Unassociated Document
As filed
with the Securities and Exchange Commission on August 9, 2010
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, 2010
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ 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
¨
|
|
|
|
Non-accelerated filer
|
x
|
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 2, 2010 the registrant had 1,030,780 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock and
8,746,123 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, 2010 and December 31,
2009
|
3
|
Condensed
Consolidated Statements of Operations for the three and six months ended
June 30, 2010 and 2009
|
4
|
Condensed
Consolidated Statements of Equity for the six months ended June 30, 2010
and 2009
|
5
|
Condensed
Consolidated Statements of Cash Flows for the six months ended June 30,
2010 and 2009
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
325,333 |
|
|
$ |
654,794 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
1,175,376 |
|
|
|
1,041,923 |
|
Trading,
at fair value
|
|
|
81,956 |
|
|
|
89,972 |
|
Total
investment securities
|
|
|
1,257,332 |
|
|
|
1,131,895 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
1,718,140 |
|
|
|
2,524,867 |
|
Trading,
at fair value
|
|
|
- |
|
|
|
874,129 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
1,718,140 |
|
|
|
3,398,996 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
880,424 |
|
|
|
- |
|
Trading,
at fair value
|
|
|
386,496 |
|
|
|
- |
|
Total
USDA Guaranteed Securities
|
|
|
1,266,920 |
|
|
|
- |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
|
908,778 |
|
|
|
666,534 |
|
Loans
held for investment, at amortized cost
|
|
|
96,057 |
|
|
|
93,478 |
|
Loans
held for investment in consolidated trusts, at amortized
cost
|
|
|
1,332,624 |
|
|
|
- |
|
Allowance
for loan losses
|
|
|
(9,495 |
) |
|
|
(6,292 |
) |
Total
loans, net of allowance
|
|
|
2,327,964 |
|
|
|
753,720 |
|
Real
estate owned, at lower of cost or fair value
|
|
|
4,023 |
|
|
|
739 |
|
Financial
derivatives, at fair value
|
|
|
37,121 |
|
|
|
15,040 |
|
Interest
receivable
|
|
|
72,616 |
|
|
|
67,178 |
|
Guarantee
and commitment fees receivable
|
|
|
36,579 |
|
|
|
55,016 |
|
Deferred
tax asset, net
|
|
|
10,405 |
|
|
|
24,146 |
|
Prepaid
expenses and other assets
|
|
|
43,057 |
|
|
|
37,289 |
|
Total
Assets
|
|
$ |
7,099,490 |
|
|
$ |
6,138,813 |
|
|
|
|
|
|
|
|
|
|
Liabilities,
Mezzanine Equity and Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
3,226,745 |
|
|
$ |
3,662,898 |
|
Due
after one year
|
|
|
2,269,421 |
|
|
|
1,908,713 |
|
Total
notes payable
|
|
|
5,496,166 |
|
|
|
5,571,611 |
|
Debt
securities of consolidated trusts held by third parties
|
|
|
882,629 |
|
|
|
- |
|
Financial
derivatives, at fair value
|
|
|
132,675 |
|
|
|
107,367 |
|
Accrued
interest payable
|
|
|
52,913 |
|
|
|
39,562 |
|
Guarantee
and commitment obligation
|
|
|
32,762 |
|
|
|
48,526 |
|
Accounts
payable and accrued expenses
|
|
|
19,397 |
|
|
|
23,445 |
|
Reserve
for losses
|
|
|
9,470 |
|
|
|
7,895 |
|
Total
Liabilities
|
|
|
6,626,012 |
|
|
|
5,798,406 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine
Equity:
|
|
|
|
|
|
|
|
|
Series
B redeemable preferred stock, par value $1,000 per share, 150,000 shares
authorized, issued and outstanding as of December 31, 2009 (redemption
value $150,000,000)
|
|
|
- |
|
|
|
144,216 |
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
|
|
|
|
Series
C, par value $1,000 per share, 100,000 shares authorized, 57,578 issued
and outstanding
|
|
|
57,578 |
|
|
|
57,578 |
|
Common
stock:
|
|
|
|
|
|
|
|
|
Class
A Voting, $1 par value, no maximum authorization, 1,030,780 shares
outstanding
|
|
|
1,031 |
|
|
|
1,031 |
|
Class
B Voting, $1 par value, no maximum authorization, 500,301 shares
outstanding
|
|
|
500 |
|
|
|
500 |
|
Class
C Non-Voting, $1 par value, no maximum authorization, 8,745,269 shares
outstanding as of June 30, 2010 and 8,610,918 shares outstanding as of
December 31, 2009
|
|
|
8,745 |
|
|
|
8,611 |
|
Additional
paid-in capital
|
|
|
98,925 |
|
|
|
97,090 |
|
Accumulated
other comprehensive income
|
|
|
31,469 |
|
|
|
3,254 |
|
Retained
earnings
|
|
|
33,377 |
|
|
|
28,127 |
|
Total
Stockholders' Equity
|
|
|
231,625 |
|
|
|
196,191 |
|
Non-controlling
interest - preferred stock
|
|
|
241,853 |
|
|
|
- |
|
Total
Equity
|
|
|
473,478 |
|
|
|
196,191 |
|
Total
Liabilities, Mezzanine Equity and Equity
|
|
$ |
7,099,490 |
|
|
$ |
6,138,813 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in
thousands, except per share amounts)
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$ |
6,390 |
|
|
$ |
7,049 |
|
|
$ |
12,873 |
|
|
$ |
15,958 |
|
Farmer
Mac and USDA Guaranteed Securities
|
|
|
18,795 |
|
|
|
25,805 |
|
|
|
39,626 |
|
|
|
53,564 |
|
Loans
|
|
|
32,142 |
|
|
|
8,896 |
|
|
|
65,560 |
|
|
|
19,381 |
|
Total
interest income
|
|
|
57,327 |
|
|
|
41,750 |
|
|
|
118,059 |
|
|
|
88,903 |
|
Total
interest expense
|
|
|
35,719 |
|
|
|
21,849 |
|
|
|
72,834 |
|
|
|
45,562 |
|
Net
interest income
|
|
|
21,608 |
|
|
|
19,901 |
|
|
|
45,225 |
|
|
|
43,341 |
|
Recoveries/(provision)
for loan losses
|
|
|
1,870 |
|
|
|
5,693 |
|
|
|
(980 |
) |
|
|
2,159 |
|
Net
interest income after recoveries/(provision) for loan
losses
|
|
|
23,478 |
|
|
|
25,594 |
|
|
|
44,245 |
|
|
|
45,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
(expense)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,710 |
|
|
|
7,908 |
|
|
|
11,629 |
|
|
|
15,318 |
|
(Losses)/gains
on financial derivatives
|
|
|
(15,840 |
) |
|
|
21,528 |
|
|
|
(21,644 |
) |
|
|
23,239 |
|
Gains
on trading assets
|
|
|
5,058 |
|
|
|
35 |
|
|
|
8,425 |
|
|
|
31,660 |
|
Other-than-temporary
impairment losses
|
|
|
- |
|
|
|
(2,292 |
) |
|
|
- |
|
|
|
(2,373 |
) |
(Losses)/gains
on sale of available-for-sale investment securities
|
|
|
- |
|
|
|
(300 |
) |
|
|
240 |
|
|
|
2,850 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,581 |
|
Lower
of cost or fair value adjustment on loans held for sale
|
|
|
90 |
|
|
