Unassociated Document
As filed
with the Securities and Exchange Commission on
August
10, 2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended June 30, 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.
Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
|
¨
|
Accelerated filer x |
Non-accelerated filer
|
¨
|
Smaller reporting company ¨ |
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of
August 3, 2009 the registrant had 1,030,780 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock and
8,609,233 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 June 30, 2009 and December 31,
2008
|
3
|
Condensed
Consolidated Statements of Operations for the three and six months ended
June 30, 2009 and 2008
|
4
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June 30,
2009 and 2008
|
5
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
362,858 |
|
|
$ |
278,412 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
836,540 |
|
|
|
1,072,096 |
|
Trading,
at fair value
|
|
|
185,437 |
|
|
|
163,763 |
|
Total
investment securities
|
|
|
1,021,977 |
|
|
|
1,235,859 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
2,124,281 |
|
|
|
1,511,694 |
|
Trading,
at fair value
|
|
|
895,131 |
|
|
|
939,550 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
3,019,412 |
|
|
|
2,451,244 |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
|
613,126 |
|
|
|
66,680 |
|
Loans
held for investment, at amortized cost
|
|
|
38,360 |
|
|
|
718,845 |
|
Allowance
for loan losses
|
|
|
(1,810 |
) |
|
|
(10,929 |
) |
Total
loans, net of allowance
|
|
|
649,676 |
|
|
|
774,596 |
|
|
|
|
|
|
|
|
|
|
Real
estate owned, at lower of cost or fair value
|
|
|
41,561 |
|
|
|
606 |
|
Financial
derivatives, at fair value
|
|
|
15,452 |
|
|
|
27,069 |
|
Interest
receivable
|
|
|
53,796 |
|
|
|
73,058 |
|
Guarantee
and commitment fees receivable
|
|
|
56,083 |
|
|
|
61,109 |
|
Deferred
tax asset, net
|
|
|
39,820 |
|
|
|
87,793 |
|
Prepaid
expenses and other assets
|
|
|
62,049 |
|
|
|
117,561 |
|
Total
Assets
|
|
$ |
5,322,684 |
|
|
$ |
5,107,307 |
|
|
|
|
|
|
|
|
|
|
Liabilities,
Mezzanine Equity and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
3,262,856 |
|
|
$ |
3,757,099 |
|
Due
after one year
|
|
|
1,535,362 |
|
|
|
887,999 |
|
Total
notes payable
|
|
|
4,798,218 |
|
|
|
4,645,098 |
|
|
|
|
|
|
|
|
|
|
Financial
derivatives, at fair value
|
|
|
123,286 |
|
|
|
181,183 |
|
Accrued
interest payable
|
|
|
38,759 |
|
|
|
40,470 |
|
Guarantee
and commitment obligation
|
|
|
50,572 |
|
|
|
54,954 |
|
Accounts
payable and accrued expenses
|
|
|
20,839 |
|
|
|
20,532 |
|
Reserve
for losses
|
|
|
7,496 |
|
|
|
5,506 |
|
Total
Liabilities
|
|
|
5,039,170 |
|
|
|
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, $1,000 per share, 75,000 shares
authorized, 40,000 and 9,200 issued and outstanding as of June 30, 2009
and December 31, 2008, respectively
|
|
|
40,000 |
|
|
|
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
|
|
|
8,607 |
|
|
|
8,601 |
|
Additional
paid-in capital
|
|
|
95,961 |
|
|
|
95,572 |
|
Accumulated
other comprehensive loss
|
|
|
(12,546 |
) |
|
|
(47,412 |
) |
Retained
earnings/(accumulated deficit)
|
|
|
5,745 |
|
|
|
(52,144 |
) |
Total
Stockholders' Equity
|
|
|
139,298 |
|
|
|
15,348 |
|
Total
Liabilities, Mezzanine Equity and Stockholders' Equity
|
|
$ |
5,322,684 |
|
|
$ |
5,107,307 |
|
See
accompanying notes to condensed consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in thousands, except per share
amounts)
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$ |
7,049 |
|
|
$ |
35,402 |
|
|
$ |
15,958 |
|
|
$ |
76,910 |
|
Farmer
Mac Guaranteed Securities
|
|
|
25,805 |
|
|
|
19,767 |
|
|
|
53,564 |
|
|
|
38,537 |
|
Loans
|
|
|
8,896 |
|
|
|
11,643 |
|
|
|
19,381 |
|
|
|
23,474 |
|
Total
interest income
|
|
|
41,750 |
|
|
|
66,812 |
|
|
|
88,903 |
|
|
|
138,921 |
|
Total
interest expense
|
|
|
21,849 |
|
|
|
42,454 |
|
|
|
45,562 |
|
|
|
96,625 |
|
Net
interest income
|
|
|
19,901 |
|
|
|
24,358 |
|
|
|
43,341 |
|
|
|
42,296 |
|
Recoveries
for loan losses
|
|
|
5,693 |
|
|
|
- |
|
|
|
2,159 |
|
|
|
- |
|
Net
interest income after provision for loan losses
|
|
|
25,594 |
|
|
|
24,358 |
|
|
|
45,500 |
|
|
|
42,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
7,908 |
|
|
|
6,659 |
|
|
|
15,318 |
|
|
|
13,293 |
|
Gains/(losses)
on financial derivatives
|
|
|
21,528 |
|
|
|
31,050 |
|
|
|
23,239 |
|
|
|
(10,670 |
) |
Gains/(losses)
on trading assets
|
|
|
35 |
|
|
|
(17,268 |
) |
|
|
31,660 |
|
|
|
(7,157 |
) |
Other-than-temporary
impairment - credit losses
|
|
|
(2,292 |
) |
|
|
(5,344 |
) |
|
|
(2,373 |
) |
|
|
(5,344 |
) |
(Losses)/gains
on sale of available-for-sale investment securities
|
|
|
(300 |
) |
|
|
150 |
|
|
|
2,850 |
|
|
|
150 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
1,581 |
|
|
|
- |
|
Other
income
|
|
|
101 |
|
|
|
662 |
|
|
|
335 |
|
|
|
1,123 |
|
Non-interest
income/(loss)
|
|
|
26,980 |
|
|
|
15,909 |
|
|
|
72,610 |
|
|
|
(8,605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
3,572 |
|
|
|
3,929 |
|
|
|
7,597 |
|
|
|
7,579 |
|
General
and administrative
|
|
|
2,986 |
|
|
|
2,242 |
|
|
|
5,900 |
|
|
|
4,270 |
|
Regulatory
fees
|
|
|
512 |
|
|
|
512 |
|
|
|
1,025 |
|
|
|
1,025 |
|
Real
estate owned operating costs, net
|
|
|
(16 |
) |
|
|
38 |
|
|
|
5 |
|
|
|
87 |
|
(Recoveries)/provision
for losses
|
|
|
(529 |
) |
|
|
- |
|
|
|
1,990 |
|
|
|
- |
|
Non-interest
expense
|
|
|
6,525 |
|
|
|
6,721 |
|
|
|
16,517 |
|
|
|
12,961 |
|
Income
before income taxes
|
|
|
46,049 |
|
|
|
33,546 |
|
|
|
101,593 |
|
|
|
20,730 |
|
Income
tax expense
|
|
|
16,534 |
|
|
|
11,555 |
|
|
|
34,624 |
|
|
|
6,436 |
|
Net
income
|
|
|
29,515 |
|
|
|
21,991 |
|
|
|
66,969 |
|
|
|
14,294 |
|
Preferred
stock dividends
|
|
|
(4,130 |
) |
|
|
(560 |
) |
|
|
(8,066 |
) |
|
|
(1,120 |
) |
Net
income available to common stockholders
|
|
$ |
25,385 |
|
|
$ |
21,431 |
|
|
$ |
58,903 |
|
|
$ |
13,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share and dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
2.50 |
|
|
$ |
2.15 |
|
|
$ |
5.81 |
|
|
$ |
1.33 |
|
Diluted
earnings per common share
|
|
$ |
2.49 |
|
|
$ |
2.13 |
|
|
$ |
5.80 |
|
|
$ |
1.31 |
|
Common
stock dividends per common share
|
|
$ |
0.05 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.20 |
|
See
accompanying notes to condensed consolidated financial statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
66,969 |
|
|
$ |
14,294 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
amortization of premiums and discounts on loans, investments and Farmer
Mac Guaranteed Securities
|
|
|
2,207 |
|
|
|
2,752 |
|
Amortization
of debt premiums, discounts and issuance costs
|
|
|
8,116 |
|
|
|
47,430 |
|
Proceeds
from repayment and sale of trading investment securities
|
|
|
472 |
|
|
|
628 |
|
Purchases
of loans held for sale
|
|
|
(53,045 |
) |
|
|
(30,685 |
) |
Proceeds
from repayment of loans held for sale
|
|
|
16,117 |
|
|
|
5,792 |
|
Net
change in fair value of trading securities and financial
derivatives
|
|
|
(77,939 |
) |
|
|
7,408 |
|
Amortization
of SFAS 133 transition adjustment on financial derivatives
|
|
|
89 |
|
|
|
156 |
|
Other-than-temporary
impairment - credit losses
|
|
|
2,373 |
|
|
|
5,344 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
(1,581 |
) |
|
|
(150 |
) |
Gains
on sale of available-for-sale investment securities
|
|
|
(2,850 |
) |
|
|
- |
|
Total
provision for losses
|
|
|
(169 |
) |
|
|
- |
|
Deferred
income taxes
|
|
|
37,164 |
|
|
|
(3,537 |
) |
Stock-based
compensation expense
|
|
|
1,543 |
|
|
|
2,284 |
|
Decrease
in interest receivable
|
|
|
19,262 |
|
|
|
15,503 |
|
Decrease
in guarantee and commitment fees receivable
|
|
|
5,026 |
|
|
|
2,181 |
|
Decrease
in other assets
|
|
|
42,734 |
|
|
|
131 |
|
Decrease
in accrued interest payable
|
|
|
(1,711 |
) |
|
|
(2,071 |
) |
Decrease
in other liabilities
|
|
|
(7,686 |
) |
|
|
(8,122 |
) |
Net
cash provided by operating activities
|
|
|
57,091 |
|
|
|
59,338 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
- |
|
|
|
(1,017,845 |
) |
Purchases
of Farmer Mac Guaranteed Securities
|
|
|
(949,480 |
) |
|
|
(221,053 |
) |
Purchases
of loans held for investment
|
|
|
(14,670 |
) |
|
|
(60,621 |
) |
Purchases
of defaulted loans
|
|
|
(5,602 |
) |
|
|
(1,189 |
) |
Proceeds
from repayment of available-for-sale investment securities
|
|
|
129,265 |
|
|
|
296,048 |
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
137,572 |
|
|
|
152,670 |
|
Proceeds
from repayment of loans
|
|
|
34,252 |
|
|
|
65,262 |
|
Proceeds
from sale of available-for-sale investment securities
|
|
|
153,100 |
|
|
|
288,275 |
|
Proceeds
from sale of loans held
|
|
|
358,953 |
|
|
|
- |
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
17,224 |
|
|
|
13,876 |
|
Net
cash used in investing activities
|
|
|
(139,386 |
) |
|
|
(484,577 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
27,760,730 |
|
|
|
74,710,734 |
|
Proceeds
from issuance of medium-term notes
|
|
|
2,074,185 |
|
|
|
1,011,944 |
|
Payments
to redeem discount notes
|
|
|
(27,974,911 |
) |
|
|
(73,636,115 |
) |
Payments
to redeem medium-term notes
|
|
|
(1,715,000 |
) |
|
|
(1,050,000 |
) |
Tax
benefit from tax deductions in excess of compensation cost
recognized
|
|
|
- |
|
|
|
175 |
|
Proceeds
from common stock issuance
|
|
|
17 |
|
|
|
3,368 |
|
Purchases
of common stock
|
|
|
- |
|
|
|
(830 |
) |
Proceeds
from preferred stock issuance
|
|
|
30,800 |
|
|
|
- |
|
Dividends
paid
|
|
|
(9,080 |
) |
|
|
(3,108 |
) |
Net
cash provided by financing activities
|
|
|
166,741 |
|
|
|
1,036,168 |
|
Net
increase in cash and cash equivalents
|
|
|
84,446 |
|
|
|
610,929 |
|
Cash
and cash equivalents at beginning of period
|
|
|
278,412 |
|
|
|
101,445 |
|
Cash
and cash equivalents at end of period
|
|
$ |
362,858 |
|
|
$ |
712,374 |
|
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 six months ended June 30, 2009 and 2008.
|
|
For the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
|
Interest
|
|
$ |
42,465 |
|
|
$ |
57,410 |
|
Income
taxes
|
|
|
10,000 |
|
|
|
21,500 |
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Transfer
of loans held for investment to real estate owned
|
|
|
40,955 |
|
|
|
-
|
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
17,224 |
|
|
|
1,390 |
|
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 available-for-sale investment securities to available-for-sale Farmer
Mac Guaranteed Securities - Rural Utilities
|
|
|
-
|
|
|
|
902,420 |
|
Transfers
of trading investment securities to trading Farmer Mac Guaranteed
Securities - Rural Utilities
|
|
|
-
|
|
|
|
459,026 |
|
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
June 30, 2009, Farmer Mac maintained an allowance for losses to cover estimated
probable losses on loans held 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, or releases of allowance
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);
|
|
·
|
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 provides a specific allowance 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 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 and six months ended June 30, 2009 and
2008:
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
Allowance
|
|
|
|
|
|
Total
|
|
|
Allowance
|
|
|
|
|
|
Total
|
|
|
|
for Loan
|
|
|
Reserve
|
|
|
Allowance
|
|
|
for Loan
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
for Losses
|
|
|
for Losses
|
|
|
Losses
|
|
|
for Losses
|
|
|
for Losses
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
For
the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
13,228 |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
|
$ |
1,651 |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
Provision/(recovery)
for losses
|
|
|
(5,693 |
) |
|
|
(529 |
) |
|
|
(6,222 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(5,725 |
) |
|
|
- |
|
|
|
(5,725 |
) |
|
|
(69 |
) |
|
|
- |
|
|
|
(69 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Ending
balance
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
$ |
1,592 |
|
|
$ |
2,197 |
|
|
$ |
3,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
|
$ |
1,690 |
|
|
$ |
2,197 |
|
|
$ |
3,887 |
|
Provision/(recovery)
for losses
|
|
|
(2,159 |
) |
|
|
1,990 |
|
|
|
(169 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(7,725 |
) |
|
|
- |
|
|
|
(7,725 |
) |
|
|
(108 |
) |
|
|
- |
|
|
|
(108 |
) |
Recoveries
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Ending
balance
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
$ |
1,592 |
|
|
$ |
2,197 |
|
|
$ |
3,789 |
|
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 June 30, 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 June 30, 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 June 30,
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 June
30, 2009 and December 31, 2008:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
1,810 |
|
|
$ |
10,929 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
On-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
- |
|
|
|
869 |
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
1,703 |
|
|
|
535 |
|
LTSPCs
|
|
|
5,793 |
|
|
|
4,102 |
|
Farmer
Mac Guaranteed Securities - Rural Utilities
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
9,306 |
|
|
$ |
16,435 |
|
As of
June 30, 2009, Farmer Mac individually analyzed $112.1 million of its
$152.8 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $40.7 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 $1.5 million as of June 30, 2009 and $8.6 million as of December
31, 2008. Farmer Mac’s non-specific or general allowances were
$7.8 million as of both June 30, 2009 and December 31, 2008.
Farmer
Mac recognized interest income of approximately $0.6 million and $1.7 million on
impaired loans during the three and six months ended June 30, 2009,
respectively, compared to $0.9 million and $2.1 million, respectively, during
the same periods in 2008. During the three and six months ended
June 30, 2009, Farmer Mac’s average investment in impaired loans was $142.4
million and $136.2 million, respectively, compared to $43.6 million and $41.3
million, respectively, for the same periods in 2008.
(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 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. 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.
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 June 30, 2009 and December 31, 2008:
|
|
June 30, 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
|
|
$ |
129,980 |
|
|
$ |
- |
|
|
$ |
(3,037 |
) |
|
|
5.61 |
% |
|
|
0.95 |
% |
|
|
|
|
|
7.74 |
|
Pay
fixed non-callable
|
|
|
1,207,273 |
|
|
|
- |
|
|
|
(109,117 |
) |
|
|
5.17 |
% |
|
|
0.89 |
% |
|
|
|
|
|
5.20 |
|
Receive
fixed callable
|
|
|
300,000 |
|
|
|
441 |
|
|
|
- |
|
|
|
0.79 |
% |
|
|
1.36 |
% |
|
|
|
|
|
0.95 |
|
Receive
fixed non-callable
|
|
|
2,680,559 |
|
|
|
15,326 |
|
|
|
(9,674 |
) |
|
|
0.87 |
% |
|
|
1.80 |
% |
|
|
|
|
|
2.16 |
|
Basis
swaps
|
|
|
277,474 |
|
|
|
422 |
|
|
|
(3,411 |
) |
|
|
2.29 |
% |
|
|
1.15 |
% |
|
|
|
|
|
3.04 |
|
Agency
forwards
|
|
|
30,142 |
|
|
|
- |
|
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
|
98.47 |
|
|
|
|
|
Treasury
futures
|
|
|
2,400 |
|
|
|
1 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
116.33 |
|
|
|
|
|
Credit
valuation adjustment
|
|
|
- |
|
|
|
(738 |
) |
|
|
2,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial derivatives
|
|
$ |
4,627,828 |
|
|
$ |
15,452 |
|
|
$ |
(123,286 |
) |
|
|
2.21 |
% |
|
|
1.47 |
% |
|
|
|
|
|
|
|
|
|
|
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 June 30, 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 $126.3 million. As of June 30, 2009, Farmer Mac posted assets
with a fair value of $49.4 million as collateral for its derivatives in net
liability positions. If Farmer Mac had breached certain provisions of
the derivative contracts as of June 30, 2009, it could have been required
to settle its obligations under the agreements or post additional collateral of
$76.9 million.
