Employment
Agreement dated as of March 1, 2009 between Michael A. Gerber
and the Registrant.
|
†*
|
10.3
|
-
|
Compiled
Amended and Restated Employment Contract dated as of June 5, 2008
between Tom D. Stenson and the Registrant (Previously filed as Exhibit
10.4 to Form 10-Q filed August 12,
2008).
|
†*
|
10.4
|
-
|
Compiled
Amended and Restated Employment Contract dated June 5, 2008 between
Timothy L. Buzby and the Registrant (Previously filed as Exhibit 10.5
to Form 10-Q filed August 12,
2008).
|
†*
|
10.5
|
-
|
Compiled
Amended and Restated Employment Contract dated June 5, 2008 between Mary
K. Waters and the Registrant (Previously filed as Exhibit 10.6 to
Form 10-Q filed August 12,
2008).
|
|
10.6
|
-
|
Exhibit
number reserved for future
use.
|
*
|
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
|
-
|
Long
Term Standby Commitment to Purchase dated as of August 1, 2007
between Farm Credit Bank of Texas and the Registrant (Previously filed as
Exhibit 10.20 to Form 10-Q filed November 8,
2007).
|
*#
|
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
|
-
|
Form
of Indemnification Agreement for Directors (Previously filed as Exhibit
10.1 to Form 8-K filed April 9,
2008).
|
†*
|
10.19
|
-
|
Description
of compensation agreement between the Registrant and its directors
(Form 10-Q filed August 9,
2007).
|
†**
|
10.20
|
-
|
Agreement
and General Release dated as of January 30, 2009 between Henry D.
Edelman and the Registrant.
|
†**
|
10.21
|
-
|
Agreement
and General Release dated as of February 6, 2009 between Nancy E.
Corsiglia and the Registrant.
|
__________________
*
|
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.
|
|
21
|
-
|
Farmer
Mac Mortgage Securities Corporation, a Delaware
corporation.
|
**
|
31.1
|
-
|
Certification
of Chief Executive Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
**
|
31.2
|
-
|
Certification
of Chief Financial Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
**
|
32
|
-
|
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, 2009, 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 11,
2009
|
By:
|
/s/
Michael A. Gerber
|
|
|
Michael
A. Gerber
President
and Chief Executive Officer
(Principal
Executive
Officer)
|
|
|
/s/
Timothy L. Buzby
|
|
|
Timothy
L. Buzby
Vice
President – Chief Financial Officer
(Principal
Financial Officer)
|