|
- |
|
|
|
(2,184 |
) |
|
|
- |
|
Other
income
|
|
|
211 |
|
|
|
101 |
|
|
|
1,040 |
|
|
|
335 |
|
Non-interest
(expense)/income
|
|
|
(4,771 |
) |
|
|
26,980 |
|
|
|
(2,494 |
) |
|
|
72,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
3,907 |
|
|
|
3,572 |
|
|
|
7,418 |
|
|
|
7,597 |
|
General
and administrative
|
|
|
2,051 |
|
|
|
2,986 |
|
|
|
4,554 |
|
|
|
5,900 |
|
Regulatory
fees
|
|
|
562 |
|
|
|
512 |
|
|
|
1,125 |
|
|
|
1,025 |
|
Real
estate owned operating costs/(income), net
|
|
|
298 |
|
|
|
(16 |
) |
|
|
308 |
|
|
|
5 |
|
Provision/(recoveries)
for losses
|
|
|
3,043 |
|
|
|
(529 |
) |
|
|
1,575 |
|
|
|
1,990 |
|
Non-interest
expense
|
|
|
9,861 |
|
|
|
6,525 |
|
|
|
14,980 |
|
|
|
16,517 |
|
Income
before income taxes
|
|
|
8,846 |
|
|
|
46,049 |
|
|
|
26,771 |
|
|
|
101,593 |
|
Income
tax expense
|
|
|
756 |
|
|
|
16,534 |
|
|
|
5,092 |
|
|
|
34,624 |
|
Net
income
|
|
|
8,090 |
|
|
|
29,515 |
|
|
|
21,679 |
|
|
|
66,969 |
|
Less:
Net income attributable to non-controlling interest - preferred stock
dividends
|
|
|
(5,546 |
) |
|
|
- |
|
|
|
(9,614 |
) |
|
|
- |
|
Net
income attributable to Farmer Mac
|
|
|
2,544 |
|
|
|
29,515 |
|
|
|
12,065 |
|
|
|
66,969 |
|
Preferred
stock dividends
|
|
|
(720 |
) |
|
|
(4,130 |
) |
|
|
(2,690 |
) |
|
|
(8,066 |
) |
Loss
on retirement of preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
(5,784 |
) |
|
|
- |
|
Net
income available to common stockholders
|
|
$ |
1,824 |
|
|
$ |
25,385 |
|
|
$ |
3,591 |
|
|
$ |
58,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share and dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.18 |
|
|
$ |
2.50 |
|
|
$ |
0.35 |
|
|
$ |
5.81 |
|
Diluted
earnings per common share
|
|
$ |
0.17 |
|
|
$ |
2.49 |
|
|
$ |
0.34 |
|
|
$ |
5.80 |
|
Common
stock dividends per common share
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
Preferred
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
58 |
|
|
$ |
57,578 |
|
|
|
9 |
|
|
$ |
9,200 |
|
Issuance
of Series C preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
30,800 |
|
Balance,
end of period
|
|
|
58 |
|
|
$ |
57,578 |
|
|
|
40 |
|
|
$ |
40,000 |
|
Common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
10,142 |
|
|
$ |
10,142 |
|
|
|
10,132 |
|
|
$ |
10,132 |
|
Issuance
of Class C common stock
|
|
|
121 |
|
|
|
121 |
|
|
|
6 |
|
|
|
6 |
|
Exercise
of stock options and SARs
|
|
|
13 |
|
|
|
13 |
|
|
|
- |
|
|
|
- |
|
Balance,
end of period
|
|
|
10,276 |
|
|
$ |
10,276 |
|
|
|
10,138 |
|
|
$ |
10,138 |
|
Additional
paid-in capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
97,090 |
|
|
|
|
|
|
$ |
95,572 |
|
Stock-based
compensation expense
|
|
|
|
|
|
|
1,507 |
|
|
|
|
|
|
|
1,543 |
|
Issuance
of Class C common stock
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
11 |
|
Excercise,
vesting and cancelation of stock options, SARs and restricted
stock
|
|
|
|
|
|
|
306 |
|
|
|
|
|
|
|
(1,165 |
) |
Balance,
end of period
|
|
|
|
|
|
$ |
98,925 |
|
|
|
|
|
|
$ |
95,961 |
|
Retained
earnings/(accumulated deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
28,127 |
|
|
|
|
|
|
$ |
(52,144 |
) |
Net
income attributable to Farmer Mac
|
|
|
|
|
|
|
12,065 |
|
|
|
|
|
|
|
66,969 |
|
Cash
dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, Series B ($8.33 per share)
|
|
|
|
|
|
|
(1,250 |
) |
|
|
|
|
|
|
(7,476 |
) |
Preferred
stock, Series C ($12.50 per share)
|
|
|
|
|
|
|
(1,440 |
) |
|
|
|
|
|
|
(590 |
) |
Common
stock ($0.05 per share)
|
|
|
|
|
|
|
(1,020 |
) |
|
|
|
|
|
|
(1,014 |
) |
Loss
on retirement of preferred stock
|
|
|
|
|
|
|
(5,784 |
) |
|
|
|
|
|
|
- |
|
Cumulative
effect of adoption of new accounting standard, net of tax
|
|
|
|
|
|
|
2,679 |
|
|
|
|
|
|
|
- |
|
Balance,
end of period
|
|
|
|
|
|
$ |
33,377 |
|
|
|
|
|
|
$ |
5,745 |
|
Accumulated
other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
3,254 |
|
|
|
|
|
|
$ |
(47,412 |
) |
Change
in unrealized gain on available-for-sale securities, net of tax and
reclassification adjustments
|
|
|
|
|
|
|
28,163 |
|
|
|
|
|
|
|
34,776 |
|
Change
in unrealized gain on financial derivatives, net of tax and
reclassification adjustments
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
90 |
|
Balance,
end of period
|
|
|
|
|
|
$ |
31,469 |
|
|
|
|
|
|
$ |
(12,546 |
) |
Total
Stockholders' Equity
|
|
|
|
|
|
$ |
231,625 |
|
|
|
|
|
|
$ |
139,298 |
|
Non-controlling
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
- |
|
Preferred
stock - Farmer Mac II LLC
|
|
|
|
|
|
|
241,853 |
|
|
|
|
|
|
|
- |
|
Balance,
end of period
|
|
|
|
|
|
$ |
241,853 |
|
|
|
|
|
|
$ |
- |
|
Total
Equity
|
|
|
|
|
|
$ |
473,478 |
|
|
|
|
|
|
$ |
139,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
$ |
21,679 |
|
|
|
|
|
|
$ |
66,969 |
|
Changes
in accumulated other comprehensive income, net of tax
|
|
|
|
|
|
|
28,215 |
|
|
|
|
|
|
|
34,866 |
|
Comprehensive
income
|
|
|
|
|
|
|
49,894 |
|
|
|
|
|
|
|
101,835 |
|
Less:
Comprehensive income attributable to non-controlling
interest
|
|
|
|
|
|
|
9,614 |
|
|
|
|
|
|
|
- |
|
Total
comprehensive income
|
|
|
|
|
|
$ |
40,280 |
|
|
|
|
|
|
$ |
101,835 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,679 |
|
|
$ |
66,969 |
|
Adjustments
to reconcile net income to net cash (used in)/provided by operating
activities:
|
|
|
|
|
|
|
|
|
Net
amortization of premiums and discounts on loans, investments, and
Farmer Mac and USDA Guaranteed Securities
|
|
|
6,150 |
|
|
|
2,207 |
|
Amortization
of debt premiums, discounts and issuance costs
|
|
|
3,033 |
|
|
|
8,116 |
|
Proceeds
from repayment and sale of trading investment securities
|
|
|
400 |
|
|
|
472 |
|
Purchases
of loans held for sale
|
|
|
(293,003 |
) |
|
|
(53,045 |
) |
Proceeds
from repayment of loans held for sale
|
|
|
46,835 |
|
|
|
16,117 |
|
Net
change in fair value of trading securities, financial derivatives and
loans held for sale
|
|
|
(5,288 |
) |
|
|
(77,939 |
) |
Amortization
of transition adjustment on financial derivatives
|
|
|
80 |
|
|
|
89 |
|