The
following table summarizes the effects of Farmer Mac’s financial derivatives on
the condensed consolidated statements of operations for the three and six months
ended June 30, 2009 and 2008:
|
|
Gains/(Losses) on Financial Derivatives
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
21,720 |
|
|
$ |
30,582 |
|
|
$ |
24,380 |
|
|
$ |
(10,566 |
)
|
Agency
forwards
|
|
|
(199 |
) |
|
|
534 |
|
|
|
(1,078 |
) |
|
|
215 |
|
Treasury
futures
|
|
|
84 |
|
|
|
57 |
|
|
|
75 |
|
|
|
(85 |
) |
|
|
|
21,605 |
|
|
|
31,173 |
|
|
|
23,377 |
|
|
|
(10,436 |
) |
Amortization
of SFAS 133 transition adjustment
|
|
|
(77 |
) |
|
|
(123 |
) |
|
|
(138 |
) |
|
|
(234 |
) |
Total
|
|
$ |
21,528 |
|
|
$ |
31,050 |
|
|
$ |
23,239 |
|
|
$ |
(10,670 |
) |
As of
June 30, 2009 and December 31, 2008, respectively, Farmer Mac had approximately
$0.1 million and $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
June 30, 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 $(3.4) 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. Farmer Mac recorded unrealized gains of $0.8 million and
$0.3 million on those outstanding basis swaps for the three and six months ended
June 30, 2009, respectively, compared to an unrealized gain of $2.1 million and
an unrealized loss of $0.4 million, respectively, for the same periods in
2008.
(d) Earnings Per Common
Share
Basic
earnings per common share are based on the weighted-average number of shares of
common stock outstanding. Diluted earnings per common share are based
on the weighted-average number of shares of common stock outstanding adjusted to
include all potentially dilutive common stock options, stock appreciation rights
(“SARs”) and nonvested restricted stock awards. The following
schedule reconciles basic and diluted earnings per common share (“EPS”) for the
three and six months ended June 30, 2009 and 2008:
|
|
For the Three Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(in thousands, except per share amounts)
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
25,385 |
|
|
|
10,138 |
|
|
$ |
2.50 |
|
|
$ |
21,431 |
|
|
|
9,964 |
|
|
$ |
2.15 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and nonvested shares (1)
|
|
|
|
|
|
|
38 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
108 |
|
|
|
(0.02 |
) |
Diluted
EPS
|
|
$ |
25,385 |
|
|
|
10,176 |
|
|
$ |
2.49 |
|
|
$ |
21,431 |
|
|
|
10,072 |
|
|
$ |
2.13 |
|
(1)
|
For
the three months ended June 30, 2009 and 2008, stock options, SARs and
nonvested shares of 1,862,829 and 1,546,664, respectively, were
outstanding but not included in the computation of diluted earnings per
share of common stock because they were
anti-dilutive.
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(in thousands, except per share amounts)
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
58,903 |
|
|
|
10,136 |
|
|
$ |
5.81 |
|
|
$ |
13,174 |
|
|
|
9,916 |
|
|
$ |
1.33 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and nonvested shares (1)
|
|
|
|
|
|
|
19 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
112 |
|
|
|
(0.02 |
) |
Diluted
EPS
|
|
$ |
58,903 |
|
|
|
10,155 |
|
|
$ |
5.80 |
|
|
$ |
13,174 |
|
|
|
10,028 |
|
|
$ |
1.31 |
|
(1)
|
For
the six months ended June 30, 2009 and 2008, stock options, SARs and
nonvested shares of 1,881,885 and 1,385,929, 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 June 2009 have an exercise price of $5.93
per share. Restricted stock was awarded to directors in June 2009 and
vests fully after approximately one year. Restricted stock awarded to
officers vests after approximately three years and only vests if certain
performance conditions are met. Restricted stock awards granted to
both directors and officers are not issued until full vesting
occurs.
For the
three and six months ended June 30, 2009, Farmer Mac recognized $0.9 million and
$1.6 million, respectively, of compensation expense related to stock options,
SARs, and restricted stock awards compared to $1.4 million and $2.3 million
for the same periods in 2008.
The
following tables summarize activity related to stock options, SARs and nonvested
restricted share awards for the three and six months ended June 30, 2009 and
2008:
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
Stock
|
|
|
Weighted-
|
|
|
Stock
|
|
|
Weighted-
|
|
|
|
Options
|
|
|
Average
|
|
|
Options
|
|
|
Average
|
|
|
|
and
|
|
|
Exercise
|
|
|
and
|
|
|
Exercise
|
|
|
|
SARs
|
|
|
Price
|
|
|
SARs
|
|
|
Price
|
|
For
the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
1,697,829 |
|
|
$ |
24.66 |
|
|
|
2,218,199 |
|
|
$ |
25.48 |
|
Granted
|
|
|
165,000 |
|
|
|
5.93 |
|
|
|
339,770 |
|
|
|
28.92 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
(157,966 |
) |
|
|
21.05 |
|
Canceled
|
|
|
(106,864 |
) |
|
|
22.12 |
|
|
|
(18,500 |
) |
|
|
28.79 |
|
Outstanding,
end of period
|
|
|
1,755,965 |
|
|
$ |
23.06 |
|
|
|
2,381,503 |
|
|
$ |
26.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,237,711 |
|
|
$ |
25.54 |
|
|
|
2,218,199 |
|
|
$ |
25.48 |
|
Granted
|
|
|
165,000 |
|
|
|
5.93 |
|
|
|
339,770 |
|
|
|
28.92 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
(157,966 |
) |
|
|
21.05 |
|
Canceled
|
|
|
(646,746 |
) |
|
|
27.28 |
|
|
|
(18,500 |
) |
|
|
28.79 |
|
Outstanding,
end of period
|
|
|
1,755,965 |
|
|
$ |
23.06 |
|
|
|
2,381,503 |
|
|
$ |
26.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options and SARs exercisable at the end of the period
|
|
|
1,349,258 |
|
|
$ |
25.51 |
|
|
|
1,597,527 |
|
|
$ |
25.06 |
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Nonvested
|
|
|
Grant-date
|
|
|
Nonvested
|
|
|
Grant-date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
For
the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at beginning of period
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
200,548 |
|
|
|
5.93 |
|
|
|
- |
|
|
|
- |
|
Canceled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Nonvested
at end of period
|
|
|
200,548 |
|
|
$ |
5.93 |
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at beginning of period
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
200,548 |
|
|
|
5.93 |
|
|
|
- |
|
|
|
- |
|
Canceled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Nonvested
at end of period
|
|
|
200,548 |
|
|
$ |
5.93 |
|
|
|
- |
|
|
$ |
- |
|
The
cancellations of stock options during the first six months of 2009 and 2008 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 stock options or SARs exercised during the first
six months of 2009 and 157,966 shares were exercised during the first six months
of 2008.
The
following tables summarize information regarding stock options, SARs and
nonvested shares outstanding as of June 30, 2009:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Vested or Expected to Vest
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Stock
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
Range of
|
|
Options
|
|
|
Remaining
|
|
|
Options
|
|
|
Remaining
|
|
|
Options
|
|
|
Remaining
|
|
Exercise
|
|
and
|
|
|
Contractual
|
|
|
and
|
|
|
Contractual
|
|
|
and
|
|
|
Contractual
|
|
Prices
|
|
SARs
|
|
|
Life
|
|
|
SARs
|
|
|
Life
|
|
|
SARs
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.00
- $ 9.99
|
|
|
255,000 |
|
|
9.7
years
|
|
|
|
-
|
|
|
|
-
|
|
|
|
229,500 |
|
|
9.7
years
|
|
10.00
- 14.99
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
15.00
- 19.99
|
|
|
81,722 |
|
|
4.7
years
|
|
|
|
81,722 |
|
|
4.7
years
|
|
|
|
81,722 |
|
|
4.7
years
|
|
20.00
- 24.99
|
|
|
552,088 |
|
|
4.8
years
|
|
|
|
541,249 |
|
|
4.8
years
|
|
|
|
548,836 |
|
|
4.8
years
|
|
25.00
- 29.99
|
|
|
653,487 |
|
|
5.3
years
|
|
|
|
528,622 |
|
|
4.8
years
|
|
|
|
637,734 |
|
|
5.3
years
|
|
30.00
- 34.99
|
|
|
213,668 |
|
|
2.6
years
|
|
|
|
197,665 |
|
|
2.2
years
|
|
|
|
208,867 |
|
|
2.5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,755,965 |
|
|
|
|
|
|
|
1,349,258 |
|
|
|
|
|
|
|
1,706,659 |
|
|
|
|
|
|
|
Outstanding
|
|
|
Expected
to Vest
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Remaining
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
Grant-Date
|
|
Nonvested
|
|
|
Contractual
|
|
|
Nonvested
|
|
|
Contractual
|
|
|
|
|
|
|
|
Fair
Value
|
|
Shares
|
|
|
Life
|
|
|
Shares
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 5.93
|
|
|
200,548 |
|
|
1.6
years
|
|
|
|
180,493 |
|
|
1.6
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of options and SARs granted during the
six months ended 2009 and 2008 was $4.12 and $11.33 per share,
respectively. The weighted-average grant date fair value of nonvested
shares granted during the six months ended 2009 was $5.93 per
share. There were no nonvested shares granted in 2008. The
fair values were estimated using the Black-Scholes option pricing model based on
the following assumptions:
|
|
SARs and Stock Options
|
|
|
|
2009
|
|
|
2008
|
|
Risk-free
interest rate
|
|
|
1.5 |
% |
|
|
2.5 |
% |
Expected
years until exercise
|
|
7
years
|
|
|
6
years
|
|
Expected
stock volatility
|
|
|
104.3 |
% |
|
|
43.2 |
% |
Dividend
yield
|
|
|
3.4 |
% |
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Nonvested Shares
|
|
|
|
2009
|
|
|
2008
|
|
Risk-free
interest rate
|
|
|
1.5 |
% |
|
|
-
|
|
Expected
years until vesting
|
|
3
years
|
|
|
|
-
|
|
Expected
stock volatility
|
|
|
104.3 |
% |
|
|
-
|
|
Dividend
yield
|
|
|
0.0 |
% |
|
|
-
|
|
(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 Staff 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 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 SFAS 157. 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. Farmer Mac adopted the FSPs for the interim period ending June
30, 2009. Farmer Mac’s adoption of this guidance did not have a
material impact on its financial condition, results of operations or cash
flows. Farmer Mac held no debt securities at the beginning of the
interim period for which an other-than-temporary impairment was previously
recognized. Accordingly, a cumulative effect of adoption adjustment
was not recognized.
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 Statement of
Financial Accounting Standards 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 was
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.
In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent
Events. This statement establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued. Entities are required to disclose the date through which
subsequent events were evaluated as well as the rationale for why that date was
selected. This statement is effective for interim or annual financial
periods ending after June 15, 2009. Farmer Mac’s adoption of this
guidance did not have a material impact on its financial condition, results of
operations or cash flows. Farmer Mac evaluated subsequent events
through August 10, 2009.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of
Financial Assets (“SFAS 166”) and Statement of Financial
Accounting Standards No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”). These statements address amendments to
Statement of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS
140”) and to FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities (“FIN 46(R)”). The two FASB statements are effective
for fiscal years beginning after November 15, 2009. The statements,
amending SFAS 140 and FIN 46(R), remove the concept of a qualifying
special-purpose entity (“QSPE”) from SFAS 140 and remove the exception from
applying FIN 46(R) to QSPEs. Although Farmer Mac is currently
evaluating the impact of these new accounting standards, Farmer Mac believes
adoption of SFAS 166 and SFAS 167 will result in the consolidation of assets and
liabilities onto Farmer Mac’s balance sheet in connection with trusts that
currently qualify for the QSPE exception. Additionally, interest
income and interest expense related to the consolidated assets and liabilities
related to the trusts will be reflected in the statement of
operations. Farmer Mac expects it will be required to hold
additional capital as a result of adopting SFAS 166 and SFAS 167; however,
Farmer Mac believes it will have adequate capital to remain in compliance with
regulatory capital requirements.
In June
2009, the FASB issued FASB Statement No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162. This statement
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
non-governmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy). This statement is effective for financial statements
issued for interim and annual periods ending after September 15,
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.
The
following tables present the amortized cost and estimated fair values of Farmer
Mac’s investments as of June 30, 2009 and December 31, 2008.
|
|
June 30, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
74,100 |
|
|
$ |
-
|
|
|
$ |
(5,384 |
) |
|
$ |
68,716 |
|
Floating
rate asset-backed securities
|
|
|
70,394 |
|
|
|
14 |
|
|
|
(288 |
) |
|
|
70,120 |
|
Floating
rate corporate debt securities
|
|
|
349,645 |
|
|
|
-
|
|
|
|
(13,991 |
) |
|
|
335,654 |
|
Floating
rate Government/GSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guaranteed
mortgage-backed securities
|
|
|
301,644 |
|
|
|
235 |
|
|
|
(2,613 |
) |
|
|
299,266 |
|
Fixed
rate GSE guaranteed mortgage-backed
securities
|
|
|
6,812 |
|
|
|
235 |
|
|
|
-
|
|
|
|
7,047 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
-
|
|
|
|
(15,813 |
) |
|
|
54,187 |
|
Floating
rate GSE preferred stock
|
|
|
700 |
|
|
|
850 |
|
|
|
- |
|
|
|
1,550 |
|
Total
available-for-sale
|
|
|
873,295 |
|
|
|
1,334 |
|
|
|
(38,089 |
) |
|
|
836,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
7,022 |
|
|
|
-
|
|
|
|
(5,085 |
) |
|
|
1,937 |
|
Fixed
rate GSE preferred stock
|
|
|
179,898 |
|
|
|
3,602 |
|
|
|
-
|
|
|
|
183,500 |
|
Total
trading
|
|
|
186,920 |
|
|
|
3,602 |
|
|
|
(5,085 |
) |
|
|
185,437 |
|
Total
investment securities
|
|
$ |
1,060,215 |
|
|
$ |
4,936 |
|
|
$ |
(43,174 |
) |
|
$ |
1,021,977 |
|
|
|
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 |
|
(1)
|
The
fair value of these securities as of December 31, 2008 are inclusive of
the fair value of Farmer Mac's put rights related to $119.9 million (par
value) of its auction-rate
certificates.
|
During
the three and six months ended June 30, 2009, Farmer Mac recognized in earnings
other-than-temporary impairment charges of $1.0 million and $1.1 million,
respectively, compared to $5.3 million for the same periods during
2008. During second quarter 2009, Farmer Mac recorded an
other-than-temporary impairment loss of $1.0 million related to its investment
in CIT Group Inc. corporate debt securities. During second quarter
2008, Farmer Mac recorded an other-than-temporary impairment loss of $5.3
million related to its investment in Fannie Mae floating rate preferred
stock. These losses were due to credit deterioration and were
recognized as “Other-than-temporary impairment – credit losses” in the condensed
consolidated statements of operations. During July 2009, Farmer Mac
sold its investments in CIT Group Inc. corporate debt securities and Fannie Mae
preferred stock and recognized an additional loss of $0.9 million and a recovery
of $1.0 million, respectively, in third quarter 2009.
As of
June 30, 2009 and December 31, 2008, unrealized losses on available-for-sale
investment securities were as follows:
|
|
June 30, 2009
|
|
|
|
Available-for-Sale Securities
|
|
|
|
Unrealized loss position for
|
|
Unrealized loss position for
|
|
|
|
less than 12 months
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in
thousands)
|
|
Floating
rate corporate debt securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
301,638 |
|
|
$ |
(13,991 |
) |
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
45,617 |
|
|
|
(288 |
) |
Floating
rate Government guaranteed auction-rate certificates
|
|
|
- |
|
|
|
- |
|
|
|
68,716 |
|
|
|
(5,384 |
) |
Floating
rate Government/GSE guaranteed mortgage-backed
securities
|
|
|
179,172 |
|
|
|
(1,816 |
) |
|
|
61,854 |
|
|
|
(797 |
) |
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
54,187 |
|
|
|
(15,813 |
) |
Total
|
|
$ |
179,172 |
|
|
$ |
(1,816 |
) |
|
$ |
532,012 |
|
|
$ |
(36,273 |
) |
|
|
December 31, 2008
|
|
|
|
Available-for-Sale
Securities
|
|
|
|
Unrealized
loss position for
|
|
|
Unrealized
loss position for
|
|
|
|
less than 12 months
|
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in
thousands)
|
|
Floating
rate corporate debt securities
|
|
$ |
19,858 |
|
|
$ |
(142 |
) |
|
$ |
393,808 |
|
|
$ |
(39,221 |
) |
Floating
rate asset-backed securities
|
|
|
80,605 |
|
|
|
(3,750 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate Government guaranteed auction-rate certificates
|
|
|
58,727 |
|
|
|
(15,373 |
) |
|
|
- |
|
|
|
- |
|
Floating
rate Government/GSE guaranteed mortgage-backed
securities
|
|
|
263,516 |
|
|
|
(3,138 |
) |
|
|
10,751 |
|
|
|
(374 |
) |
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
49,189 |
|
|
|
(20,811 |
) |
Total
|
|
$ |
422,706 |
|
|
$ |
(22,403 |
) |
|
$ |
453,748 |
|
|
$ |
(60,406 |
) |
The
temporary unrealized losses presented above are principally due to a general
widening of credit spreads from the dates of acquisition to June 30, 2009 and
December 31, 2008, as applicable. The resulting decreases in
fair values reflect an increase in the perceived risk by the financial markets
related to those securities. As of June 30, 2009, all of the
investment securities in an unrealized loss position were rated at least “A” by
Standard & Poor’s, except two that were rated “BBB+” and one that was rated
“BB-”. As of December 31, 2008, all of the investment securities in
an unrealized loss position were rated at least “A”, except one that was rated
“BBB+” and one that was rated “BBB-”. The unrealized losses were on
106 and 116 individual investment securities as of June 30, 2009 and
December 31, 2008, respectively.