Other-than-temporary
impairment losses
|
|
|
- |
|
|
|
2,373 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
(1,581 |
) |
Gains
on the sale of available-for-sale investments securities
|
|
|
(240 |
) |
|
|
(2,850 |
) |
Total
provision/(recoveries) for losses
|
|
|
2,555 |
|
|
|
(169 |
) |
Deferred
income taxes
|
|
|
(3,347 |
) |
|
|
37,164 |
|
Stock-based
compensation expense
|
|
|
1,508 |
|
|
|
1,543 |
|
(Increase)/decrease
in interest receivable
|
|
|
(5,438 |
) |
|
|
19,262 |
|
Decrease
in guarantee and commitment fees receivable
|
|
|
18,437 |
|
|
|
5,026 |
|
(Increase)/decrease
in other assets
|
|
|
(2,576 |
) |
|
|
42,734 |
|
Increase/(decrease)
in accrued interest payable
|
|
|
13,351 |
|
|
|
(1,711 |
) |
Decrease
in other liabilities
|
|
|
(19,294 |
) |
|
|
(7,686 |
) |
Net
cash (used in)/provided by operating activities
|
|
|
(215,158 |
) |
|
|
57,091 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
(306,239 |
) |
|
|
- |
|
Purchases
of Farmer Mac Guaranteed Securities
|
|
|
(216,302 |
) |
|
|
(949,480 |
) |
Purchases
of loans held for investment
|
|
|
(19,924 |
) |
|
|
(14,670 |
) |
Purchases
of defaulted loans
|
|
|
(3,403 |
) |
|
|
(5,602 |
) |
Proceeds
from repayment of available-for-sale investment securities
|
|
|
112,337 |
|
|
|
129,265 |
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
202,526 |
|
|
|
137,572 |
|
Proceeds
from repayment of loans held for investment
|
|
|
142,328 |
|
|
|
34,252 |
|
Proceeds
from sale of available-for-sale investment securities
|
|
|
69,175 |
|
|
|
153,100 |
|
Proceeds
from sale of trading securities - fair value option
|
|
|
5,013 |
|
|
|
- |
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
12,906 |
|
|
|
17,224 |
|
Proceeds
from sale of loans
|
|
|
- |
|
|
|
358,953 |
|
Net
cash used in investing activities
|
|
|
(1,583 |
) |
|
|
(139,386 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
31,919,565 |
|
|
|
27,760,730 |
|
Proceeds
from issuance of medium-term notes
|
|
|
1,006,272 |
|
|
|
2,074,185 |
|
Payments
to redeem discount notes
|
|
|
(32,095,725 |
) |
|
|
(27,974,911 |
) |
Payments
to redeem medium-term notes
|
|
|
(908,590 |
) |
|
|
(1,715,000 |
) |
Tax
benefit from tax deduction in excess of compensation cost
recognized
|
|
|
747 |
|
|
|
- |
|
Payments
to third parties on debt securities of consolidated trusts
|
|
|
(113,749 |
) |
|
|
- |
|
Proceeds
from common stock issuance
|
|
|
168 |
|
|
|
17 |
|
Issuance
costs on retirement of preferred stock
|
|
|
(5,784 |
) |
|
|
- |
|
Proceeds
from preferred stock issuance - Farmer Mac II LLC
|
|
|
241,853 |
|
|
|
- |
|
Proceeds
from preferred stock issuance
|
|
|
- |
|
|
|
30,800 |
|
Retirement
of Series B Preferred stock
|
|
|
(144,216 |
) |
|
|
- |
|
Dividends
paid - Non-controlling interest - preferred stock
|
|
|
(9,551 |
) |
|
|
- |
|
Dividends
paid on common and preferred stock
|
|
|
(3,710 |
) |
|
|
(9,080 |
) |
Net
cash (used in)/ provided by financing activities
|
|
|
(112,720 |
) |
|
|
166,741 |
|
Net
(decrease)/increase in cash and cash equivalents
|
|
|
(329,461 |
) |
|
|
84,446 |
|
Cash
and cash equivalents at beginning of period
|
|
|
654,794 |
|
|
|
278,412 |
|
Cash
and cash equivalents at end of period
|
|
$ |
325,333 |
|
|
$ |
362,858 |
|
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”) and
subsidiaries 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 position 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, 2009 condensed consolidated balance sheet presented in this report has been
derived from the Corporation’s audited 2009 consolidated financial
statements. Management believes that the disclosures are adequate to
present fairly the condensed consolidated financial statements as of the dates
and for the periods presented. These interim unaudited condensed
consolidated financial statements should be read in conjunction with the audited
2009 consolidated financial statements of Farmer Mac included in the
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009
filed with the SEC on March 16, 2010 (as updated by the Current Report on
Form 8-K filed with the SEC on August 4, 2010). 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 maturities at the time of
purchase of three months or less to be cash equivalents. The carrying
value of cash and cash equivalents is a reasonable estimate of their fair
value. 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, 2010 and 2009.
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in thousands)
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
Interest
|
|
$ |
37,989 |
|
|
$ |
42,465 |
|
Income
taxes
|
|
|
12,000 |
|
|
|
10,000 |
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Real
estate owned acquired through foreclosure
|
|
|
3,580 |
|
|
|
40,955 |
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
1,288 |
|
|
|
17,224 |
|
Consolidation
of Farmer Mac I Guaranteed Securities from off-balance sheet to loans held
for investment in consolidated trusts
|
|
|
1,401,659 |
|
|
|
- |
|
Consolidation
of Farmer Mac I Guaranteed Securities from off-balance sheet to debt
securities of consolidated trusts held by third parties
|
|
|
1,401,659 |
|
|
|
- |
|
Transfers
of available-for-sale Farmer Mac I Guaranteed Securities to loans held for
investment in consolidated trusts, upon the adoption of new consolidation
guidance
|
|
|
5,385 |
|
|
|
- |
|
Transfers
of trading Farmer Mac Guaranteed Securities - Rural Utilities to loans
held for investment in consolidated trusts, upon the adoption of new
consolidation guidance
|
|
|
451,448 |
|
|
|
- |
|
Deconsolidation
of loans held for investment in consolidated trusts - transferred to off-
balance sheet Farmer Mac I Guaranteed Securities
|
|
|
414,462 |
|
|
|
- |
|
Deconsolidation
of debt securities of consolidated trusts held by third parties -
transferred to off- balance sheet Farmer Mac I Guaranteed
Securities
|
|
|
414,462 |
|
|
|
- |
|
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, 2010, 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.