As of
June 30, 2009, 77 of the securities in loss positions had been in loss positions
for more than 12 months and had a total unrealized loss of
$36.3 million. As of December 31, 2008, 34 of the
securities in loss positions had been in loss positions for more than 12 months
and had a total unrealized loss of $60.4 million. Securities in
unrealized loss positions 12 months or more have a fair value as of June 30,
2009 that is, on average, approximately 94 percent of their amortized cost
basis. Farmer Mac believes that all these unrealized losses are
recoverable within a reasonable period of time through changes in credit spreads
or maturity and expects to recover the amortized cost bases of these
securities. Accordingly, Farmer Mac has concluded that none of the
unrealized losses on its available-for-sale investment securities represent
other-than-temporary impairment as of June 30, 2009. Farmer Mac does
not intend to sell these securities and it is not more likely than not that
Farmer Mac will be required to sell the securities before recovery of the
amortized cost basis.
As of
June 30, 2009, Farmer Mac did not own any held-to-maturity
investments. As of June 30, 2009, Farmer Mac owned trading investment
securities that mature after five years with an amortized cost of $186.9
million, a fair value of $185.4 million, and a weighted average yield of 8.07
percent. The amortized cost, fair value and weighted-average yield of
investments by remaining contractual maturity for available-for-sale investment
securities as of June 30, 2009 are set forth below. Asset-backed
and mortgage-backed securities are included based on their final maturities,
although the actual maturities may differ due to prepayments of the underlying
assets or mortgages.
|
|
Investment Securities
|
|
|
|
Available-for-Sale
|
|
|
|
as of June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Average Yield
|
|
|
|
(dollars
in thousands)
|
|
Due
within one year
|
|
$ |
104,552 |
|
|
$ |
104,190 |
|
|
|
0.87 |
% |
Due
after one year through five years
|
|
|
277,371 |
|
|
|
263,683 |
|
|
|
1.19 |
% |
Due
after five years through ten years
|
|
|
132,139 |
|
|
|
131,440 |
|
|
|
2.30 |
% |
Due
after ten years
|
|
|
359,233 |
|
|
|
337,227 |
|
|
|
1.75 |
% |
Total
|
|
$ |
873,295 |
|
|
$ |
836,540 |
|
|
|
1.55 |
% |
Note
3.
|
Farmer
Mac Guaranteed Securities
|
The
following table sets forth information about on-balance sheet Farmer Mac
Guaranteed Securities as of June 30, 2009 and December 31, 2008.
|
|
June 30, 2009
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$ |
55,632 |
|
|
$ |
-
|
|
|
$ |
55,632 |
|
Farmer
Mac II
|
|
|
644,572 |
|
|
|
447,957 |
|
|
|
1,092,529 |
|
Rural
Utilities
|
|
|
1,424,077 |
|
|
|
447,174 |
|
|
|
1,871,251 |
|
Total
|
|
$ |
2,124,281 |
|
|
$ |
895,131 |
|
|
$ |
3,019,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
2,106,662 |
|
|
$ |
854,253 |
|
|
$ |
2,960,915 |
|
Unrealized
gains
|
|
|
30,310 |
|
|
|
40,878 |
|
|
|
71,188 |
|
Unrealized
losses
|
|
|
(12,691 |
) |
|
|
-
|
|
|
|
(12,691 |
) |
Fair
value
|
|
$ |
2,124,281 |
|
|
$ |
895,131 |
|
|
$ |
3,019,412 |
|
|
|
December 31, 2008
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$ |
349,292 |
|
|
$ |
-
|
|
|
$ |
349,292 |
|
Farmer
Mac II
|
|
|
522,565 |
|
|
|
496,863 |
|
|
|
1,019,428 |
|
Rural
Utilities
|
|
|
639,837 |
|
|
|
442,687 |
|
|
|
1,082,524 |
|
Total
|
|
$ |
1,511,694 |
|
|
$ |
939,550 |
|
|
$ |
2,451,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
1,501,980 |
|
|
$ |
907,506 |
|
|
$ |
2,409,486 |
|
Unrealized
gains
|
|
|
23,727 |
|
|
|
32,044 |
|
|
|
55,771 |
|
Unrealized
losses
|
|
|
(14,013 |
) |
|
|
-
|
|
|
|
(14,013 |
) |
Fair
value
|
|
$ |
1,511,694 |
|
|
$ |
939,550 |
|
|
$ |
2,451,244 |
|
The
temporary unrealized losses presented above are principally due to changes in
interest rates from the date of acquisition to June 30, 2009 and December 31,
2008, as applicable. As of June 30, 2009, the unrealized losses
presented above are related to Farmer Mac II Guaranteed Securities, which are
USDA-guaranteed portions. As of December 31, 2008, the
available-for-sale unrealized losses were on 9 individual
securities. One of the available-for-sale Farmer Mac I Guaranteed
Securities in a loss position as of December 31, 2008 had been in a loss
position for more than 12 months and had an unrealized loss that was less than
one percent of the amortized security cost. Accordingly, Farmer
Mac has concluded that none of the unrealized losses on its available-for-sale
Farmer Mac Guaranteed Securities represents an other-than-temporary impairment
as of June 30, 2009 and December 31, 2008. Farmer Mac does not
intend to sell these securities and it is not more likely than not that Farmer
Mac will be required to sell the securities before recovery of the amortized
cost basis.
The table
below presents a sensitivity analysis for the Corporation’s on-balance sheet
Farmer Mac Guaranteed Securities as of June 30, 2009.
|
|
June 30, 2009
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Fair
value of beneficial interests retained in Farmer Mac Guaranteed
Securities
|
|
$ |
3,019,412 |
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
4.2 |
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
4.4 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(870 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(1,825 |
) |
|
|
|
|
|
Weighted-average
discount rate
|
|
|
3.3 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(23,067 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(46,721 |
) |
These
sensitivities are hypothetical. Changes in fair value based on
10 percent or 20 percent variations in assumptions generally cannot be
extrapolated because the relationship of the change in assumptions to the change
in fair value may not be linear. Also, the effect of a variation in a
particular assumption on the fair value of the retained interest is calculated
without changing any other assumption. In fact, changes in one factor
may result in changes in another (for example, increases in market interest
rates may result in lower prepayments), which might amplify or counteract the
sensitivities.
The table
below presents the outstanding principal balances for Farmer Mac Guaranteed
Securities, loans, and LTSPCs as of June 30, 2009 and December 31,
2008.
Outstanding Balance of Farmer Mac Loans and Loans Underlying
|
|
Farmer Mac Guaranteed Securities and LTSPCs
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
650,290 |
|
|
$ |
781,305 |
|
Guaranteed
Securities
|
|
|
5,797 |
|
|
|
282,185 |
|
AgVantage
|
|
|
46,800 |
|
|
|
53,300 |
|
Farmer
Mac II
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
1,084,703 |
|
|
|
1,013,330 |
|
Farmer
Mac Guaranteed
|
|
|
|
|
|
|
|
|
Securities
- Rural Utilities
|
|
|
1,819,033 |
|
|
|
1,054,941 |
|
Total
on-balance sheet
|
|
$ |
3,606,623 |
|
|
$ |
3,185,061 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
$ |
1,593,258 |
|
|
$ |
1,697,983 |
|
AgVantage
|
|
|
2,945,000 |
|
|
|
2,945,000 |
|
LTSPCs
|
|
|
2,181,712 |
|
|
|
2,224,181 |
|
Farmer
Mac II
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
30,322 |
|
|
|
30,095 |
|
Total
off-balance sheet
|
|
$ |
6,750,292 |
|
|
$ |
6,897,259 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,356,915 |
|
|
$ |
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 and six months ended
June 30, 2009 and 2008 and the outstanding balances and carrying amounts of all
such loans as of June 30, 2009 and December 31, 2008, respectively.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at acquisition date
|
|
$ |
572 |
|
|
$ |
26 |
|
|
$ |
5,637 |
|
|
$ |
1,189 |
|
Contractually
required payments receivable
|
|
|
572 |
|
|
|
26 |
|
|
|
5,646 |
|
|
|
1,352 |
|
Impairment
recognized subsequent to acquisition
|
|
|
5,725 |
|
|
|
- |
|
|
|
7,725 |
|
|
|
- |
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
36,974 |
|
|
$ |
91,942 |
|
|
|
|
|
|
|
|
|
Carrying
amount
|
|
|
26,208 |
|
|
|
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 June 30, 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 June 30, 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 June 30, 2009, Farmer Mac had
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 Six Months Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
23,546 |
|
|
$ |
65,060 |
|
|
$ |
3,883 |
|
|
$ |
6,960 |
|
|
$ |
98 |
|
Total
on-balance sheet
|
|
$ |
23,546 |
|
|
$ |
65,060 |
|
|
$ |
3,883 |
|
|
$ |
6,960 |
|
|
$ |
98 |
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
18,761 |
|
|
$ |
2,060 |
|
|
$ |
1,287 |
|
|
$ |
- |
|
|
$ |
- |
|
Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
off-balance sheet
|
|
$ |
18,761 |
|
|
$ |
2,060 |
|
|
$ |
1,287 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
42,307 |
|
|
$ |
67,120 |
|
|
$ |
5,170 |
|
|
$ |
6,960 |
|
|
$ |
98 |
|
|
(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
Comprehensive
income represents all changes in stockholders’ equity except those resulting
from investments by or distributions to stockholders, and is comprised primarily
of net income and unrealized gains and losses on securities available-for-sale,
net of related taxes. The following table sets forth Farmer Mac’s
comprehensive income for the three and six months ended June 30, 2009 and
2008:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
29,515 |
|
|
$ |
21,991 |
|
|
$ |
66,969 |
|
|
$ |
14,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains/(losses)
|
|
|
32,178 |
|
|
|
8,595 |
|
|
|
33,941 |
|
|
|
(6,839 |
) |
Reclassification
adjustment for realized losses
|
|
|
835 |
|
|
|
3,376 |
|
|
|
835 |
|
|
|
3,376 |
|
Net
change from available-for-sale securities (1)
|
|
|
33,013 |
|
|
|
11,971 |
|
|
|
34,776 |
|
|
|
(3,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for amortization of SFAS 133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transition
adjustment (2)
|
|
|
50 |
|
|
|
84 |
|
|
|
90 |
|
|
|
156 |
|
Other
comprehensive income/(loss), net of tax
|
|
|
33,063 |
|
|
|
12,055 |
|
|
|
34,866 |
|
|
|
(3,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
62,578 |
|
|
$ |
34,046 |
|
|
$ |
101,835 |
|
|
$ |
10,987 |
|
(1)
|
Unrealized
gains/(losses) on available-for-sale securities is shown net of income tax
(expense)/benefit of $(17.8) million and $(6.4) million for the three
months ended June 30, 2009 and 2008, respectively, and $(18.7) million and
$1.9 million for the six months ended June 30, 2009 and 2008,
respectively.
|
(2)
|
Amortization
of SFAS 133 transition adjustment is shown net of income tax expense of
$27,000 and $45,000 for the three months ended June 30, 2009 and 2008,
respectively, and $48,000 and $0.1 million for the six months ended June
30, 2009 and 2008, respectively.
|
The
following table presents Farmer Mac’s accumulated other comprehensive loss as of
June 30, 2009 and December 31, 2008 and changes in the components of accumulated
other comprehensive loss for the six months ended June 30, 2009 and the year
ended December 31, 2008.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
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
|
|
|
34,776 |
|
|
|
(33,657 |
) |
Ending
balance
|
|
$ |
(12,438 |
) |
|
$ |
(47,214 |
) |
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(198 |
) |
|
$ |
(473 |
) |
Amortization
of SFAS 133 transition adjustment on financial derivatives, net of
tax
|
|
|
90 |
|
|
|
275 |
|
Ending
balance
|
|
$ |
(108 |
) |
|
$ |
(198 |
) |
Accumulated
other comprehensive loss, net of tax
|
|
$ |
(12,546 |
) |
|
$ |
(47,412 |
) |
Farmer
Mac held no debt securities at the beginning of the interim period for which an
other-than-temporary impairment was previously
recognized. Accordingly, a cumulative effect of adoption adjustment
was not recognized upon adoption of FSP FAS 115-2 and FAS 124-2.
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. Proceeds from new securitizations during the six months
ended June 30, 2009 and 2008 were $17.2 million and $1.4 million,
respectively. The increase year over year was driven by the first
quarter 2009 transfer of $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 Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in thousands)
|
|
Proceeds
from new securitizations
|
|
$ |
17,224 |
|
|
$ |
1,390 |
|
Guarantee
fees received
|
|
|
5,858 |
|
|
|
6,145 |
|
Purchases
of assets from the trusts
|
|
|
- |
|
|
|
304 |
|
Servicing
advances
|
|
|
7 |
|
|
|
6 |
|
Repayment
of servicing advances
|
|
|
2 |
|
|
|
2 |
|
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 June 30, 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
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I Guaranteed Securities
|
|
$ |
1,593,258 |
|
|
$ |
1,697,983 |
|
AgVantage
|
|
|
2,945,000 |
|
|
|
2,945,000 |
|
Farmer
Mac II Guaranteed Securities
|
|
|
30,322 |
|
|
|
30,095 |
|
Total
off-balance sheet Farmer Mac I and II
|
|
$ |
4,568,580 |
|
|
$ |
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 $32.9 million as of June 30, 2009
and $37.1 million as of December 31, 2008. As of
June 30, 2009, the weighted-average remaining maturity of all loans
underlying off-balance sheet Farmer Mac Guaranteed Securities, excluding
AgVantage securities, was 13.6 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 June 30, 2009 and December
31, 2008.
As of
June 30, 2009, the weighted-average remaining maturity of all loans underlying
LTSPCs was 15.1 years. For those LTSPCs issued or modified on or
after January 1, 2003, Farmer Mac has recorded a liability for its
obligation to stand ready under the commitment in the guarantee and commitment
obligation on the condensed consolidated balance sheet. This
liability approximated $17.7 million as of June 30, 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. On June 3, 2009, Farmer Mac’s board of directors
declared a quarterly dividend of $0.05 per share on the Corporation’s common
stock payable on June 30, 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 two series of preferred stock outstanding:
|
·
|
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 and during 2009, is a
component of Stockholders’ Equity on the condensed consolidated balance
sheets.
|
During
the second quarter of 2009, Farmer Mac sold 20,000 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, compared to 10,800 shares in the first quarter of
2009. Farmer Mac sold the 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 $20.0 million or
$1,000 per share in the second quarter of 2009, compared to $10.8 million in the
first quarter 2009. There were 40,000 shares of Series C Preferred
Stock outstanding as of June 30, 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 June 30, 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
June 30, 2009, Farmer Mac’s minimum and critical capital requirements were
$196.2 million and $98.1 million, respectively, and Farmer Mac’s core
capital level was $296.1 million, $99.9 million above the minimum capital
requirement and $198.0 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 June 30, 2009 was $50.2 million and Farmer Mac’s regulatory capital (core
capital plus the allowance for losses) of $305.4 million exceeded that
requirement by approximately $255.2 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 condensed
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
nonrecurring 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 auction-rate
certificates (“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 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
June 30, 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.
For
second quarter 2009, Farmer Mac transferred its investment in the subordinated
debt of CoBank with a par value of $70.0 million from Level 2 to Level 3 for
purposes of estimating its fair value. Farmer Mac determined that the
third party pricing service used to estimate fair value for this security as a
Level 2 investment, in second quarter 2009, provided a price that, while
representative of a recent market trade, was not reflective of an orderly
transaction. In accordance with FSP FAS 157-4, Farmer Mac used its
internally-developed models as an alternative valuation technique to estimate
fair value as a Level 3 investment.
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 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
June 30, 2009, the consideration of credit risk, Farmer Mac’s and the
counterparties’, resulted in an adjustment to the valuations of Farmer Mac’s
derivative portfolio of $1.4 million. As of December 31, 2008, the
consideration of credit risk, Farmer Mac’s and 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 June 30, 2009
and December 31, 2008, Farmer Mac’s loans held for sale were reported at
cost.
Real Estate Owned
Properties
Farmer
Mac initially records real estate owned (“REO”) properties at fair value less
costs to sell and subsequently records them at the lower of carrying value or
fair value less costs to sell. The fair value of REO is determined by
third-party appraisals when available. When third-party appraisals are not
available, fair value is estimated based on factors such as prices for similar
properties in similar geographical areas and/or assessment through observation
of such properties. Farmer Mac classifies the REO fair values as
Level 3 measurements.