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.
|
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, in accordance with the
standard on accounting for contingencies issued by the Financial Accounting
Standards Board (“FASB”).
Farmer
Mac separately evaluates the rural utilities loans it owns, as well as the
lender obligations and loans underlying or securing its Farmer Mac Guaranteed
Securities – Rural Utilities, to determine if there are probable losses inherent
in those assets.
Farmer
Mac also analyzes assets in its portfolio for impairment in accordance with the
FASB standard on measuring individual impairment of a loan. Farmer
Mac’s impaired assets include:
|
·
|
non-performing
assets (loans 90 days or more past due, in foreclosure, restructured,
in bankruptcy – including loans performing under either their original
loan terms or a court-approved bankruptcy plan – and real estate owned
(“REO”);
|
|
·
|
loans
for which Farmer Mac has 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.
The table
below summarizes the components of Farmer Mac’s allowance for losses as of June
30, 2010 and December 31, 2009:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$ |
9,495 |
|
|
$ |
6,292 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
560 |
|
|
|
2,033 |
|
LTSPCs
|
|
|
8,910 |
|
|
|
5,862 |
|
Total
allowance for losses
|
|
$ |
18,965 |
|
|
$ |
14,187 |
|
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, 2010 and
2009:
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
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
|
|
$ |
9,142 |
|
|
$ |
6,427 |
|
|
$ |
15,569 |
|
|
$ |
13,228 |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
Provision/(recovery)
for losses
|
|
|
(1,870 |
) |
|
|
3,043 |
|
|
|
1,173 |
|
|
|
(5,693 |
) |
|
|
(529 |
) |
|
|
(6,222 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,725 |
) |
|
|
- |
|
|
|
(5,725 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
6,292 |
|
|
$ |
7,895 |
|
|
$ |
14,187 |
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision/(recovery)
for losses
|
|
|
980 |
|
|
|
1,575 |
|
|
|
2,555 |
|
|
|
(2,159 |
) |
|
|
1,990 |
|
|
|
(169 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,725 |
) |
|
|
- |
|
|
|
(7,725 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
Upon the
adoption of the new consolidation guidance on January 1, 2010, Farmer Mac
reclassified $2.0 million from the reserve for losses to the allowance for loan
losses as a result of Farmer Mac being determined the primary beneficiary of
certain VIEs with beneficial interests owned by third party
investors. In June 2010, Farmer Mac deconsolidated certain VIEs with
beneficial interests owned by third party investors because Farmer Mac was no
longer determined to be the primary beneficiary. This deconsolidation
did not result in a material reclassification from the allowance for loan losses
to the reserve for losses during second quarter 2010. Consolidated
interests in VIEs with beneficial interests owned by third party investors are
presented as “loans held for investment in consolidated trusts” on Farmer Mac’s
condensed consolidated balance sheets. Upon deconsolidation, Farmer
Mac classifies these interests as off-balance sheet Farmer Mac Guaranteed
Securities.
No
allowance for losses has been provided for AgVantage securities, securities
issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”),
or USDA 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. 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, 2010, 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, 2010, Farmer Mac had not
experienced any credit losses on any AgVantage securities. The
guaranteed portions (“USDA-guaranteed portions”) of certain agricultural, rural
development, business & industry and community facilities loans presented as
“USDA Guaranteed Securities,” as well as those USDA-guaranteed portions that
collateralize 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, 2010, neither Farmer Mac nor
Farmer Mac II LLC had experienced any credit losses on any USDA
Guaranteed Securities held or on any Farmer Mac II Guaranteed
Securities.
As of
June 30, 2010, Farmer Mac individually analyzed $49.2 million of its
$147.4 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $98.2 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 $3.0 million as of June 30, 2010 and $0.6 million as of December
31, 2009. Farmer Mac’s non-specific or general allowances were
$16.0 million as of June 30, 2010 and $13.6 million as of December 31,
2009.
Farmer
Mac recognized interest income of approximately $0.4 million and $0.9 million on
impaired loans during the three and six months ended June 30, 2010,
respectively, compared to $0.6 million and $1.7 million, respectively, during
the same periods in 2009. During the three and six months ended June
30, 2010, Farmer Mac’s average investment in impaired loans was
$115.7 million and $124.3 million, respectively, compared to $142.4 million
and $136.2 million, respectively, for the same periods in 2009.
(c) Financial
Derivatives
Farmer
Mac enters into transactions involving financial derivatives 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 loans
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.
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. 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 without any corresponding changes in the fair values of the hedged
items.
The
following tables summarize information related to Farmer Mac’s financial
derivatives as of June 30, 2010 and December 31, 2009:
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
45,121 |
|
|
$ |
- |
|
|
$ |
(790 |
) |
|
5.67%
|
|
|
0.46%
|
|
|
|
|
|
7.37
|
|
Pay
fixed non-callable
|
|
|
1,204,883 |
|
|
|
- |
|
|
|
(127,543 |
) |
|
4.95%
|
|
|
0.40%
|
|
|
|
|
|
4.10
|
|
Receive
fixed callable
|
|
|
345,000 |
|
|
|
36 |
|
|
|
(194 |
) |
|
0.12%
|
|
|
0.24%
|
|
|
|
|
|
0.40
|
|
Receive
fixed non-callable
|
|
|
2,123,972 |
|
|
|
38,676 |
|
|
|
(234 |
) |
|
0.56%
|
|
|
1.62%
|
|
|
|
|
|
1.92
|
|
Basis
swaps
|
|
|
221,012 |
|
|
|
- |
|
|
|
(3,878 |
) |
|
1.71%
|
|
|
0.28%
|
|
|
|
|
|
2.19
|
|
Credit
default swaps
|
|
|
30,000 |
|
|
|
342 |
|
|
|
- |
|
|
1.00%
|
|
|
0.00%
|
|
|
|
|
|
1.56
|
|
Agency
forwards
|
|
|
87,976 |
|
|
|
- |
|
|
|
(825 |
) |
|
|
|
|
|
|
|
101.72
|
|
|
|
|
|
Treasury
futures
|
|
|
10,700 |
|
|
|