Fair
Value Classification and Transfers
As of
June 30, 2009, Farmer Mac’s assets and liabilities recorded at fair value
included financial instruments and non-financial assets valued at $3.4 billion
whose fair values were estimated by management in the absence of readily
determinable fair values (i.e., Level 3). These financial instruments
measured as Level 3 represented 63 percent of total assets and 80 percent
of financial instruments measured at fair value as of June 30,
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 June 30, 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 June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
68,716 |
|
|
$ |
68,716 |
|
Floating
rate asset-backed securities
|
|
|
-
|
|
|
|
70,120 |
|
|
|
-
|
|
|
|
70,120 |
|
Floating
rate corporate debt securities
|
|
|
-
|
|
|
|
335,654 |
|
|
|
-
|
|
|
|
335,654 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
-
|
|
|
|
299,266 |
|
|
|
-
|
|
|
|
299,266 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
-
|
|
|
|
7,047 |
|
|
|
-
|
|
|
|
7,047 |
|
Floating
rate GSE subordinated debt
|
|
|
-
|
|
|
|
- |
|
|
|
54,187 |
|
|
|
54,187 |
|
Floating
rate GSE preferred stock
|
|
|
-
|
|
|
|
1,550 |
|
|
|
-
|
|
|
|
1,550 |
|
Total
available-for-sale
|
|
|
-
|
|
|
|
713,637 |
|
|
|
122,903 |
|
|
|
836,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,937 |
|
|
|
1,937 |
|
Fixed
rate GSE preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
183,500 |
|
|
|
183,500 |
|
Total
trading
|
|
|
-
|
|
|
|
-
|
|
|
|
185,437 |
|
|
|
185,437 |
|
Total
investment securities
|
|
|
-
|
|
|
|
713,637 |
|
|
|
308,340 |
|
|
|
1,021,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
-
|
|
|
|
-
|
|
|
|
55,632 |
|
|
|
55,632 |
|
Farmer
Mac II
|
|
|
-
|
|
|
|
-
|
|
|
|
644,572 |
|
|
|
644,572 |
|
Rural
Utilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,424,077 |
|
|
|
1,424,077 |
|
Total
available-for-sale
|
|
|
-
|
|
|
|
-
|
|
|
|
2,124,281 |
|
|
|
2,124,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II
|
|
|
-
|
|
|
|
-
|
|
|
|
447,957 |
|
|
|
447,957 |
|
Rural
Utilities
|
|
|
-
|
|
|
|
-
|
|
|
|
447,174 |
|
|
|
447,174 |
|
Total
trading
|
|
|
-
|
|
|
|
-
|
|
|
|
895,131 |
|
|
|
895,131 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,019,412 |
|
|
|
3,019,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
|
1 |
|
|
|
15,451 |
|
|
|
-
|
|
|
|
15,452 |
|
Total
Assets at fair value
|
|
$ |
1 |
|
|
$ |
729,088 |
|
|
$ |
3,327,752 |
|
|
$ |
4,056,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives
|
|
$ |
-
|
|
|
$ |
119,936 |
|
|
$ |
3,350 |
|
|
$ |
123,286 |
|
Total
Liabilities at fair value
|
|
$ |
-
|
|
|
$ |
119,936 |
|
|
$ |
3,350 |
|
|
$ |
123,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
Total
Assets at fair value
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
Assets
and Liabilities Measured at Fair Value as of December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009 and June 30, 2008, respectively.
Level
3 Assets and Liabilities Measured at Fair Value for the Three Months Ended
June 30, 2009
|
|
|
|
|
|
|
Purchases,
|
|
|
Realized
and
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
Unrealized
|
|
|
Gains/(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
and
|
|
|
Gains/(Losses)
|
|
|
included in Other
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Settlements,
|
|
|
included
in
|
|
|
Comprehensive
|
|
|
Net
Transfers In
|
|
|
|
|
|
|
Balance
|
|
|
net
|
|
|
Income
|
|
|
Income
|
|
|
and/or
Out
|
|
|
Ending
Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
67,636 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
1,080 |
|
|
$ |
-
|
|
|
$ |
68,716 |
|
Floating
rate GSE subordinated debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,055 |
|
|
|
49,132 |
|
|
|
54,187 |
|
Total
available-for-sale
|
|
|
67,636 |
|
|
|
-
|
|
|
|
-
|
|
|
|
6,135 |
|
|
|
49,132 |
|
|
|
122,903 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,962 |
|
|
|
(205 |
) |
|
|
180 |
|
|
|
-
|
|
|
|
-
|
|
|
|
1,937 |
|
Fixed
rate GSE preferred stock(1)
|
|
|
176,790 |
|
|
|
(333 |
) |
|
|
7,043 |
|
|
|
-
|
|
|
|
-
|
|
|
|
183,500 |
|
Total
trading
|
|
|
178,752 |
|
|
|
(538 |
) |
|
|
7,223 |
|
|
|
-
|
|
|
|
-
|
|
|
|
185,437 |
|
Total
investment securities
|
|
|
246,388 |
|
|
|
(538 |
) |
|
|
7,223 |
|
|
|
6,135 |
|
|
|
49,132 |
|
|
|
308,340 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
63,216 |
|
|
|
(6,570 |
) |
|
|
-
|
|
|
|
(1,014 |
) |
|
|
-
|
|
|
|
55,632 |
|
Farmer
Mac II
|
|
|
588,996 |
|
|
|
56,760 |
|
|
|
-
|
|
|
|
(1,184 |
) |
|
|
-
|
|
|
|
644,572 |
|
Rural
Utilities
|
|
|
912,695 |
|
|
|
500,000 |
|
|
|
-
|
|
|
|
11,382 |
|
|
|
-
|
|
|
|
1,424,077 |
|
Total
available-for-sale
|
|
|
1,564,907 |
|
|
|
550,190 |
|
|
|
-
|
|
|
|
9,184 |
|
|
|
-
|
|
|
|
2,124,281 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(2)
|
|
|
476,681 |
|
|
|
(23,428 |
) |
|
|
(5,296 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
447,957 |
|
Rural
Utilities(1)
|
|
|
449,066 |
|
|
|
-
|
|
|
|
(1,892 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
447,174 |
|
Total
trading
|
|
|
925,747 |
|
|
|
(23,428 |
) |
|
|
(7,188 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
895,131 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
2,490,654 |
|
|
|
526,762 |
|
|
|
(7,188 |
) |
|
|
9,184 |
|
|
|
-
|
|
|
|
3,019,412 |
|
Total
Assets at fair value
|
|
$ |
2,737,042 |
|
|
$ |
526,224 |
|
|
$ |
35 |
|
|
$ |
15,319 |
|
|
$ |
49,132 |
|
|
$ |
3,327,752 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives(3)
|
|
$ |
(4,236 |
) |
|
$ |
-
|
|
|
$ |
886 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(3,350 |
) |
Total
Liabilities at fair value
|
|
$ |
(4,236 |
) |
|
$ |
-
|
|
|
$ |
886 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(3,350 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
Total
Assets at fair value
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
(1)
|
Unrealized
gains/(losses) are attributable to assets still held as of June 30, 2009
and are recorded in gains/(losses) on trading
assets.
|
(2)
|
Includes
unrealized gains of approximately $4.9 million attributable to assets
still held as of June 30, 2009 that are recorded in gains/(losses) on
trading assets.
|
(3)
|
Unrealized
gains are attributable to liabilities still held as of June 30, 2009 and
are recorded in gains/(losses) on financial
derivatives.
|
Level
3 Assets and Liabilities Measured at Fair Value for the Three Months Ended
June 30, 2008
|
|
|
|
|
|
|
Purchases,
|
|
|
Realized
and
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
Unrealized
|
|
|
Gains/(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
and
|
|
|
Gains/(Losses)
|
|
|
included
in Other
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Settlements,
|
|
|
included
in
|
|
|
Comprehensive
|
|
|
Net
Transfers In
|
|
|
|
|
|
|
Balance
|
|
|
net
|
|
|
Income
|
|
|
Income
|
|
|
and/or
Out
|
|
|
Ending
Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
229,360 |
|
|
$ |
(20,000 |
) |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
209,360 |
|
Floating
rate corporate debt securities
|
|
|
399,331 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,331 |
) |
|
|
-
|
|
Fixed
rate corporate securities
|
|
|
503,089 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(503,089 |
) |
|
|
-
|
|
Total
available-for-sale
|
|
|
1,131,780 |
|
|
|
(20,000 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(902,420 |
) |
|
|
209,360 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
7,179 |
|
|
|
(205 |
) |
|
|
440 |
|
|
|
-
|
|
|
|
-
|
|
|
|
7,414 |
|
Fixed
rate mortgage-backed securities
|
|
|
459,026 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(459,026 |
) |
|
|
-
|
|
Total
trading
|
|
|
466,205 |
|
|
|
(205 |
) |
|
|
440 |
|
|
|
-
|
|
|
|
(459,026 |
) |
|
|
7,414 |
|
Total
investment securities
|
|
|
1,597,985 |
|
|
|
(20,205 |
) |
|
|
440 |
|
|
|
-
|
|
|
|
(1,361,446 |
) |
|
|
216,774 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
325,272 |
|
|
|
68,979 |
|
|
|
-
|
|
|
|
(2,347 |
) |
|
|
-
|
|
|
|
391,904 |
|
Rural
Utilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(781 |
) |
|
|
902,420 |
|
|
|
901,639 |
|
Total
available-for-sale
|
|
|
325,272 |
|
|
|
68,979 |
|
|
|
-
|
|
|
|
(3,128 |
) |
|
|
902,420 |
|
|
|
1,293,543 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(2)
|
|
|
445,202 |
|
|
|
9,515 |
|
|
|
(4,155 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
450,562 |
|
Rural
Utilities(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,341 |
) |
|
|
-
|
|
|
|
459,026 |
|
|
|
441,685 |
|
Total
trading
|
|
|
445,202 |
|
|
|
9,515 |
|
|
|
(21,496 |
) |
|
|
-
|
|
|
|
459,026 |
|
|
|
892,247 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
770,474 |
|
|
|
78,494 |
|
|
|
(21,496 |
) |
|
|
(3,128 |
) |
|
|
1,361,446 |
|
|
|
2,185,790 |
|
Total
Assets at fair value
|
|
$ |
2,368,459 |
|
|
$ |
58,289 |
|
|
$ |
(21,056 |
) |
|
$ |
(3,128 |
) |
|
$ |
-
|
|
|
$ |
2,402,564 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives(3)
|
|
$ |
(3,507 |
) |
|
$ |
-
|
|
|
$ |
2,050 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,457 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,507 |
) |
|
$ |
-
|
|
|
$ |
2,050 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,457 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(61 |
) |
|
$ |
-
|
|
|
$ |
142,756 |
|
|
$ |
142,695 |
|
(1)
|
Unrealized
gains/(losses) are attributable to assets still held as of June 30, 2008
and are recorded in gains/(losses) on trading
assets.
|
(2)
|
Includes
unrealized gains of approximately $1.8 million attributable to assets
still held as of June 30, 2008 that are recorded in gains/(losses) on
trading assets.
|
(3)
|
Unrealized gains
are attributable to liabilities still held as of June 30, 2008 and are
recorded in gains /(losses) on financial
derivatives.
|
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 six
months ended June 30, 2009 and June 30, 2008,
respectively.
Level
3 Assets and Liabilities Measured at Fair Value for the Six Months Ended
June 30, 2009
|
|
|
|
|
|
|
Purchases,
|
|
|
Realized
and
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
Unrealized
|
|
|
Gains/(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
and
|
|
|
Gains/(Losses)
|
|
|
included
in Other
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Settlements,
|
|
|
included
in
|
|
|
Comprehensive
|
|
|
Net
Transfers In
|
|
|
|
|
|
|
Balance
|
|
|
net
|
|
|
Income
|
|
|
Income
|
|
|
and/or
Out
|
|
|
Ending
Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
178,577 |
|
|
$ |
(119,850 |
) |
|
$ |
-
|
|
|
$ |
9,989 |
|
|
$ |
-
|
|
|
$ |
68,716 |
|
Floating
rate GSE subordinated debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,055 |
|
|
|
49,132 |
|
|
|
54,187 |
|
Total
available-for-sale
|
|
|
178,577 |
|
|
|
(119,850 |
) |
|
|
-
|
|
|
|
15,044 |
|
|
|
49,132 |
|
|
|
122,903 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
2,211 |
|
|
|
(473 |
) |
|
|
199 |
|
|
|
-
|
|
|
|
-
|
|
|
|
1,937 |
|
Fixed
rate GSE preferred stock(1)
|
|
|
161,552 |
|
|
|
(681 |
) |
|
|
22,629 |
|
|
|
-
|
|
|
|
-
|
|
|
|
183,500 |
|
Total
trading
|
|
|
163,763 |
|
|
|
(1,154 |
) |
|
|
22,828 |
|
|
|
-
|
|
|
|
-
|
|
|
|
185,437 |
|
Total
investment securities
|
|
|
342,340 |
|
|
|
(121,004 |
) |
|
|
22,828 |
|
|
|
15,044 |
|
|
|
49,132 |
|
|
|
308,340 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
349,292 |
|
|
|
(3,681 |
) |
|
|
-
|
|
|
|
(1,967 |
) |
|
|
(288,012 |
) |
|
|
55,632 |
|
Farmer
Mac II
|
|
|
522,565 |
|
|
|
118,251 |
|
|
|
-
|
|
|
|
3,756 |
|
|
|
-
|
|
|
|
644,572 |
|
Rural
Utilities
|
|
|
639,837 |
|
|
|
770,000 |
|
|
|
-
|
|
|
|
14,240 |
|
|
|
-
|
|
|
|
1,424,077 |
|
Total
available-for-sale
|
|
|
1,511,694 |
|
|
|
884,570 |
|
|
|
-
|
|
|
|
16,029 |
|
|
|
(288,012 |
) |
|
|
2,124,281 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(2)
|
|
|
496,863 |
|
|
|
(47,342 |
) |
|
|
(1,564 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
447,957 |
|
Rural
Utilities(1)
|
|
|
442,687 |
|
|
|
(5,909 |
) |
|
|
10,396 |
|
|
|
-
|
|
|
|
-
|
|
|
|
447,174 |
|
Total
trading
|
|
|
939,550 |
|
|
|
(53,251 |
) |
|
|
8,832 |
|
|
|
-
|
|
|
|
-
|
|
|
|
895,131 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
2,451,244 |
|
|
|
831,319 |
|
|
|
8,832 |
|
|
|
16,029 |
|
|
|
(288,012 |
) |
|
|
3,019,412 |
|
Total
Assets at fair value
|
|
$ |
2,793,584 |
|
|
$ |
710,315 |
|
|
$ |
31,660 |
|
|
$ |
31,073 |
|
|
$ |
(238,880 |
) |
|
$ |
3,327,752 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives(3)
|
|
$ |
(3,719 |
) |
|
$ |
-
|
|
|
$ |
369 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(3,350 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,719 |
) |
|
$ |
-
|
|
|
$ |
369 |
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(3,350 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
Total
Assets at fair value
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
43,260 |
|
|
$ |
43,260 |
|
(1)
|
Unrealized gains
are attributable to assets still held as of June 30, 2009 and are recorded
in gains/(losses) on trading
assets.
|
(2)
|
Includes
unrealized losses of approximately $0.9 million attributable to
assets still held as of June 30, 2009 that are recorded in gains/(losses)
on trading assets.
|
(3)
|
Unrealized gains
are attributable to liabilities still held as of June 30, 2009 and are
recorded in gains/(losses) on financial
derivatives.
|
Level
3 Assets and Liabilities Measured at Fair Value for the Six Months Ended
June 30, 2008
|
|
|
|
|
|
|
Purchases,
|
|
|
Realized and
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
|
|
|
Unrealized
|
|
|
Gains/(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances and
|
|
|
Gains/(Losses)
|
|
|
included in Other
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Settlements,
|
|
|
included in
|
|
|
Comprehensive
|
|
|
Net Transfers In
|
|
|
|
|
|
|
Balance
|
|
|
net
|
|
|
Income
|
|
|
Income
|
|
|
and/or Out
|
|
|
Ending Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
-
|
|
|
$ |
79,931 |
|
|
$ |
-
|
|
|
$ |
(2,115 |
) |
|
$ |
131,544 |
|
|
$ |
209,360 |
|
Floating
rate corporate debt securities
|
|
|
-
|
|
|
|
400,000 |
|
|
|
-
|
|
|
|
(669 |
) |
|
|
(399,331 |
) |
|
|
-
|
|
Fixed
rate corporate securities
|
|
|
500,138 |
|
|
|
-
|
|
|
|
-
|
|
|
|
2,951 |
|
|
|
(503,089 |
) |
|
|
-
|
|
Total
available-for-sale securities
|
|
|
500,138 |
|
|
|
479,931 |
|
|
|
-
|
|
|
|
167 |
|
|
|
(770,876 |
) |
|
|
209,360 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
8,179 |
|
|
|
(628 |
) |
|
|
(137 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
7,414 |
|
Fixed
rate mortgage-backed securities(1)
|
|
|
415,813 |
|
|
|
29,367 |
|
|
|
13,846 |
|
|
|
-
|
|
|
|
(459,026 |
) |
|
|
-
|
|
Total
trading investment securities
|
|
|
423,992 |
|
|
|
28,739 |
|
|
|
13,709 |
|
|
|
-
|
|
|
|
(459,026 |
) |
|
|
7,414 |
|
Total
investment securities
|
|
|
924,130 |
|
|
|
508,670 |
|
|
|
13,709 |
|
|
|
167 |
|
|
|
(1,229,902 |
) |
|
|
216,774 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
338,958 |
|
|
|
49,226 |
|
|
|
-
|
|
|
|
3,720 |
|
|
|
-
|
|
|
|
391,904 |
|
Rural
Utilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(781 |
) |
|
|
902,420 |
|
|
|
901,639 |
|
Total
available-for-sale
|
|
|
338,958 |
|
|
|
49,226 |
|
|
|
-
|
|
|
|
2,939 |
|
|
|
902,420 |
|
|
|
1,293,543 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(2)
|
|
|
428,670 |
|
|
|
20,497 |
|
|
|
1,395 |
|
|
|
-
|
|
|
|
-
|
|
|
|
450,562 |
|
Rural
Utilities(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,341 |
) |
|
|
-
|
|
|
|
459,026 |
|
|
|
441,685 |
|
Total
trading
|
|
|
428,670 |
|
|
|
20,497 |
|
|
|
(15,946 |
) |
|
|
-
|
|
|
|
459,026 |
|
|
|
892,247 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
767,628 |
|
|
|
69,723 |
|
|
|
(15,946 |
) |
|
|
2,939 |
|
|
|
1,361,446 |
|
|
|
2,185,790 |
|
Total
Assets at fair value
|
|
$ |
1,691,758 |
|
|
$ |
578,393 |
|
|
$ |
(2,237 |
) |
|
$ |
3,106 |
|
|
$ |
131,544 |
|
|
$ |
2,402,564 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives (3)
|
|
$ |
(1,106 |
) |
|
$ |
-
|
|
|
$ |
(351 |
) |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,457 |
) |
Total
Liabilities at fair value
|
|
$ |
(1,106 |
) |
|
$ |
-
|
|
|
$ |
(351 |
) |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(1,457 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
(61 |
) |
|
$ |
-
|
|
|
$ |
142,756 |
|
|
$ |
142,695 |
|
(1)
|
Unrealized
gains/(losses) are attributable to assets still held as of June 30, 2008
and are recorded in gains/(losses) on trading
assets.
|
(2)
|
Includes
unrealized gains of approximately $1.8 million attributable to assets
still held as of June 30, 2008 that are recorded in gains/(losses) on
trading assets
|
(3)
|
Unrealized
losses are attributable to liabilities still held as of June 30, 2008 and
are recorded in gains/(losses) on financial
derivatives.
|
Fair
Value Option
SFAS 159
permits entities to make a one-time irrevocable election to report financial
instruments at fair value with changes in fair value recorded in earnings as
they occur. One of the FASB’s stated objectives of SFAS 159 was to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.
On
January 1, 2008, with the adoption of SFAS 159, Farmer Mac elected to
measure $600.5 million of investment securities and $427.3 million of
Farmer Mac II Guaranteed Securities at fair value, with changes in fair value
reflected in earnings as they occur. Upon adoption, Farmer Mac
recorded a cumulative effect of adoption adjustment of $12.1 million, net of
tax, as an increase to the beginning balance of retained
earnings. During 2008, Farmer Mac elected to measure an additional
$113.3 million of Farmer Mac II Guaranteed Securities at fair value, with
changes in fair value reflected in earnings as they occur. Farmer Mac
selected all of these assets for the fair value option under SFAS 159
because they were funded or hedged principally with financial derivatives and,
therefore, it was expected that the changes in fair value of the assets would
provide partial economic and financial reporting offsets to the related
financial derivatives. During the first half of 2009, Farmer Mac did
not elect the fair value option under SFAS 159 for any assets or
liabilities.
Impact
of Adopting SFAS 159 to Retained Earnings as of January 1,
2008
|
|
|
|
Carrying Value
as of January 1, 2008
Prior to Adoption of
Fair Value
Option
|
|
|
Transition
Gain
|
|
|
Fair Value as of
January 1, 2008
After Adoption of
Fair Value Option
|
|
|
|
(in
thousands)
|
|
Available-for-sale
investment securities(1):
|
|
|
|
|
|
|
|
|
|
Fixed
rate GSE preferred stock
|
|
$ |
184,655 |
|
|
$ |
2,783 |
|
|
$ |
184,655 |
|
Fixed
rate mortgage-backed securities
|
|
|
415,813 |
|
|
|
14,504 |
|
|
|
415,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
Farmer Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
427,330 |
|
|
|
1,340 |
|
|
|
428,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
cumulative effect of adoption
|
|
|
|
|
|
|
18,627 |
|
|
|
|
|
Tax
effect
|
|
|
|
|
|
|
6,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of adoption to beginning retained earnings
|
|
|
|
|
|
$ |
12,108 |
|
|
|
|
|
(1)
|
Farmer
Mac adopted the fair value option for certain securities within its
investment portfolio classified as available-for-sale. These
securities are presented in the 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
recongnized in accumulated other comprehensive loss prior to the adoption
of SFAS 159.
|
For the
three months and six months ended June 30, 2009, Farmer Mac recorded net
gains/(losses) on trading assets of $(0.1) million and $31.5 million,
respectively, for changes in fair values of the assets selected for the fair
value option, compared to $(17.7) million and $(7.0) million for the same
periods ended June 30, 2008, respectively. These gains/(losses) are
recognized as “Gains/(losses) on trading assets” in the condensed consolidated
statements of operations.
Disclosures
about Fair Value of Financial Instruments
The
following table sets forth the estimated fair values and the carrying values for
financial assets, liabilities and guarantees and commitments as of June 30, 2009
and December 31, 2008 in accordance with Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments:
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
Fair
Value
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
Amount
|
|
|
|
(in
thousands)
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
362,858 |
|
|
$ |
362,858 |
|
|
$ |
278,412 |
|
|
$ |
278,412 |
|
Investment
securities
|
|
|
1,021,977 |
|
|
|
1,021,977 |
|
|
|
1,235,859 |
|
|
|
1,235,859 |
|
Farmer
Mac Guaranteed Securities
|
|
|
3,019,412 |
|
|
|
3,019,412 |
|
|
|
2,451,244 |
|
|
|
2,451,244 |
|
Loans
|
|
|
660,410 |
|
|
|
649,676 |
|
|
|
789,613 |
|
|
|
774,596 |
|
Financial
derivatives
|
|
|
15,452 |
|
|
|
15,452 |
|
|
|
27,069 |
|
|
|
27,069 |
|
Interest
receivable
|
|
|
53,796 |
|
|
|
53,796 |
|
|
|
73,058 |
|
|
|
73,058 |
|
Guarantee
and commitment fees receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
19,084 |
|
|
|
19,045 |
|
|
|
20,434 |
|
|
|
19,232 |
|
Farmer
Mac Guaranteed Securities
|
|
|
33,205 |
|
|
|
37,038 |
|
|
|
36,071 |
|
|
|
41,877 |
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
|
3,268,856 |
|
|
|
3,262,856 |
|
|
|
3,773,430 |
|
|
|
3,757,099 |
|
Due
after one year
|
|
|
1,582,664 |
|
|
|
1,535,362 |
|
|
|
944,490 |
|
|
|
887,999 |
|
Financial
derivatives
|
|
|
123,286 |
|
|
|
123,286 |
|
|
|
181,183 |
|
|
|
181,183 |
|
Accrued
interest payable
|
|
|
38,759 |
|
|
|
38,759 |
|
|
|
40,470 |
|
|
|
40,470 |
|
Guarantee
and commitment obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
17,744 |
|
|
|
17,706 |
|
|
|
19,058 |
|
|
|
17,856 |
|
Farmer
Mac Guaranteed Securities
|
|
|
29,034 |
|
|
|
32,866 |
|
|
|
31,291 |
|
|
|
37,098 |
|
The
carrying value of cash and cash equivalents and certain short-term investment
securities is a reasonable estimate of their approximate fair
value. Farmer Mac estimates the fair value of its guarantee and
commitment fees receivable/obligation and notes payable 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. 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.
Different
market assumptions and estimation methodologies could significantly affect
estimated fair value amounts.
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 and at a cost
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
generally and within the agricultural and rural utilities sectors in
particular; 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 condensed 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.
During
second quarter 2009, Farmer Mac amended its critical accounting policy relating
to other-than-temporary impairments upon the adoption of FASB Staff Position
(FSP) FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amended the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. The existing recognition and measurement guidance related
to other-than-temporary impairments of equity securities was not
amended.
If the
fair value of a security is less than its amortized cost basis as of the balance
sheet date, Farmer Mac assesses whether the impairment is temporary or
other-than-temporary. Other-than-temporary impairment occurs when the
fair value of an available-for-sale debt security is below its amortized cost,
and it is determined that management (a) has the intent to sell the debt
security or (b) more likely than not will be required to sell the debt security
before its anticipated recovery. In these cases, the entire
difference between the amortized cost basis of the security and the fair value
as of the balance sheet date is recognized as other-than-temporary impairment in
earnings.
If
management does not intend to sell the security and it is not more likely than
not that it will be required to sell the security before anticipated recovery,
Farmer Mac determines whether a credit loss exists. Many factors
considered in this determination involve significant judgment, including recent
events specific to the issuer or the related industry, changes in external
credit ratings, the severity and duration of the impairment, recoveries or
additional declines in fair value subsequent to the balance sheet date, and
other relevant information related to the collectability of the
security. If Farmer Mac determines that the present value of the cash
flows likely to be collected from the security is greater than the amortized
cost basis of the security, the impairment is deemed to be
temporary. Conversely, if the present value of the expected cash
flows is less than the amortized cost basis of the security, a credit loss has
occurred and the security is deemed to be other-than-temporarily impaired and
the amount of the total other-than-temporary impairment related to the credit
loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in
other comprehensive income, net of applicable taxes.
For a
discussion of Farmer Mac’s critical accounting policies related to the allowance
for losses and fair value measurement 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 available to common stockholders for second quarter 2009 was
$25.4 million or $2.49 per diluted common share, compared to $21.4 million
or $2.13 per diluted common share for second quarter 2008. Net
income available to common stockholders for the six months ended June 30, 2009
was $58.9 million or $5.80 per diluted common share, compared to $13.2 million
or $1.31 per diluted common share for the six months ended June 30,
2008.
During
the three and six month periods ended June 30, 2009, Farmer Mac’s guarantee and
commitment fees increased compared to the same periods in 2008 because the
average level of guarantees and commitments outstanding during the quarter was
higher and the average fee charged during the periods increased. In
both cases, the increases are attributable to the rural utilities business added
since June 30, 2008. For second quarter 2009, guarantee and
commitment fees were $7.9 million, compared to $6.7 million for second
quarter 2008 and for the six months ended June 30, 2009, guarantee and
commitment fees were $15.3 million, compared to $13.3 million for the six
months ended June 30, 2008.
During
2009, Farmer Mac has maintained uninterrupted access to the capital markets at
favorable rates, though the Corporation’s short-term borrowing
costs relative to LIBOR moved back toward their historical levels during
second quarter 2009. Toward the end of 2008 and into 2009, Farmer Mac
reduced the size of its liquidity investment portfolio as it reevaluated its
investment policies. The reduced level of investment has put downward
pressure on the net interest income earned from that portfolio compared to
earlier periods. For second quarter 2009, net interest income
including income and expense related to financial derivatives was
$10.0 million, compared to $16.3 million for second quarter
2008. For the six months ended June 30, 2009, net interest income
including income and expense related to financial derivatives was $22.8 million,
compared to $32.2 million for six months ended June 30, 2008.
Farmer
Mac’s overall non-performing assets remained steady during second quarter 2009
at $97.1 million (2.17 percent) compared to $96.2 million as of March 31, 2009
(2.12 percent). Because four of Farmer Mac’s ethanol loans were
transferred to real estate owned, the level of 90-day delinquencies dropped from
$86.2 million (1.90 percent) as of March 31, 2009 to $42.3 million
(0.95 percent) as of June 30, 2009. As of June 30, 2009, Farmer
Mac’s ethanol exposure, which includes loans, loans subject to LTSPCs and REO,
was $279.1 million, with exposure to 29 different plants, and an
additional $27.0 million of undisbursed commitments. Other than
the undisbursed commitments, Farmer Mac is not seeking to add more ethanol loan
exposure to its portfolio. See “—Risk Management—Credit Risk –
Loans” for more detail about Farmer Mac’s ethanol portfolio.
The total
allowance for losses was $9.3 million as of June 30, 2009 compared to
$16.4 million as of December 31, 2008. During second
quarter 2009, Farmer Mac recorded a release of its allowance for
losses of $6.2 million and charge-offs of $5.7 million, both primarily
related to ethanol loans, compared to no release or provision for losses
and charge-offs net of recoveries of $0.1 million during second quarter
2008. During first quarter 2009, Farmer Mac recorded provisions for
losses of $6.1 million and charge-offs net of recoveries of
$1.2 million, both primarily related to ethanol loans, compared to
no release or provision for losses and charge-offs of $39,000 during first
quarter 2008.
Other
than the ethanol portfolio, the loans underlying the Corporation’s guarantees
and commitments continued to perform well during second quarter 2009, with
delinquencies on non-ethanol loans showing slight increases, but remaining below
Farmer Mac’s long-term average. This is in part a result of the
cumulative strong performance 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 and related credit losses are expected to remain
within Farmer Mac’s historical experience. See “—Results of
Operations—Outlook” and “—Risk Management—Credit Risk – Loans” for more detail
about the outlook for certain agricultural industries.
Farmer
Mac’s 2009 results included significant gains on financial
derivatives. The second quarter gain on financial derivatives was
$21.5 million, compared to a gain of $31.1 million during second quarter
2008. For the six months ended June 30, 2009, the gain on financial
derivatives was $23.2 million, compared to a loss of $10.7 million for the six
months ended June 30, 2008. Fair value gains on trading assets
totaled $35,000 for second quarter 2009, compared to losses of
$17.3 million for second quarter 2008. For the six months ended
June 30, 2009 the gains on trading assets totaled $31.7 million, compared to
losses of $7.2 million for the six months ended June 30, 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 has been the case in 2009, they may also produce significant losses, as has
been the case in previous reporting periods. Future changes in those
values cannot be reliably predicted; however, as of June 30, 2009 the cumulative
fair value after-tax losses recorded on financial derivatives was
$70.1 million. Over time, Farmer Mac will realize in earnings
the net effect of the cash settlements on its interest rate swap contracts,
which may on its own produce either income or expense, but is expected to
generate positive effective net spread when combined with the interest earned
and paid on the assets and liabilities Farmer Mac holds on its balance
sheet. This positive effective net spread will continue to build
retained earnings and capital over time. Although the unrealized fair
value fluctuations experienced throughout the term of the financial derivatives
will temporarily impact earnings and capital, those fluctuations will have no
permanent effect upon maturity.
Farmer
Mac’s year-to-date 2009 results benefited from two first quarter
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
“(Losses)/gains on sale of available-for-sale investment securities” on the
condensed consolidated statements of operations.
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 and six month periods ended June 30, 2009 and 2008
and reconciles those items as separate components of net income available to
common stockholders, distinct from the recurring items during the periods
presented.
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Recurring
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
$ |
7,908 |
|
|
$ |
6,659 |
|
|
$ |
15,318 |
|
|
$ |
13,293 |
|
Net
interest income including realized gains on financial
derivatives
|
|
|
10,141 |
|
|
|
16,660 |
|
|
|
20,300 |
|
|
|
31,877 |
|
Other
income
|
|
|
101 |
|
|
|
662 |
|
|
|
335 |
|
|
|
1,123 |
|
Credit
related charges
|
|
|
6,238 |
|
|
|
(38 |
) |
|
|
164 |
|
|
|
(87 |
) |
Operating
costs
|
|
|
(7,070 |
) |
|
|
(6,683 |
) |
|
|
(14,522 |
) |
|
|
(12,874 |
) |
Related
tax expense
|
|
|
(5,800 |
) |
|
|
(5,854 |
) |
|
|
(6,786 |
) |
|
|
(10,846 |
) |
Preferred
stock dividends
|
|
|
(4,130 |
) |
|
|
(560 |
) |
|
|
(8,066 |
) |
|
|
(1,120 |
) |
Subtotal
|
|
|
7,388 |
|
|
|
10,846 |
|
|
|
6,743 |
|
|
|
21,366 |
|
Items
resulting from fair value fluctuations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
values changes in financial derivatives
|
|
|
31,288 |
|
|
|
38,748 |
|
|
|
46,280 |
|
|
|
(251 |
) |
Fair
value changes in trading assets
|
|
|
35 |
|
|
|
(17,268 |
) |
|
|
31,660 |
|
|
|
(7,157 |
) |
Related
tax (expense)/benefit
|
|
|
(10,964 |
) |
|
|
(7,519 |
) |
|
|
(27,280 |
) |
|
|
2,592 |
|
Subtotal
|
|
|
20,359 |
|
|
|
13,961 |
|
|
|
50,660 |
|
|
|
(4,816 |
) |
Other
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairment - credit losses
|
|
|
(2,292 |
) |
|
|
(5,344 |
) |
|
|
(2,373 |
) |
|
|
(5,344 |
) |
(Losses)/gains
on asset sales
|
|
|
(300 |
) |
|
|
150 |
|
|
|
4,431 |
|
|
|
150 |
|
Related
tax benefit/(expense)
|
|
|
230 |
|
|
|
1,818 |
|
|
|
(558 |
) |
|
|
1,818 |
|
Subtotal
|
|
|
(2,362 |
) |
|
|
(3,376 |
) |
|
|
1,500 |
|
|
|
(3,376 |
) |
Net
income available to common stockholders
|
|
$ |
25,385 |
|
|
$ |
21,431 |
|
|
$ |
58,903 |
|
|
$ |
13,174 |
|
Set forth
below is a more detailed discussion of Farmer Mac’s results of
operations.