- |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
122.29
|
|
|
|
|
|
Credit
valuation adjustment
|
|
|
- |
|
|
|
(1,933 |
) |
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial derivatives
|
|
$ |
4,068,664 |
|
|
$ |
37,121 |
|
|
$ |
(132,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Notional
|
|
|
Fair Value
|
|
|
Pay
|
|
|
Receive
|
|
|
Forward
|
|
|
Life
|
|
|
|
Amount
|
|
|
Asset
|
|
|
(Liability)
|
|
|
Rate
|
|
|
Rate
|
|
|
Price
|
|
|
(in years)
|
|
|
|
(dollars in thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay
fixed callable
|
|
$ |
65,686 |
|
|
$ |
- |
|
|
$ |
(1,725 |
) |
|
5.70% |
|
|
0.27%
|
|
|
|
|
|
7.78
|
|
Pay
fixed non-callable
|
|
|
1,236,156 |
|
|
|
5 |
|
|
|
(99,913 |
) |
|
4.95%
|
|
|
0.26%
|
|
|
|
|
|
4.62
|
|
Receive
fixed callable
|
|
|
300,000 |
|
|
|
236 |
|
|
|
- |
|
|
0.09%
|
|
|
0.54%
|
|
|
|
|
|
0.76
|
|
Receive
fixed non-callable
|
|
|
2,262,714 |
|
|
|
14,298 |
|
|
|
(2,815 |
) |
|
0.41%
|
|
|
1.80%
|
|
|
|
|
|
2.25
|
|
Basis
swaps
|
|
|
262,177 |
|
|
|
294 |
|
|
|
(3,673 |
) |
|
1.63%
|
|
|
0.61%
|
|
|
|
|
|
2.39
|
|
Credit
default swaps
|
|
|
30,000 |
|
|
|
- |
|
|
|
(214 |
) |
|
1.00%
|
|
|
0.00%
|
|
|
|
|
|
2.14
|
|
Agency
forwards
|
|
|
75,511 |
|
|
|
453 |
|
|
|
- |
|
|
|
|
|
|
|
|
101.22
|
|
|
|
|
|
Treasury
futures
|
|
|
20,500 |
|
|
|
3 |
|
|
|
- |
|
|
|
|
|
|
|
|
115.47
|
|
|
|
|
|
Credit
valuation adjustment
|
|
|
- |
|
|
|
(249 |
) |
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial derivatives
|
|
$ |
4,252,744 |
|
|
$ |
15,040 |
|
|
$ |
(107,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 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 $118.5 million. As of June 30, 2010, Farmer Mac posted
assets with a fair value of $37.1 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, 2010, it could
have been required to settle its obligations under the agreements or post
additional collateral of $81.4 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, 2010 and 2009:
|
|
(Losses)/Gains
on Financial Derivatives
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
(14,624 |
) |
|
$ |
21,720 |
|
|
$ |
(19,390 |
) |
|
$ |
24,380 |
|
Agency
forwards
|
|
|
(1,339 |
) |
|
|
(199 |
) |
|
|
(1,938 |
) |
|
|
(1,078 |
) |
Treasury
futures
|
|
|
(393 |
) |
|
|
84 |
|
|
|
(641 |
) |
|
|
75 |
|
Credit
default swaps
|
|
|
561 |
|
|
|
- |
|
|
|
405 |
|
|
|
- |
|
|
|
|
(15,795 |
) |
|
|
21,605 |
|
|
|
(21,564 |
) |
|
|
23,377 |
|
Amortization
of derivatives transition adjustment
|
|
|
(45 |
) |
|
|
(77 |
) |
|
|
(80 |
) |
|
|
(138 |
) |
Total
|
|
$ |
(15,840 |
) |
|
$ |
21,528 |
|
|
$ |
(21,644 |
) |
|
$ |
23,239 |
|
As of
June 30, 2010 and December 31, 2009, respectively, Farmer Mac had approximately
$6,000 of net after-tax unrealized gains and $0.1 million of net after-tax
unrealized losses on financial derivatives included in accumulated other
comprehensive income related to the financial derivatives 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 $56,000
of unrealized losses currently reported in accumulated other comprehensive
income will be reclassified into earnings.
As of
June 30, 2010, Farmer Mac had outstanding basis swaps with Zions First National
Bank, a related party, with total notional amount of $96.0 million and a fair
value of $(3.7) million, compared to $105.2 million and
$(3.7) million, respectively, as of
December 31, 2009. 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 losses on those outstanding
basis swaps for three and six months ended June 30, 2010 of $0.1 million and
$25,000 respectively, compared to unrealized gains of $0.8 million and $0.3
million, respectively, for the same periods in 2009.
(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, 2010 and 2009:
|
|
For the Three Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
Net
|
|
|
|
|
|
$
per
|
|
|
Net
|
|
|
|
|
|
$
per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
1,824 |
|
|
|
10,210 |
|
|
$ |
0.18 |
|
|
$ |
25,385 |
|
|
|
10,138 |
|
|
$ |
2.50 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and restricted stock (1)
|
|
|
|
|
|
|
400 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
38 |
|
|
|
(0.01 |
) |
Diluted
EPS
|
|
$ |
1,824 |
|
|
|
10,610 |
|
|
$ |
0.17 |
|
|
$ |
25,385 |
|
|
|
10,176 |
|
|
$ |
2.49 |
|
(1)
|
For
the three months ended June 30, 2010 and 2009, stock options, SARs and
nonvested restricted stock of 1,650,050 and 1,862,829, respectively, were
outstanding but not included in the computation of diluted earnings per
share of common stock because they were anti-dilutive. For the
three months ended June 30, 2010, 126,000 contingent shares of nonvested
restricted stock were outstanding but not included in the computation of
diluted earnings per share because the performance conditions were not
met.
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
Net
|
|
|
|
|
|
$ per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(in thousands, except per share amounts)
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$ |
3,591 |
|
|
|
10,177 |
|
|
$ |
0.35 |
|
|
$ |
58,903 |
|
|
|
10,136 |
|
|
$ |
5.81 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and restricted stock (1)
|
|
|
|
|
|
|
354 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
19 |
|
|
|
(0.01 |
) |
Diluted
EPS
|
|
$ |
3,591 |
|
|
|
10,531 |
|
|
$ |
0.34 |
|
|
$ |
58,903 |
|
|
|
10,155 |
|
|
$ |
5.80 |
|
(1)
|
For
the six months ended June 30, 2010 and 2009, stock options, SARs and
nonvested restricted stock of 1,616,008 and 1,881,885, 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, 2010, 104,250 contingent shares of nonvested
restricted stock were outstanding but not included in the computation of
diluted earnings per share because the performance conditions were not
met.
|
(e) Stock-Based
Compensation
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 second quarter 2010 have exercise prices
of $12.20 per share. Restricted stock was awarded to directors
during second quarter 2010 and vests fully after approximately one
year. Restricted stock awarded to officers during second quarter 2010
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, 2010, Farmer Mac recognized $0.8 million and $1.5 million,
respectively, of compensation expense related to stock options, SARs and
restricted stock, compared to $0.9 million and $1.6 million, respectively,
for the same periods in 2009.