Net
Interest Income. Net interest income was $19.9 million for
second quarter 2009, compared to $24.4 million for second quarter
2008. Net interest income was $43.3 million for the six months ended
June 30, 2009, compared to $42.3 million for the six months ended June 30,
2008. The net interest yield was 176 basis points for the six months
ended June 30, 2009, compared to 149 basis points for the six months ended
June 30, 2008.
The
following table provides information regarding interest-earning assets and
funding for the six months ended June 30, 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 six
months ended June 30, 2009 compared to the six months ended June 30,
2008. The lower average rate on loans and Farmer Mac Guaranteed
Securities during the six months ended June 30, 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 Six Months Ended
|
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Income/
Expense
|
|
|
Average
Rate
|
|
|
|
(dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
1,554,738 |
|
|
$ |
15,958 |
|
|
|
2.05 |
% |
|
$ |
3,553,861 |
|
|
$ |
76,910 |
|
|
|
4.33 |
% |
Loans
and Farmer Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
3,359,356 |
|
|
|
72,945 |
|
|
|
4.34 |
% |
|
|
2,108,105 |
|
|
|
62,011 |
|
|
|
5.88 |
% |
Total
interest-earning assets
|
|
|
4,914,094 |
|
|
|
88,903 |
|
|
|
3.62 |
% |
|
|
5,661,966 |
|
|
|
138,921 |
|
|
|
4.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
3,223,496 |
|
|
|
15,144 |
|
|
|
0.94 |
% |
|
|
3,784,194 |
|
|
|
58,187 |
|
|
|
3.08 |
% |
Notes
payable due after one year
|
|
|
1,482,193 |
|
|
|
30,418 |
|
|
|
4.10 |
% |
|
|
1,653,313 |
|
|
|
38,438 |
|
|
|
4.65 |
% |
Total
interest-bearing liabilities
|
|
|
4,705,689 |
|
|
|
45,562 |
|
|
|
1.94 |
% |
|
|
5,437,507 |
|
|
|
96,625 |
|
|
|
3.55 |
% |
Net
non-interest-bearing funding
|
|
|
208,405 |
|
|
|
- |
|
|
|
|
|
|
|
224,459 |
|
|
|
|
|
|
|
|
|
Total
funding
|
|
$ |
4,914,094 |
|
|
|
45,562 |
|
|
|
1.85 |
% |
|
$ |
5,661,966 |
|
|
|
96,625 |
|
|
|
3.41 |
% |
Net
interest income/yield
|
|
|
|
|
|
$ |
43,341 |
|
|
|
1.76 |
% |
|
|
|
|
|
$ |
42,296 |
|
|
|
1.49 |
% |
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 Six Months Ended June 30, 2009
|
|
|
|
Compared to the Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
|
Increase/(Decrease) Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
(29,445 |
) |
|
$ |
(31,507 |
) |
|
$ |
(60,952 |
) |
Loans
and Farmer Mac Guaranteed Securities
|
|
|
(19,185 |
) |
|
|
30,119 |
|
|
|
10,934 |
|
Total
|
|
|
(48,630 |
) |
|
|
(1,388 |
) |
|
|
(50,018 |
) |
Expense
from interest-bearing liabilities
|
|
|
(39,409 |
) |
|
|
(11,654 |
) |
|
|
(51,063 |
) |
Change
in net interest income
|
|
$ |
(9,221 |
) |
|
$ |
10,266 |
|
|
$ |
1,045 |
|
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.
Farmer
Mac accounts for its financial derivatives as undesignated financial
derivatives. Accordingly, the Corporation records the income or
expense related to financial derivatives as gains and losses on financial
derivatives. For the three months ended June 30, 2009, this resulted
in an increase of the net interest yield of $9.9 million (83 basis points),
compared to an increase of the net interest yield of $8.1 million (55 basis
points) for the three months ended June 30, 2008. For the six months
ended June 30, 2009, this resulted in an increase of the net interest yield of
$20.5 million (84 basis points), compared to an increase of the net
interest yield of $10.1 million (36 basis points) for the six months ended June
30, 2008.
Farmer
Mac’s net interest income and net interest yields for the three
months ended June 30, 2009 and 2008 included the benefits of yield maintenance
payments of $0.1 million (1 basis point) and $1.5 million (10 basis
points), respectively. The net interest yields for the six months
ended June 30, 2009 and 2008 included the benefits of yield maintenance payments
of $0.4 million (2 basis points) and $2.9 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. As these
figures demonstrate, the amounts of these payments, which are largely the result
of borrower refinancing, were greatly reduced in 2009 compared to
2008. 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
|
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Net
interest income/yield
|
|
$ |
19,901 |
|
|
|
1.66 |
% |
|
$ |
24,358 |
|
|
|
1.66 |
% |
|
$ |
43,341 |
|
|
|
1.76 |
% |
|
$ |
42,296 |
|
|
|
1.49 |
% |
Expense
related to financial derivatives
|
|
|
(9,937 |
) |
|
|
-0.83 |
% |
|
|
(8,065 |
) |
|
|
-0.55 |
% |
|
|
(20,525 |
) |
|
|
-0.84 |
% |
|
|
(10,120 |
) |
|
|
-0.36 |
% |
Yield
maintenance payments
|
|
|
(108 |
) |
|
|
-0.01 |
% |
|
|
(1,515 |
) |
|
|
-0.10 |
% |
|
|
(372 |
) |
|
|
-0.02 |
% |
|
|
(2,912 |
) |
|
|
-0.10 |
% |
Net
spread
|
|
$ |
9,856 |
|
|
|
0.82 |
% |
|
$ |
14,778 |
|
|
|
1.01 |
% |
|
$ |
22,444 |
|
|
|
0.90 |
% |
|
$ |
29,264 |
|
|
|
1.03 |
% |
Provision
for Loan Losses. During second quarter 2009, Farmer Mac
recorded a release of its allowance for loan losses of $5.7 million,
compared to provisions of $3.5 million in first quarter 2009 and no
release or provision in the same periods for 2008. The provisions for
loan losses in 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. As of June 30, 2009, Farmer Mac's total
allowance for loan losses was $1.8 million, compared to $10.9 million as of
December 31, 2008. 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 $7.9 million for second quarter 2009
and $15.3 million for the six months ended June 30, 2009, compared to $6.7
million and $13.3 million, respectively, for the same periods in
2008. As noted above, Farmer Mac’s guarantee and commitment fees
increased in 2009 both because the average level of guarantees and commitments
outstanding and the average fees charged have increased. In both
cases, the increases are attributable to the rural utilities business added
since June 30, 2008.
Gains
and Losses on Financial Derivatives. 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 for the three and six months ended
June 30, 2009 was net gains of $21.5 million and $23.2 million, compared to net
gains of $31.1 million and net losses of $10.7 million, respectively, for the
same periods in 2008. The components of gains and losses
on financial derivatives for the three and six months ended June 30, 2009 and
2008 are summarized in the following table:
|
|
For the Three Months Ended
|
|
|
For the Six Months
Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Realized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
related to financial derivatives
|
|
$ |
(9,937 |
) |
|
$ |
(8,065 |
) |
|
$ |
(20,525 |
) |
|
$ |
(10,120 |
) |
Gains/(losses)
due to terminations or net settlements
|
|
|
255 |
|
|
|
490 |
|
|
|
(2,378 |
) |
|
|
(65 |
) |
Unrealized
gains/(losses) due to fair value changes
|
|
|
31,287 |
|
|
|
38,748 |
|
|
|
46,280 |
|
|
|
(251 |
) |
Amortization
of SFAS 133 transition adjustment
|
|
|
(77 |
) |
|
|
(123 |
) |
|
|
(138 |
) |
|
|
(234 |
) |
Gains/(losses)
on financial derivatives
|
|
$ |
21,528 |
|
|
$ |
31,050 |
|
|
$ |
23,239 |
|
|
$ |
(10,670 |
) |
The
accrual of periodic cash settlements for interest paid or received from Farmer
Mac’s interest rate swap contracts 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 $0.1 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 the three and six months ended June 30,
2009, Farmer Mac recognized gains on trading assets of $35,000 and
$31.7 million, respectively, compared to losses of $17.3 million and $7.2
million, respectively, for the same periods in 2008. Gains on
trading assets are discussed further in Note 7 to the 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 June 30, 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 the
three and six months ended June 30, 2009, Farmer Mac realized losses of
$0.3 million and gains of $2.9 million, respectively, from the sale of
securities from its available-for-sale portfolio, compared to gains of $0.2
million and $0.2 million, respectively, for the same periods in
2008. The gain in 2009 was primarily 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.
General
and Administrative Expenses. General and administrative
expenses, including legal, independent audit, and consulting fees, were
$3.0 million for second quarter 2009 and $5.9 million for the six
months ended June 30, 2009, compared to $2.2 million and $4.3 million,
respectively, for the same periods in 2008. The increases in those
expenses were largely attributable to legal and consulting fees related to the
development of Farmer Mac programs and related transactions.
Regulatory
Fees.
Regulatory fees for the three and six months ended June 30, 2009 were
$0.5 million and $1.0 million, respectively, compared to $0.5 million and
$1.0 million, respectively, for the same periods in 2008. 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 the three and six months ended June 30,
2009, Farmer Mac recorded a release of $0.5 million and
provisions of $2.0 million, respectively, for losses related to its guarantee
activities and LTSPCs, compared to no such release or provision in the
same periods in 2008. As of June 30, 2009, Farmer Mac’s
total reserve for losses was $7.5 million, compared to
$5.5 million as of December 31, 2008.
Income
Tax Expense. Income tax expense totaled $16.5 million and
$34.6 million for the three and six months ended June 30, 2009, respectively,
compared to $11.6 million and $6.4 million, respectively, for the same
periods in 2008. Farmer Mac’s effective tax rates for the three and
six months ended June 30, 2009 were approximately 35.9 percent and 34.0 percent,
respectively, compared to approximately 34.4 percent and 31.0 percent,
respectively, for the same periods in 2008.
Business
Volume. During second
quarter 2009, Farmer Mac added $1.1 billion of new program volume in the
form of:
|
·
|
purchases
of $37.9 million of Farmer Mac I
loans;
|
|
·
|
the
placement of $22.7 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchases
of $96.3 million of Farmer Mac II USDA-guaranteed portions of loans;
and
|
|
·
|
purchases
of $900.0 million of Farmer Mac Guaranteed Securities – Rural
Utilities.
|
This new
business volume was partially offset by principal paydowns on outstanding loans
and loans underlying Farmer Mac Guaranteed Securities and
LTSPCs. Farmer Mac’s outstanding program volume was $10.4 billion as
of June 30, 2009. In May 2009, Farmer Mac entered into a note
purchase agreement with National Rural for the guarantee and purchase of up
to $1.0 billion additional notes representing general obligations
of National Rural and secured by eligible rural utilities loans in an amount at
least equal to the total principal amount of notes outstanding. The
terms of this borrowing facility are similar to two previous $500.0 million
facilities initially described in Farmer Mac’s Current Report on Form 8-K filed
on December 19, 2008 and then subsequent periodic filings with the
SEC. As with the two previous facilities, National Rural will be
required to purchase shares of Farmer Mac’s Series C Preferred Stock in an
amount sufficient to maintain a balance at all times that is at least equal to
4.0 percent of the principal amount of the notes outstanding under the new
facility. No secured notes were purchased from National Rural under
the new facility during second quarter 2009. During third quarter
2009, Farmer Mac agreed to purchase at least $425.0 million of secured
notes under the facility before the end of August 2009, which will result in the
purchase of an additional $17.0 million of Series C Preferred Stock by
National Rural.
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
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Loan
purchase and guarantee and commitment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
37,900 |
|
|
$ |
53,838 |
|
|
$ |
67,714 |
|
|
$ |
91,306 |
|
LTSPCs
|
|
|
22,717 |
|
|
|
116,472 |
|
|
|
88,437 |
|
|
|
169,753 |
|
AgVantage
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Farmer
Mac II Guaranteed Securities
|
|
|
96,322 |
|
|
|
79,700 |
|
|
|
175,377 |
|
|
|
132,814 |
|
Farmer
Mac Guaranteed Securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rural
Utilities
|
|
|
900,000 |
|
|
|
1,330,676 |
|
|
|
1,170,000 |
|
|
|
1,330,676 |
|
Total
purchases, guarantees and commitments
|
|
$ |
1,056,939 |
|
|
$ |
1,580,686 |
|
|
$ |
1,501,528 |
|
|
$ |
1,724,549 |
|
The
weighted-average ages of the Farmer Mac I newly originated and current seasoned
loans purchased during each of second quarter 2009 and second quarter 2008 was
less than one month. Of the Farmer Mac I newly originated and current
seasoned loans purchased during second quarter 2009 and second quarter 2008, 77
percent and 73 percent, respectively, had principal amortization periods
longer than the maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 16.2 years and 15.3 years,
respectively. The weighted-average age of delinquent loans purchased
out of securitized pools and LTSPCs during second quarter 2009 and second
quarter 2008 was 2.3 years and 28.7 years, respectively.
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
|
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I newly originated and current seasoned loan purchases
|
|
$ |
37,900 |
|
|
$ |
53,838 |
|
|
$ |
67,714 |
|
|
$ |
91,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
572 |
|
|
|
26 |
|
|
|
3,386 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loan purchases
|
|
$ |
38,472 |
|
|
$ |
53,864 |
|
|
$ |
73,316 |
|
|
$ |
92,495 |
|
Outlook. During
second quarter 2009, the disruptions in the capital markets that began in 2008
and led to a sharp downturn in the national economy began to
ease. While Farmer Mac’s medium-term note issuance was somewhat
limited by market conditions near the end of 2008, during 2009 Farmer Mac has
regularly issued medium-term notes, with maturities ranging from one to fifteen
years. For several quarters prior to second quarter 2009, Farmer Mac
had been able to issue shorter term discount notes at historically wide spreads
below LIBOR as investors sought safety in the debt of the U.S. government and
GSEs. Those spreads began moving back toward historical levels during
second quarter 2009, primarily as a result of improved investor confidence in
non-GSE issuers. These movements in spreads resulted in reduced net
interest income during 2009, which may continue for the remainder of
2009.
To date
in 2009, conditions in the agricultural sector have continued to be 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 recent months, the pressure on the ethanol industry has
moderated somewhat as the cost of corn, the primary input, has decreased, and
the price of ethanol has risen. The dairy sector continues to
experience 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 Farmer Mac’s historical experience.
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, as farm real estate values appear 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 the near term.
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. Farmer Mac’s expansion into the rural utilities sector
has led to $1.8 billion of Farmer Mac Guaranteed Securities – Rural
Utilites outstanding as of June 30, 2009. That business has been largely
concentrated in the extension of credit to National Rural in the form of notes
representing general obligations of National Rural and secured by eligible rural
utilities loans in an amount at least equal to the total principal amount of
notes outstanding. For more information about those obligations,
which are similar in structure to AgVantage securities issued under the Farmer
Mac I program, see “—Risk Management—Credit Risk –
Institutional.” 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 June 30, 2009 were $5.3 billion, compared to $5.1 billion as
of December 31, 2008. That increase is a result of Farmer Mac’s
on-balance sheet program assets (Farmer Mac Guaranteed Securities and loans)
increasing $443.2 million to a total of $3.7 billion and non-program assets
decreasing $227.9 million to $1.7 billion as of June 30,
2009. The increase in program assets was largely a result of the
purchase of Farmer Mac Guaranteed Securities – Rural Utilities, partially offset
by the first quarter 2009 sale of $354.5 million of loans and ongoing borrower
paydowns of loans and loans underlying Farmer Mac Guaranteed
Securities.