The
following tables summarize activity related to stock options, SARs and nonvested
restricted stock awards for the three and six months ended June 30, 2010
and 2009:
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
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
|
|
|
1,799,465 |
|
|
$ |
22.68 |
|
|
|
1,697,829 |
|
|
$ |
24.66 |
|
Granted
|
|
|
247,000 |
|
|
|
12.20 |
|
|
|
165,000 |
|
|
|
5.93 |
|
Exercised
|
|
|
(21,331 |
) |
|
|
13.15 |
|
|
|
- |
|
|
|
- |
|
Canceled
|
|
|
(102,084 |
) |
|
|
20.88 |
|
|
|
(106,864 |
) |
|
|
22.12 |
|
Outstanding,
end of period
|
|
|
1,923,050 |
|
|
$ |
21.53 |
|
|
|
1,755,965 |
|
|
$ |
23.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
1,799,465 |
|
|
$ |
22.68 |
|
|
|
2,237,711 |
|
|
$ |
25.54 |
|
Granted
|
|
|
247,000 |
|
|
|
12.20 |
|
|
|
165,000 |
|
|
|
5.93 |
|
Exercised
|
|
|
(21,331 |
) |
|
|
13.15 |
|
|
|
- |
|
|
|
- |
|
Canceled
|
|
|
(102,084 |
) |
|
|
20.88 |
|
|
|
(646,746 |
) |
|
|
27.28 |
|
Outstanding,
end of period
|
|
|
1,923,050 |
|
|
$ |
21.53 |
|
|
|
1,755,965 |
|
|
$ |
23.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and SARs exercisable at the end of the period
|
|
|
1,433,792 |
|
|
$ |
25.04 |
|
|
|
1,349,258 |
|
|
$ |
25.51 |
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Nonvested
|
|
|
Average
|
|
|
Nonvested
|
|
|
Average
|
|
|
|
Restricted
|
|
|
Grant-date
|
|
|
Restricted
|
|
|
Grant-date
|
|
|
|
Stock
|
|
|
Fair Value
|
|
|
Stock
|
|
|
Fair Value
|
|
For
the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
200,548 |
|
|
$ |
5.93 |
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
111,085 |
|
|
|
12.28 |
|
|
|
200,548 |
|
|
|
5.93 |
|
Canceled
|
|
|
(11,599 |
) |
|
|
8.15 |
|
|
|
- |
|
|
|
- |
|
Vested
and issued
|
|
|
(118,048 |
) |
|
|
5.93 |
|
|
|
- |
|
|
|
- |
|
Outstanding,
end of period
|
|
|
181,986 |
|
|
$ |
9.66 |
|
|
|
200,548 |
|
|
$ |
5.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
200,548 |
|
|
$ |
5.93 |
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
111,085 |
|
|
|
12.28 |
|
|
|
200,548 |
|
|
|
5.93 |
|
Canceled
|
|
|
(11,599 |
) |
|
|
8.15 |
|
|
|
- |
|
|
|
- |
|
Vested
and issued
|
|
|
(118,048 |
) |
|
|
5.93 |
|
|
|
- |
|
|
|
- |
|
Outstanding,
end of period
|
|
|
181,986 |
|
|
$ |
9.66 |
|
|
|
200,548 |
|
|
$ |
5.93 |
|
The
cancellations of stock options, SARs and nonvested restricted stock during the
first six months of 2010 were due to unvested SARs and nonvested restricted
stock terminating in accordance with the provisions of the applicable plans upon
directors’ or officers’ departures from Farmer Mac and vested options
terminating unexercised on their expiration date. The cancellations
of stock options and SARs during the first six months of 2009 were due to
unvested options or SARS terminating and the cancellation of a portion of vested
options upon employees’ and officers’ departures from Farmer
Mac.
For the
three and six months ended June 30, 2010, the additional paid-in capital
received from exercises of stock options and SARs and the vesting of restricted
stock was $0.3 million. The reduction of income taxes to be paid as a
result of the deduction for exercises of stock options and SARs and the vesting
or accelerated tax elections of restricted stock was $0.9 million for the three
and six months ended June 30, 2010. There were no exercises of stock
options or SARS during the comparable periods in 2009.
The
following tables summarize information regarding stock options, SARs and
nonvested restricted stock outstanding as of June 30, 2010:
|
|
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
|
|
|
273,000 |
|
8.8
years
|
|
|
68,000 |
|
|
8.7
years
|
|
|
|
231,500 |
|
8.8
years
|
10.00
- 14.99
|
|
|
247,000 |
|
9.8
years
|
|
|
- |
|
|
-
|
|
|
|
222,300 |
|
9.8
years
|
15.00
- 19.99
|
|
|
81,722 |
|
3.7
years
|
|
|
81,722 |
|
|
3.7
years
|
|
|
|
81,722 |
|
3.7
years
|
20.00
- 24.99
|
|
|
486,457 |
|
4.2
years
|
|
|
486,457 |
|
|
4.2
years
|
|
|
|
486,457 |
|
4.2
years
|
25.00
- 29.99
|
|
|
621,203 |
|
4.3
years
|
|
|
591,944 |
|
|
4.1
years
|
|
|
|
617,742 |
|
4.3
years
|
30.00
- 34.99
|
|
|
213,668 |
|
1.6
years
|
|
|
205,669 |
|
|
1.4
years
|
|
|
|
211,268 |
|
1.6
years
|
|
|
|
1,923,050 |
|
|
|
|
1,433,792 |
|
|
|
|
|
|
|
1,850,989 |
|
|
|
|
Outstanding
|
|
Expected to Vest
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
Weighted-
|
|
|
|
Average
|
|
|
|
Average
|
Average
|
|
Nonvested
|
|
Remaining
|
|
Nonvested
|
|
Remaining
|
Grant-Date
|
|
Restricted
|
|
Contractual
|
|
Restricted
|
|
Contractual
|
Fair Value
|
|
Stock
|
|
Life
|
|
Stock
|
|
Life
|
|
|
|
|
|
|
|
|
|
$5.00
- $ 9.99
|
|
|
75,000 |
|
1.8
years
|
|
|
67,500 |
|
1.8
years
|
10.00
- 14.99
|
|
|
104,287 |
|
1.7
years
|
|
|
93,859 |
|
1.7
years
|
15.00
- 19.99
|
|
|
2,699 |
|
0.8
years
|
|
|
2,426 |
|
0.8
years
|
|
|
|
181,986 |
|
|
|
|
163,785 |
|
|
The
weighted-average grant date fair value of options and SARs granted during the
six months ended June 30, 2010 and 2009 were $8.31 and $4.12 per share,
respectively. The weighted-average grant date fair value of nonvested
shares granted during the six months ended June 30, 2010 and 2009 were $12.28
and $5.93 per share, respectively. The fair values for SARs and stock
options were estimated using the Black-Scholes option pricing model based on the
following assumptions:
|
|
2010
|
|
|
2009
|
|
Risk-free
interest rate
|
|
3.3%
|
|
|
1.5%
|
|
Expected
years until exercise
|
|
7
years
|
|
|
7
years
|
|
Expected
stock volatility
|
|
88.3%
|
|
|
104.3%
|
|
Dividend
yield
|
|
1.8%
|
|
|
3.4%
|
|
(f) Fair Value
Measurement
Effective
January 1, 2008, Farmer Mac adopted new accounting guidance for fair value
measurements. The guidance 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).
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 inputs (e.g., changes in market
interest rates) and unobservable inputs (e.g., changes in long-dated
volatilities).
See Note
7 for more information regarding fair value measurement.
(g) Consolidation of Variable
Interest Entities
Farmer
Mac has interests in various entities that are considered to be variable
interest entities (“VIEs”). These interests include investments in
securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed
securities created pursuant to Farmer Mac’s securitization transactions and
mortgage and asset-backed trusts that Farmer Mac did not create.
Effective
January 1, 2010, Farmer Mac adopted two new accounting standards that eliminated
the concept of qualifying special purpose entities (“QSPEs”) and amended the
accounting for transfers of financial assets and the consolidation model for
variable interest entities (“VIEs”). All formerly designated QSPEs
were evaluated for consolidation in accordance with the new consolidation model,
which changed the method of analyzing which party to a VIE should consolidate
the VIE. The new consolidation model uses a qualitative evaluation
that requires consolidation of an entity when the reporting enterprise both (1)
has the power to direct matters which significantly impact the activities and
success of the entity, and (2) has exposure to benefits and/or losses that could
potentially be significant to the entity. The reporting enterprise
that meets both these conditions is deemed the primary beneficiary of the
VIE.
The new
consolidation standard requires the incremental assets and liabilities
consolidated upon adoption to initially be reported at their carrying
amounts. Carrying amount refers to the amount at which the assets and
liabilities would have been carried in the consolidated financial statements if
the new guidance had been effective when Farmer Mac first met the conditions to
be the primary beneficiary of the VIE. If determining the carrying
amounts is not practicable, the assets and liabilities of the VIE shall be
measured at fair value at the date the new standards first apply. For
the outstanding trusts consolidated effective January 1, 2010, Farmer Mac
initially recorded the assets and liabilities on the consolidated balance sheet
at their carrying amounts, adjusted, where applicable, for fair value option
elections that had been made previously. Accrued interest and
allowance for losses have also been recognized as appropriate.
Although
these new accounting standards did not change the economic risk to Farmer Mac’s
business, specifically Farmer Mac’s liquidity, credit and interest rate risks,
the adoption of these new accounting standards has a significant impact on the
presentation of Farmer Mac’s consolidated financial statements beginning in
2010. On the consolidated balance sheet, there was an increase in
loans held for investment, interest receivable, debt and accrued interest
payable, and a decrease in available-for-sale and trading Farmer Mac Guaranteed
Securities, the reclassification of a portion of the reserve for losses to
allowance for loan losses, and the elimination of the guarantee and commitment
fees receivable and guarantee and commitment obligations related to the
consolidated trusts. On the income statement, there was an increase
in interest income and interest expense attributable to the assets and
liabilities of the consolidated trusts and a reclassification of a portion of
guarantee fee income to interest income.
The VIEs
in which Farmer Mac has a variable interest are limited to securitization
trusts. The major judgment in determining if Farmer Mac is the
primary beneficiary was whether Farmer Mac had the power to direct the
activities of the trust that potentially had the most significant impact on the
economic performance of the trust. Generally, the ability to make
decisions regarding default mitigation was evidence of that
power. Farmer Mac determined that it was the primary beneficiary for
the securitization trusts related to most Farmer Mac I and all Rural Utilities
securitization transactions because of its rights as guarantor under both
programs to control the default mitigation activities of the
trusts. For certain securitization trusts created when loans subject
to LTSPCs were converted to Farmer Mac I Guaranteed Securities, Farmer Mac
determined that it was not the primary beneficiary since the power to make
decisions regarding default mitigation was shared among unrelated
parties. For similar securitization transactions where the power to
make decisions regarding default mitigation was shared with a related party,
Farmer Mac determined that it was the primary beneficiary because the applicable
accounting guidance does not permit parties within a related party group to
conclude that the power is shared.
For those
trusts that Farmer Mac is the primary beneficiary, the assets and liabilities
are presented on the condensed consolidated balance sheet as “Loans held for
investment in consolidated trusts” and “Debt securities of consolidated trusts
held by third parties,” respectively. These assets can only be used
to satisfy the obligations of the trust.
For those
trusts where Farmer Mac has a variable interest but has not been determined to
be the primary beneficiary, Farmer Mac’s interests are recorded as either Farmer
Mac Guaranteed Securities or Investment Securities. Farmer Mac’s
involvement in on-balance sheet VIEs classified as Farmer Mac Guaranteed
Securities include securitization trusts under the Farmer Mac II program and
trusts related to the AgVantage program. In the case of Farmer Mac II
trusts, Farmer Mac was not determined to be the primary beneficiary because it
does not have the decision-making power over default mitigation
activities. For the AgVantage trusts, Farmer Mac currently does not
have the power to direct the activities that have the most significant economic
impact to the trust unless, as guarantor, there is a default by the issuer of
the trust securities. Should there be a default, Farmer Mac would
reassess whether it is primary beneficiary of those trusts. For VIEs
classified as Investment Securities, which include asset-backed securities and
GSE-guaranteed mortgage-backed securities, Farmer Mac was determined not to be
the primary beneficiary because of the lack of voting rights or other powers to
direct the activities of the trust. As of June 30, 2010, the Farmer
Mac Guaranteed Securities trusts and Investment Securities trusts have carrying
amounts on the condensed consolidated balance sheet totaling $74.7 million and
$434.4 million, respectively, which is Farmer Mac’s maximum exposure to
loss. In addition, Farmer Mac has a variable interest in off-balance
sheet VIEs, which include a guarantee of timely payment of principal and
interest, totaling $3.3 billion as of June 30, 2010.
(h) New Accounting
Standards
Accounting
for Transfers of Financial Assets
On
December 23, 2009, the FASB issued an Accounting Standards Update (“ASU”), which
codifies recent accounting guidance related to transfers of financial
assets. The new guidance eliminates the concept of a QSPE, changes
the requirements for derecognizing financial assets and enhances information
reported to financial statement users by increasing the transparency or
disclosures about transfers of financial assets and an entity’s continuing
involvement with transferred financial assets. Farmer Mac adopted the
ASU on January 1, 2010 and the impact of adoption was not material to Farmer
Mac’s financial position, results of operations or cash flows.
Variable
Interest Entities
On
December 23, 2009, the FASB issued an ASU, which codifies recent accounting
guidance on consolidation of VIEs. The new guidance replaces the
quantitative-based risks-and-rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a VIE with an approach
focused on identifying which reporting entity has (1) the power to direct the
activities of a VIE that most significantly affect the entity’s economic
performance and (2) the obligation to absorb losses of, or the right to receive
benefits from, the entity. The ASU requires additional disclosures
about a reporting entity’s involvement with VIEs and about any significant
changes in risk exposure as a result of that involvement. Farmer Mac
adopted this ASU on January 1, 2010, which resulted in the consolidation of
assets and liabilities onto Farmer Mac’s balance sheet in connection with
trusts that previously qualified for the QSPE
exception. Additionally, interest income and interest expense related
to the consolidated assets and liabilities of the trusts will be reflected in
the statement of operations.
As of
December 31, 2009, Farmer Mac disclosed the impact of adopting the new
consolidation standard as an increase in consolidated assets of $292.8 million,
requiring incremental regulatory capital of $5.9 million, and an increase in
retained earnings of $2.6 million. Upon adoption, Farmer Mac
reassessed its securitization trusts created when loans subject to LTSPCs were
converted to Farmer Mac I Guaranteed Securities in consideration of the related
party relationship with certain counterparties to these transactions and
concluded that additional trusts required consolidation. The actual
impact upon adoption was an increase in consolidated assets of $1.5 billion,
which resulted in an incremental capital requirement of
$30.4 million. The transition adjustment upon adoption did not
change significantly from the reported amount, increasing retained earnings by
$2.7 million, which is presented in the Condensed Consolidated Statement of
Equity as “Cumulative effect of adoption of new accounting standard, net of
tax.”
Accounting
Standards Update on Fair Value Measurements and Disclosures
On
January 21, 2010, the FASB issued a new accounting standard, which amends FASB
guidance on fair value measurements and disclosures to add new requirements for
disclosures about transfers into and out of levels 1 and 2 and separate
disclosures about purchases, sales, issuance, and settlements relating to level
3 measurements. The new standard also clarifies existing fair value
disclosures about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. The ASU is effective for first
quarter 2010 reporting except for the level 3 activity disclosures, which
are effective in first quarter 2011. Adoption of the new accounting
guidance did not have a significant impact on Farmer Mac’s fair value
disclosures.