As of
June 30, 2009, Farmer Mac had $362.9 million of cash and cash equivalents
compared to $278.4 million as of December 31, 2008. As of June
30, 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 June 30, 2009.
|
|
June
30, 2009
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
74,100 |
|
|
$ |
- |
|
|
$ |
(5,384 |
) |
|
$ |
68,716 |
|
Floating
rate asset-backed securities
|
|
|
70,394 |
|
|
|
14 |
|
|
|
(288 |
) |
|
|
70,120 |
|
Floating
rate corporate debt securities
|
|
|
349,645 |
|
|
|
- |
|
|
|
(13,991 |
) |
|
|
335,654 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
301,644 |
|
|
|
235 |
|
|
|
(2,613 |
) |
|
|
299,266 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
6,812 |
|
|
|
235 |
|
|
|
- |
|
|
|
7,047 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(15,813 |
) |
|
|
54,187 |
|
Floating
rate GSE preferred stock
|
|
|
700 |
|
|
|
850 |
|
|
|
- |
|
|
|
1,550 |
|
Total
available-for-sale
|
|
|
873,295 |
|
|
|
1,334 |
|
|
|
(38,089 |
) |
|
|
836,540 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
7,022 |
|
|
|
- |
|
|
|
(5,085 |
) |
|
|
1,937 |
|
Fixed
rate GSE preferred stock
|
|
|
179,898 |
|
|
|
3,602 |
|
|
|
- |
|
|
|
183,500 |
|
Total
trading
|
|
|
186,920 |
|
|
|
3,602 |
|
|
|
(5,085 |
) |
|
|
185,437 |
|
Total
investment securities
|
|
$ |
1,060,215 |
|
|
$ |
4,936 |
|
|
$ |
(43,174 |
) |
|
$ |
1,021,977 |
|
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 to “Accumulated other
comprehensive loss” in the equity section of Farmer Mac’s condensed consolidated
balance sheets. Accumulated other comprehensive loss 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 unrealized losses, the issuers of
which are primarily financial institutions, are summarized in the following
table as of June 30, 2009:
|
|
June
30, 2009
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
S&P
Credit
|
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
Rating
|
|
Maturity
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC
Finance
|
|
$ |
49,907 |
|
|
$ |
(4,868 |
) |
|
$ |
45,039 |
|
|
|
A
|
|
Various
through July 2012
|
Merrill
Lynch & Co., Inc. (1)
|
|
|
49,989 |
|
|
|
(4,145 |
) |
|
|
45,844 |
|
|
|
A
|
|
November
2011
|
Goldman
Sachs
|
|
|
61,730 |
|
|
|
(2,669 |
) |
|
|
59,061 |
|
|
|
A
|
|
February
2012
|
Morgan
Stanley
|
|
|
34,943 |
|
|
|
(785 |
) |
|
|
34,158 |
|
|
|
A
|
|
Various
through January 2011
|
Credit
Suisse USA Inc.
|
|
|
35,000 |
|
|
|
(673 |
) |
|
|
34,327 |
|
|
|
A+
|
|
Various
through August 2011
|
Wachovia
Corp. (2)
|
|
|
9,948 |
|
|
|
(450 |
) |
|
|
9,498 |
|
|
AA-
|
|
October
2011
|
Wells
Fargo & Co.
|
|
|
8,576 |
|
|
|
(187 |
) |
|
|
8,389 |
|
|
AA-
|
|
January
2011
|
American
Express Credit Corp.
|
|
|
15,536 |
|
|
|
(87 |
) |
|
|
15,449 |
|
|
BBB+
|
|
Various
through December 2009
|
John
Deere Capital Corp
|
|
|
20,000 |
|
|
|
(85 |
) |
|
|
19,915 |
|
|
|
A
|
|
July
2010
|
Bear
Stearns Cos. LLC (3)
|
|
|
25,000 |
|
|
|
(37 |
) |
|
|
24,963 |
|
|
|
A+
|
|
May
2010
|
Aleutian
Investments LLC (4)
|
|
|
5,000 |
|
|
|
(5 |
) |
|
|
4,995 |
|
|
|
A
|
|
April
2010
|
CIT
Group Inc. (5)
|
|
|
34,016 |
|
|
|
- |
|
|
|
34,016 |
|
|
BB-
|
|
August
2009
|
|
|
$ |
349,645 |
|
|
$ |
(13,991 |
) |
|
$ |
335,654 |
|
|
|
|
|
|
(1)
|
Merrill
Lynch & Co., Inc. was acquired by Bank of America in January
2009.
|
(2)
|
Wachovia
Corp. was acquired by Wells Fargo in January
2009.
|
(3)
|
Bear
Stearns Cos. LLC was acquired by JPMorgan in 2008. $20.0 million of the
Bear Stearns corporate debt securities was sold in August 2009 at a price
of 100.03% of par.
|
(4)
|
Aleutian
Investments LLC's credit rating was downgraded by Moody's rating agency in
July 2009 from Ba3 to Caa2.
|
(5)
|
CIT
Group Inc. corporate debt securities were sold in July 2009 at a price of
94.55% of par.
|
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 does not intend to sell these securities and it is not more likely than not
that Farmer Mac will be required to sell the securities before recovery of the
amortized cost basis. Management will continue to evaluate each of
these investment positions in light of the inherent risks and Farmer Mac’s
capital position.
Liabilities. Consistent
with the net increase in total assets of $215.4 million during the six months
ended June 30, 2009, total liabilities increased $91.4 million and
stockholder’s equity increased $124.0 million during the same
period. The increase in liabilities was primarily due to additional
funding used to acquire additional program assets.
Capital. Farmer
Mac was in compliance with its statutory minimum capital requirement and its
risk-based capital standard as of June 30, 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 June 30, 2009, Farmer Mac’s core capital totaled $296.1
million and exceeded its statutory minimum capital requirement of $196.2 million
by $99.9 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 June 30, 2009,
Farmer Mac’s risk-based capital stress test generated a risk-based capital
requirement of $50.2 million. Farmer Mac’s regulatory capital of
$305.4 million exceeded that amount by approximately $255.2
million. Accumulated other comprehensive loss 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 offerings of common or preferred equity
securities by Farmer Mac or a subsidiary of Farmer Mac and/or one or more
offerings of trust securities that could be supported primarily by the cash
flows from selected Farmer Mac program assets. Strengthening Farmer
Mac’s capital position would provide greater assurance of Farmer Mac’s continued
compliance with 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 condensed consolidated
financial statements for further information regarding Farmer Mac’s off-balance
sheet program activities.
Risk
Management
Credit
Risk – Loans. Farmer Mac is
exposed to credit risk resulting from the failure of borrowers to repay their
loans in conjunction with a deficiency in the value of the collateral relative
to the outstanding balance of the loan and the costs of
liquidation. Farmer Mac is exposed to credit risk on:
|
·
|
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 June 30, 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 June 30, 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 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 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 June 30, 2009 and December 31, 2008:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
1,810 |
|
|
$ |
10,929 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
On-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
- |
|
|
|
869 |
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
1,703 |
|
|
|
535 |
|
LTSPCs
|
|
|
5,793 |
|
|
|
4,102 |
|
Farmer
Mac Guaranteed Securities - Rural Utilities
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
9,306 |
|
|
$ |
16,435 |
|
The
following table summarizes the changes in the components of Farmer Mac’s
allowance for losses for the three and six months ended June 30, 2009 and
2008:
|
|
June
30, 2009
|
|
|
June
30, 2008
|
|
|
|
Allowance
|
|
|
|
|
|
Total
|
|
|
Allowance
|
|
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
|
Reserve
|
|
|
Allowance
|
|
|
for
Loan
|
|
|
Reserve
|
|
|
Allowance
|
|
|
|
Losses
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
Losses
|
|
|
for
Losses
|
|
|
for
Losses
|
|
|
|
(in
thousands)
|
For
the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
13,228 |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
|
$ |
1,651 |
|
|
$ |
2,197 |
|
|
$ |
3,848 |
|
Provision/(recovery)
for losses
|
|
|
(5,693 |
) |
|
|
(529 |
) |
|
|
(6,222 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(5,725 |
) |
|
|
- |
|
|
|
(5,725 |
) |
|
|
(69 |
) |
|
|
- |
|
|
|
(69 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Ending
balance
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
$ |
1,592 |
|
|
$ |
2,197 |
|
|
$ |
3,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
|
$ |
1,690 |
|
|
$ |
2,197 |
|
|
$ |
3,887 |
|
Provision/(recovery)
for losses
|
|
|
(2,159 |
) |
|
|
1,990 |
|
|
|
(169 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Charge-offs
|
|
|
(7,725 |
) |
|
|
- |
|
|
|
(7,725 |
) |
|
|
(108 |
) |
|
|
- |
|
|
|
(108 |
) |
Recoveries
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Ending
balance
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
$ |
1,592 |
|
|
$ |
2,197 |
|
|
$ |
3,789 |
|
During
the three and six months ended June 30, 2009, Farmer Mac recorded releases of
its allowance for losses of $6.2 million and $0.2 million,
respectively, compared to no release or provision for the same periods in
2008. Farmer Mac recorded $5.7 million and $7.7 million of
charge-offs in the three and six months ended June 30, 2009, respectively,
against the allowance for losses, and $0.1 million of charge-offs for both of
the same periods in 2008. Farmer Mac recorded no recoveries in the
three months ended June 30, 2009 and $0.8 million in recoveries in the six
months ended June 30, 2009, compared to $10,000 for both of the same periods in
2008. There was no previously accrued or advanced interest on loans
or Farmer Mac I Guaranteed Securities charged off in second quarter 2009 or
second quarter 2008. As of June 30, 2009, Farmer Mac’s allowance for
losses totaled $9.3 million, or 21 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 or 33 basis points as of December 31,
2008.
As of
June 30, 2009, Farmer Mac’s 90-day delinquencies were $42.3 million
(0.95 percent), compared to $5.2 million (0.11 percent) as of
June 30, 2008. Ethanol loans comprised $18.8 million of the
90-day delinquencies as of June 30, 2009. Other than the ethanol
portfolio, the loans underlying the Corporation’s guarantees and commitments
continued to perform well during second quarter 2009, with delinquencies on
non-ethanol loans remaining below Farmer Mac’s historical average, consistent
with the strength of the U.S. agricultural economy over the past several
years. As of June 30, 2009, there were no delinquencies or
non-performing assets in Farmer Mac’s portfolio of rural utilities
loans. As of June 30, 2009, Farmer Mac’s non-performing assets
totaled $97.1 million (2.17 percent), compared to $28.2 million
(0.57 percent) as of June 30, 2008. Ethanol loans comprised
$59.7 million of non-performing assets as of June 30, 2009. 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
June 30, 2009, Farmer Mac’s ethanol exposure, which includes loans, loans
subject to LTSPCs and REO, was $279.1 million on 29 different plants, with
an additional $27.0 million of undisbursed commitments. Other
than the undisbursed commitments, Farmer Mac is not seeking to add more 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. As of March 31, 2009, Farmer Mac
classified its outstanding loan participations as “Loans held for investment” on
the condensed consolidated balance sheets and a specific allowance of $12.1
million was included in the “Allowance for loan losses,” which brought the net
carrying value to $31.8 million.
In April
2009, the lending groups that include Farmer Mac formed limited liability
companies (“LLCs”) through which the lending groups acquired the four ethanol
plants as part of the VeraSun bankruptcy proceedings, with the lender credit bid
prevailing at the bankruptcy auction. The lender groups are in the
process of selling the four ethanol plants. Subsequent to June 30,
2009, one of the ethanol plants was sold, and the lender groups signed
agreements for the sale of two of the plants. Negotiations are
currently underway for the sale of the remaining plant. Although the
terms of sale and the participants in the lending group vary among each of the
four ethanol plants, in each case the lending group is providing a significant
portion of the financing to the purchasers.
As of
June 30, 2009, Farmer Mac classified its ownership interest in the ethanol
plants as “Real estate owned” on the condensed consolidated balance sheets and
recorded its investment at the estimated net realizable value of $41.0 million,
which is the estimated fair value of the ethanol plants less anticipated selling
costs. Farmer Mac considered many factors in determining its best
estimate of fair value, including sales price and financing terms,
collectability of the sales price, credit standing and risk of loss of the
purchaser, operating capacity of the plants and adequacy of cash flow
projections, and an independent third-party appraisal. Due to the
distressed nature of the bankruptcy auction in April 2009, Farmer Mac ultimately
concluded that the sales prices negotiated in third quarter 2009 were the best
evidence of the fair values of the REO properties as of the date of acquisition
of the REO properties. Those fair values resulted in charge-offs of
$5.7 million and the release of the remaining $6.3 million of the
specific allowance outstanding as of March 31, 2009. While Farmer Mac
believes there are no probable losses inherent in the loans made to finance the
REO sales at this point in time, future operating performance of the
facilities, fluctuations in corn and ethanol prices, along with other factors,
may result in future provisions for losses and charge-offs on those
loans.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
$ |
4,471,567 |
|
|
$ |
97,123 |
|
|
|
2.17 |
% |
|
$ |
54,816 |
|
|
$ |
42,307 |
|
|
|
0.95 |
% |
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
June 30, 2009, Farmer Mac individually analyzed $112.1 million of its
$152.8 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $40.7 million of
impaired assets for which updated valuations were not available in the aggregate
in consideration of their similar risk characteristics and historical
statistics. As of June 30, 2009, Farmer Mac had recorded specific
allowances of $1.5 million for under-collateralized assets. Farmer Mac’s
non-specific or general allowances were $7.8 million as of June 30,
2009.
As of
June 30, 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
54.9 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 June 30, 2009 by year of origination, geographic
region and commodity/collateral type.
Farmer
Mac I Non-performing Assets as of June 30, 2009
|
|
|
|
Distribution of
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Loans,
|
|
|
Loans,
|
|
|
Non-
|
|
|
Non-
|
|
|
|
Guarantees,
|
|
|
Guarantees,
|
|
|
performing
|
|
|
performing
|
|
|
|
LTSPCs
and REO
|
|
|
LTSPCs
and REO (1)
|
|
|
Assets (2)
|
|
|
Asset Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
|
9 |
% |
|
$ |
371,215 |
|
|
$ |
6,262 |
|
|
|
1.69 |
% |
1997
|
|
|
3 |
% |
|
|
139,908 |
|
|
|
1,775 |
|
|
|
1.27 |
% |
1998
|
|
|
4 |
% |
|
|
199,843 |
|
|
|
4,393 |
|
|
|
2.20 |
% |
1999
|
|
|
6 |
% |
|
|
268,282 |
|
|
|
3,516 |
|
|
|
1.31 |
% |
2000
|
|
|
3 |
% |
|
|
134,241 |
|
|
|
1,864 |
|
|
|
1.39 |
% |
2001
|
|
|
6 |
% |
|
|
259,953 |
|
|
|
1,467 |
|
|
|
0.56 |
% |
2002
|
|
|
8 |
% |
|
|
353,917 |
|
|
|
3,162 |
|
|
|
0.89 |
% |
2003
|
|
|
9 |
% |
|
|
391,684 |
|
|
|
3,438 |
|
|
|
0.88 |
% |
2004
|
|
|
7 |
% |
|
|
313,872 |
|
|
|
523 |
|
|
|
0.17 |
% |
2005
|
|
|
10 |
% |
|
|
459,575 |
|
|
|
650 |
|
|
|
0.14 |
% |
2006
|
|
|
13 |
% |
|
|
547,062 |
|
|
|
38,511 |
|
|
|
7.04 |
% |
2007
|
|
|
10 |
% |
|
|
461,100 |
|
|
|
16,904 |
|
|
|
3.67 |
% |
2008
|
|
|
10 |
% |
|
|
466,550 |
|
|
|
6,836 |
|
|
|
1.47 |
% |
2009
|
|
|
2 |
% |
|
|
104,365 |
|
|
|
7,822 |
|
|
|
7.49 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,471,567 |
|
|
$ |
97,123 |
|
|
|
2.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
15 |
% |
|
$ |
659,740 |
|
|
$ |
34,011 |
|
|
|
5.16 |
% |
Southwest
|
|
|
39 |
% |
|
|
1,749,776 |
|
|
|
6,413 |
|
|
|
0.37 |
% |
Mid-North
|
|
|
22 |
% |
|
|
971,769 |
|
|
|
46,394 |
|
|
|
4.77 |
% |
Mid-South
|
|
|
12 |
% |
|
|
547,930 |
|
|
|
3,527 |
|
|
|
0.64 |
% |
Northeast
|
|
|
8 |
% |
|
|
358,712 |
|
|
|
2,983 |
|
|
|
0.83 |
% |
Southeast
|
|
|
4 |
% |
|
|
183,640 |
|
|
|
3,795 |
|
|
|
2.07 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,471,567 |
|
|
$ |
97,123 |
|
|
|
2.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
38 |
% |
|
$ |
1,698,856 |
|
|
$ |
14,914 |
|
|
|
0.88 |
% |
Permanent
plantings
|
|
|
19 |
% |
|
|
862,418 |
|
|
|
10,376 |
|
|
|
1.20 |
% |
Livestock
|
|
|
28 |
% |
|
|
1,246,374 |
|
|
|
7,843 |
|
|
|
0.63 |
% |
Part-time
farm/rural housing
|
|
|
7 |
% |
|
|
333,229 |
|
|
|
4,270 |
|
|
|
1.28 |
% |
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
|
7 |
% |
|
|
301,412 |
|
|
|
59,720 |
|
|
|
19.81 |
% |
Other
|
|
|
1 |
% |
|
|
29,278 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
|
|
|
100 |
% |
|
$ |
4,471,567 |
|
|
$ |
97,123 |
|
|
|
2.17 |
% |
(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 June 30, 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
|
|
|
|
Cumulative Original
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
Loans, Guarantees
|
|
|
Net Credit
|
|
|
Loss
|
|
|
|
and LTSPCs (1)
|
|
|
Losses
|
|
|
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
$ |
3,322,004 |
|
|
$ |
1,593 |
|
|
|
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
|
|
|
1,025,834 |
|
|
|
- |
|
|
|
0.00 |
% |
2003
|
|
|
840,781 |
|
|
|
- |
|
|
|
0.00 |
% |
2004
|
|
|
622,903 |
|
|
|
- |
|
|
|
0.00 |
% |
2005
|
|
|
749,392 |
|
|
|
114 |
|
|
|
0.02 |
% |
2006
|
|
|
748,313 |
|
|
|
9,912 |
|
|
|
1.32 |
% |
2007
|
|
|
547,172 |
|
|
|
- |
|
|
|
0.00 |
% |
2008
|
|
|
506,637 |
|
|
|
1,821 |
|
|
|
0.36 |
% |
2009
|
|
|
109,544 |
|
|
|
1,193 |
|
|
|
1.09 |
% |
Total
|
|
$ |
13,066,093 |
|
|
$ |
24,632 |
|
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,459,180 |
|
|
$ |
10,541 |
|
|
|
0.43 |
% |
Southwest
|
|
|
5,151,849 |
|
|
|
5,978 |
|
|
|
0.12 |
% |
Mid-North
|
|
|
2,285,072 |
|
|
|
8,132 |
|
|
|
0.36 |
% |
Mid-South
|
|
|
1,263,904 |
|
|
|
(314 |
) |
|
|
-0.02 |
% |
Northeast
|
|
|
994,744 |
|
|
|
66 |
|
|
|
0.01 |
% |
Southeast
|
|
|
911,344 |
|
|
|
229 |
|
|
|
0.03 |
% |
Total
|
|
$ |
13,066,093 |
|
|
$ |
24,632 |
|
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
5,361,435 |
|
|
$ |
559 |
|
|
|
0.01 |
% |
Permanent
plantings
|
|
|
2,942,497 |
|
|
|
9,350 |
|
|
|
0.32 |
% |
Livestock
|
|
|
3,339,448 |
|
|
|
2,676 |
|
|
|
0.08 |
% |
Part-time
farm/rural housing
|
|
|
883,278 |
|
|
|
322 |
|
|
|
0.04 |
% |
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
|
400,771
|
(3) |
|
|
11,725 |
|
|
|
2.93 |
% |
Other
|
|
|
138,664 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
|
|
$ |
13,066,093 |
|
|
$ |
24,632 |
|
|
|
0.19 |
% |
|
(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
forfacilities
under construction, and as of June 30, 2009, approximately $27.0
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 as well as storage and processing
loans, which include Farmer Mac’s exposure to loans on ethanol
plants. 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. In those
transactions, the corporate obligor is required to remove from the pool of
pledged collateral any loan that becomes more than 30 days delinquent in the
payment of principal or interest and to substitute an eligible loan that is
current in payment to maintain the minimum required collateralization
level. In the event of a default on the general obligation, Farmer Mac
would have recourse to the pledged collateral and have rights to the ongoing
borrower payments of principal and interest. 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
$46.8 million and $53.3 million as of June 30, 2009 and December 31, 2008,
respectively. Farmer Mac Guaranteed Securities – Rural Utilities
structured as AgVantage transactions issued by National Rural and held by Farmer
Mac totaled $1.4 billion as of June 30, 2009, compared to $0.6 billion as of
December 31, 2008. In addition, outstanding off-balance sheet
AgVantage Farmer Mac I Guaranteed Securities totaled $2.9 billion as of
both June 30, 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 June 30, 2009 and
December 31, 2008.
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Counterparty
|
|
Balance
|
|
|
Unsecured
Debt
|
|
|
Required Collateralization
|
|
|
Balance
|
|
|
|
|
|
Required Collateralization
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Metlife
|
|
$ |
2,500,000 |
|
|
AA-
|
|
|
|
103%
|
|
|
$ |
2,500,000 |
|
|
AA
|
|
|
|
103%
|
|
National
Rural (1)
|
|
|
1,400,000 |
|
|
A
|
|
|
|
100%
|
|
|
|
630,000 |
|
|
A
|
|
|
|
100%
|
|
M&I
Bank
|
|
|
475,000 |
|
|
BBB
|
|
|
|
106%
|
|
|
|
475,000 |
|
|
A
|
|
|
|
106%
|
|
Other
(2)
|
|
|
16,800 |
|
|
NA
|
|
|
|
(3)
|
|
|
|
23,300 |
|
|
NA
|
|
|
|
(3)
|
|
Total
outstanding
|
|
$ |
4,391,800 |
|
|
|
|
|
|
|
|
|
|
$ |
3,628,300 |
|
|
|
|
|
|
|
|
|
|
(1)
|
National
Rural's credit rating was downgraded by the Fitch rating agency in
July 2009 from A+ to A for secured debt and from A to A- for
unsecured debt.
|
|
(2)
|
Consists
of AgVantage securities issued by 6 and 7 different issuers as of June 30,
2009 and December 31, 2008,
respectively.
|
|
(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 June 30, 2009, Farmer Mac had
$362.9 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 June 30, 2009, 25 percent of Farmer Mac’s regulatory capital was $76.3
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 June 30, 2009, 23 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 52 percent of all loans with fixed interest
rates). Of the Farmer Mac I new and current loans purchased in
second quarter 2009, 3 percent had yield maintenance or other forms of
prepayment protection. As of June 30, 2009, none of the
USDA-guaranteed portions underlying Farmer Mac II Guaranteed Securities had
yield maintenance provisions; however, 3 percent contained prepayment
penalties. Of the USDA-guaranteed portions purchased in second
quarter 2009, 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 funded with discount
notes having similar maturities. As of June 30, 2009, $831.4
million of the $1.0 billion of investment securities (81 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 appropriate
spreads. The following schedule summarizes the results of Farmer
Mac’s MVE sensitivity analysis as of June 30, 2009 and December 31, 2008 to
an immediate and instantaneous uniform or “parallel” shift in the yield
curve. During the first half of 2009, Farmer Mac’s interest rate
sensitivity increased somewhat due primarily to higher interest rates and a
steeper yield curve as well as changes to the Corporation’s balance
sheet.
|
|
Percentage
Change in MVE from
|
|
|
|
Base
Case
|
|
Interest
Rate
|
|
June
30,
|
|
|
December
31,
|
|
Scenario
|
|
2009
|
|
|
2008
|
|
+
300 bp
|
|
|
-27.7 |
% |
|
|
-10.4 |
% |
+
200 bp
|
|
|
-16.5 |
% |
|
|
-2.1 |
% |
+
100 bp
|
|
|
-6.6 |
% |
|
|
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 of
June 30, 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 plus 1.3 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
June 30, 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 10.2 percent, while a parallel decrease of 25 basis
points would have decreased NII by 6.2 percent. Farmer
Mac also measures the sensitivity of both MVE and NII to a variety of
non-parallel interest rate shocks, including flattening and steepening yield
curve scenarios. As of June 30, 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
June 30, 2009, Farmer Mac had $4.6 billion combined notional amount of interest
rate swaps, with terms ranging from one to fifteen years, of which $1.3
billion were pay-fixed interest rate swaps, $3.0 billion were receive-fixed
interest rate swaps, and $0.3 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
second 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
187 days of liquidity in the second quarter 2009 and had 176 days of
liquidity as of June 30, 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 $4.8 billion was outstanding
as of June 30, 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 are driven by the purchase
of loans, USDA-guaranteed portions and Farmer Mac Guaranteed Securities; the
maturities of and interest payments on 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 favorable levels despite
continued market volatility. Through September 2008, Farmer Mac
historically 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 have provided favorable
effectively 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. Further, the widespread use of pay-fixed interest rate swaps
subjected the Corporation’s regulatory capital surplus to the potential adverse
effects of a downward move in the fair values of those interest rate
swaps. Such a downward move was seen in the third and fourth quarters
of 2008. Since September 2008, Farmer Mac has been systematically
entering into offsetting interest rate swaps, receive-fixed swaps, to counteract
the fair value movements of previously-exiting swaps. These
transactions dampen the susceptibility of Farmer Mac’s regulatory capital
surplus to fair value movements of its financial derivatives.
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 June 30, 2009, these assets consisted of:
$362.9 million of cash and cash equivalents; $545.5 million of securities
issued or guaranteed by GSEs or the U.S. Government and its agencies;
$140.8 million of asset-backed securities (mainly backed by Government
guaranteed student loans); and $335.7 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 continued 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 $68.7 million of ARCs as of June
30, 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 June 30,
2009, Farmer Mac’s carrying value of its remaining ARCs was 92.7 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
June 30, 2009 and December 31, 2008, Farmer Mac had a remaining investment of
$6.9 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. In September 2008, Farmer Mac delivered a timely
redemption request to redeem its entire investment in the Fund, but its
confirmed redemption request was not honored. On February 26, 2009,
the Fund announced its decision to 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. 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. In this action, the SEC seeks an order providing for
the continued pro rata distribution of the remaining assets to all unpaid
shareholders and objects to the creation of the $3.5 billion reserve
fund. The SEC contends that if all remaining Primary Fund assets were
distributed on a pro rata basis to all unpaid shareholders, investors would
recover approximately 98.4 cents per share.
Farmer
Mac has received, to date, a total of $73.5 million of its initial investment of
$81.7 million. Based on the SEC action described above, during
second quarter 2009 Farmer Mac recorded an impairment loss of $1.3 million,
which represents 98.4% of the initial investment, thereby reducing its remaining
$8.2 million investment in the Fund to $6.9 million. This loss
was recognized as “Other-than-temporary impairment – credit losses” in the
condensed consolidated statements of operations. Although Farmer Mac
may be able to recover some of this loss through the SEC’s actions against the
individuals who operated the Fund, any such recovery is uncertain and may take
an extended period of time.
Capital. During
the three and six months ended June 30, 2009, Farmer Mac issued
$20.0 million and $30.8 million of Series C Preferred Stock,
respectively. 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. For first and
second quarter 2009, Farmer Mac’s board of directors declared a quarterly
dividend of $0.05 per share on the Corporation’s common stock that were paid on
April 3, 2009 and June 30, 2009, respectively. On August 6, 2009,
Farmer Mac’s board of directors declared a quarterly dividend of $0.05 per share
on the Corporation’s common stock payable on September 30,
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. 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.
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
|
|
|
|
|
|
|
Loans and
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
Securities -
|
|
|
|
|
|
|
Securities
|
|
|
LTSPCs (1)
|
|
|
Farmer Mac II
|
|
|
Rural Utilities (2)
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
$ |
37,900 |
|
|
$ |
22,717 |
|
|
$ |
96,322 |
|
|
$ |
900,000 |
|
|
$ |
1,056,939 |
|
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 processingfacilities,
primarily ethanol facilities. As of June 30, 2009,
approximately $27.0 million of the loans underlying those
$400.8 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 asecondary
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
$ |
5,241,145 |
|
|
$ |
2,181,712 |
|
|
$ |
1,115,025 |
|
|
$ |
1,819,033 |
|
|
$ |
10,356,915 |
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2009
|
|
$ |
1,716,678 |
|
|
$ |
649,078 |
|
|
$ |
1,303,332 |
|
|
$ |
3,669,088 |
|
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(c) to the interim unaudited condensed consolidated
financial statements contained in this report. See “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” for further information regarding
Farmer Mac’s debt issuance and liquidity risks.
Item
4.
|
Controls and
Procedures
|
(a) Management’s Evaluation of
Disclosure Controls and Procedures. Farmer Mac maintains
disclosure controls and procedures designed to ensure that information required
to be disclosed in the Corporation’s periodic filings under the Securities
Exchange Act of 1934 (the “Exchange Act”), including this report, is recorded,
processed, summarized and reported on a timely basis. These
disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed under the Exchange Act is
accumulated and communicated to the Corporation’s management on a timely basis
to allow decisions regarding required disclosure. Management,
including Farmer Mac’s Chief Executive Officer (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 June 30, 2009.
The
Corporation carried out the evaluation required by paragraph (b) of Exchange Act
Rules 13a-15 and 15d-15, 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 June 30, 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 June
30, 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
second 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 April 2,
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 2,909 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 $2.68 per
share, which was the closing price of the Class C Non-Voting Common Stock on
March 31, 2009 as reported by the New York Stock Exchange.
As
reported in a Current Report on Form 8-K filed with the SEC on June 10, 2009,
Farmer Mac granted stock appreciation rights and shares of restricted stock as
incentive compensation under its 2008 Omnibus Incentive Plan on June 4,
2009. On that date, an aggregate amount of 165,000 stock appreciation
rights, at a grant price of $5.93 per share, were granted to the five
officers of the Corporation, and an aggregate amount of 200,548 shares of
restricted stock were granted to the fourteen directors and five officers of the
Corporation.
Item
3.
|
Defaults Upon Senior
Securities
|
Item
4.
|
Submission of Matters
to a Vote of Security
Holders
|
|
(a)
|
Farmer
Mac’s Annual Meeting of Stockholders was held on June 4,
2009.
|
|
(b)
|
In
addition to the ten directors elected at the Annual Meeting of
Stockholders on June 4, 2009 as described in paragraph (c)(1) below, the
following directors appointed by the President of the United States
continue to serve as directors of Farmer
Mac:
|
Lowell L. Junkins (Acting
Chairman)
Julia Bartling
Grace T. Daniel
Glen O. Klippenstein
|
(c)
|
(1)
|
Election
of Directors (cumulative voting):
|
Class A
Stockholders
Nominee
|
|
Number of Votes For
|
|
Dennis
L. Brack
|
|
|
770,043
|
|
James
R. Engebretsen
|
|
|
769,210
|
|
Dennis
A. Everson
|
|
|
775,918
|
|
Mitchell
A. Johnson
|
|
|
768,918
|
|
Clark
B. Maxwell
|
|
|
768,210
|
|
Class B
Stockholders
Nominee
|
|
Number of Votes For
|
|
Paul
A. DeBriyn
|
|
|
508,752
|
|
Ernest
M. Hodges
|
|
|
509,815
|
|
Brian
P. Jackson
|
|
|
512,448
|
|
Brian
J. O’Keane
|
|
|
509,086
|
|
John
Dan Raines
|
|
|
424,903
|
|
Farmer
Mac’s federal charter provides that five directors are elected by a plurality of
the votes of the holders of Class A Voting Common Stock and five directors are
elected by a plurality of the votes of the holders of Class B Voting Common
Stock. Based on the results set forth above, the following
individuals were elected to serve as directors of Farmer Mac for one-year terms
beginning June 4, 2009: Dennis L. Brack, Paul A. DeBriyn, James R.
Engebretsen, Dennis A. Everson, Ernest M. Hodges, Brian P. Jackson, Mitchell A.
Johnson, Clark B. Maxwell, Brian J. O’Keane, and John Dan
Raines.
|
(2)
|
Selection
of Independent Registered Public Accounting
Firm
|
Class A Stockholders and
Class B Stockholders (combined)
|
|
Number of Votes
|
|
For
|
|
|
1,267,970
|
|
Against
|
|
|
15,401
|
|
Abstain
|
|
|
900
|
|
Broker
Non-Vote
|
|
|
0
|
|
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 (Form 10-Q filed May 12,
2009).
|
|
|
|
|
†*
|
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.
|
†*
|
10.1.4
|
-
|
Form
of Restricted Stock Agreement (Officers) under the 2008 Omnibus Incentive
Plan (Previously filed as Exhibit 10.1 to Form 8-K filed
June 10, 2009).
|
|
|
|
|
†*
|
10.1.5
|
-
|
Form
of Restricted Stock Agreement (Directors) under the 2008 Omnibus Incentive
Plan (Previously filed as Exhibit 10.2 to Form 8-K filed
June 10, 2009).
|
|
|
|
|
†*
|
10.2
|
-
|
Employment
Agreement dated as of March 1, 2009 between Michael A. Gerber
and the Registrant (Form 10-Q filed May 12,
2009).
|
|
|
|
|
†*
|
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).
|
|
|
|
|
†**
|
10.4.1
|
-
|
Amendment
No. 6 to Employment Contract between Timothy L. Buzby and the Registrant,
dated as of April 2, 2009.
|
|
|
|
|
†*
|
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).
|
*
|
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.
|
*#
|
10.10
|
-
|
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).
|
|
|
|
|
**#
|
10.11.1
|
-
|
Amendment
No. 1 to Amended and Restated Master Central Servicing Agreement between
Zions First National Bank and the Registrant, dated as of June 1,
2009.
|
|
|
|
|
*#
|
10.12
|
-
|
Loan
Closing File Review Agreement dated as of August 2, 2005 between
Zions First National Bank and the Registrant (Form 10-Q filed
November 9, 2005).
|
|
|
|
|
*#
|
10.13
|
-
|
Long
Term Standby Commitment to Purchase dated as of August 1, 1998 between
AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed
November 14, 2002).
|
|
|
|
|
*# |
10.13.1
|
-
|
Amendment
No. 1 dated as of January 1, 2000 to Long Term Standby
Commitment to Purchase dated as of August 1, 1998 between AgFirst
Farm Credit Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
|
|
|
|
*
|
10.13.2
|
-
|
Amendment
No. 2 dated as of September 1, 2002 to Long Term Standby Commitment to
Purchase dated as of August 1, 1998, as amended by Amendment No. 1 dated
as of January 1, 2000, between AgFirst Farm Credit Bank and the Registrant
(Form 10-Q filed November 14, 2002).
|
|
|
|
|
*
|
10.14
|
-
|
Lease
Agreement, dated June 28, 2001 between EOP – Two Lafayette, L.L.C. and the
Registrant (Previously filed as Exhibit 10.10 to Form 10-K filed March 27,
2002).
|
|
|
|
|
*#
|
10.15
|
-
|
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).
|
*
|
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.
|
*#
|
10.16.1
|
-
|
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 (Form 10-Q filed May 12,
2009).
|
|
|
|
|
†*
|
10.21
|
-
|
Agreement
and General Release dated as of February 6, 2009 between Nancy E.
Corsiglia and the Registrant (Form 10-Q filed May 12,
2009).
|
|
|
|
|
|
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 June 30, 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 June 30, 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 June 30,
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
August
10, 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)
|