Effect
of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as
a Single Asset
On April
29, 2010, the FASB issued ASU 2010-18, Effect
of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as
a Single Asset, which established that modifications of loans that
are accounted for within a pool under the guidance for acquisitions of
credit-impaired loans do not result in the removal of those loans from the pool,
even if the modification of those loans would otherwise be considered a troubled
debt restructuring. Loans accounted for individually under the
guidance for acquisitions of credit-impaired loans continue to be subject to the
accounting provisions for troubled debt restructurings. The ASU is
effective for third quarter 2010 reporting. Adoption of ASU 2010-18
will not have a material effect on Farmer Mac’s financial position, results of
operations or cash flows.
Credit
Quality of Financing Receivables and the Allowance for Credit
Losses
On July
21, 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses, which
requires more robust and disaggregated disclosures to assist financial statement
users in understanding more clearly an entity’s credit risk exposures to finance
receivables and the related allowance for credit losses. The new and
amended disclosure requirements focus on five areas: nonaccrual and
past due loans; allowance for credit losses; impaired loans; credit quality
information; and modifications. The disclosures that relate to
information as of the end of a reporting period will be effective for periods
ending on or after December 15, 2010 and information related to activity that
occurs during a reporting period will be effective for the first interim or
annual period beginning after December 15, 2010. Since ASU 2010-20
only requires additional disclosures, it will not have an impact on Farmer Mac’s
financial position, results of operations or cash flows.
(i) Reclassifications
Certain
reclassifications of prior period information were made to conform to the
current period presentation.
Note
2.
|
Investment
Securities
|
The
following tables present the amortized cost and estimated fair values of Farmer
Mac’s investments as of June 30, 2010 and December 31, 2009.
|
|
June 30, 2010
|
|
|
|
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 |
|
|
$ |
- |
|
|
$ |
(10,756 |
) |
|
$ |
63,344 |
|
Floating
rate asset-backed securities
|
|
|
19,271 |
|
|
|
4 |
|
|
|
(11 |
) |
|
|
19,264 |
|
Floating
rate corporate debt securities
|
|
|
197,821 |
|
|
|
292 |
|
|
|
(2,197 |
) |
|
|
195,916 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
405,477 |
|
|
|
3,084 |
|
|
|
(270 |
) |
|
|
408,291 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
5,055 |
|
|
|
368 |
|
|
|
- |
|
|
|
5,423 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(14,855 |
) |
|
|
55,145 |
|
Fixed
rate GSE preferred stock
|
|
|
80,160 |
|
|
|
6,926 |
|
|
|
- |
|
|
|
87,086 |
|
Fixed
rate senior agency debt
|
|
|
5,490 |
|
|
|
2 |
|
|
|
- |
|
|
|
5,492 |
|
Fixed
rate U.S. Treasuries
|
|
|
335,191 |
|
|
|
224 |
|
|
|
- |
|
|
|
335,415 |
|
Total
available-for-sale
|
|
|
1,192,565 |
|
|
|
10,900 |
|
|
|
(28,089 |
) |
|
|
1,175,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
6,307 |
|
|
|
- |
|
|
|
(4,895 |
) |
|
|
1,412 |
|
Fixed
rate GSE preferred stock
|
|
|
84,202 |
|
|
|
- |
|
|
|
(3,658 |
) |
|
|
80,544 |
|
Total
trading
|
|
|
90,509 |
|
|
|
- |
|
|
|
(8,553 |
) |
|
|
81,956 |
|
Total
investment securities
|
|
$ |
1,283,074 |
|
|
$ |
10,900 |
|
|
$ |
(36,642 |
) |
|
$ |
1,257,332 |
|
|
|
December 31, 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 |
|
|
$ |
- |
|
|
$ |
(1,216 |
) |
|
$ |
72,884 |
|
Floating
rate asset-backed securities
|
|
|
58,157 |
|
|
|
26 |
|
|
|
(40 |
) |
|
|
58,143 |
|
Floating
rate corporate debt securities
|
|
|
246,758 |
|
|
|
267 |
|
|
|
(1,420 |
) |
|
|
245,605 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
404,452 |
|
|
|
1,188 |
|
|
|
(1,419 |
) |
|
|
404,221 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
6,248 |
|
|
|
289 |
|
|
|
- |
|
|
|
6,537 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(22,438 |
) |
|
|
47,562 |
|
Fixed
rate GSE preferred stock
|
|
|
90,543 |
|
|
|
- |
|
|
|
(1,332 |
) |
|
|
89,211 |
|
Fixed
rate U.S. Treasuries
|
|
|
117,810 |
|
|
|
- |
|
|
|
(50 |
) |
|
|
117,760 |
|
Total
available-for-sale
|
|
|
1,068,068 |
|
|
|
1,770 |
|
|
|
(27,915 |
) |
|
|
1,041,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
6,708 |
|
|
|
- |
|
|
|
(4,884 |
) |
|
|
1,824 |
|
Fixed
rate GSE preferred stock
|
|
|
89,637 |
|
|
|
- |
|
|
|
(1,489 |
) |
|
|
88,148 |
|
Total
trading
|
|
|
96,345 |
|
|
|
- |
|
|
|
(6,373 |
) |
|
|
89,972 |
|
Total
investment securities
|
|
$ |
1,164,413 |
|
|
$ |
1,770 |
|
|
$ |
(34,288 |
) |
|
$ |
1,131,895 |
|
During
the three and six months ended June 20, 2010, Farmer Mac did not recognize in
earnings any other-than-temporary impairment charges, compared to charges of
$1.0 million and $1.1 million for the same periods in 2009. The
other-than-temporary impairment charges in 2009 were related to investments in
CIT Group, Inc corporate debt securities and Fannie Mae floating rate preferred
stock.
During
the three months ended June 30, 2010, Farmer Mac did not receive any proceeds
from the sale of securities from its available-for-sale investment portfolio,
compared to proceeds of $8.6 million for the same period in 2009, resulting in
gross realized losses of $0.3 million. During the six months ended
June 30, 2010, Farmer Mac received proceeds of $69.2 million from the sale
of securities from its available-for-sale investment portfolio, resulting in
gross realized gains of $0.4 million and gross realized losses of $0.2 million,
compared to proceeds of $153.1 million for the same period in 2009, resulting in
gross realized gains of $3.2 million and gross realized losses of $0.3
million.
As of
June 30, 2010 and December 31, 2009, unrealized losses on available-for-sale
investment securities were as follows:
|
|
June 30, 2010
|
|
|
|
Available-for-Sale Securities
|
|
|
|
Unrealized loss position for
|
|
|
Unrealized loss position
|
|
|
|
less than 12 months
|
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate corporate debt securities
|
|
$ |
38,543 |
|
|
$ |
(49 |
) |
|
$ |
107,820 |
|
|
$ |
(2,148 |
) |
Floating
rate asset-backed securities
|
|
|
5,249 |
|
|
|
(1 |
) |
|
|
5,042 |
|
|
|
(10 |
) |
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
|
- |
|
|
|
- |
|
|
|
63,344 |
|
|
|
(10,756 |
) |
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
73,596 |
|
|
|
(47 |
) |
|
|
30,724 |
|
|
|
(223 |
) |
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
55,145 |
|
|
|
(14,855 |
) |
Fixed
rate senior agency debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fixed
rate U.S. Treasuries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
117,388 |
|
|
$ |
(97 |
) |
|
$ |
262,075 |
|
|
$ |
(27,992 |
) |
|
|
December 31, 2009
|
|
|
|
Available-for-Sale Securities
|
|
|
|
Unrealized loss position for
|
|
|
Unrealized loss position
|
|
|
|
less than 12 months
|
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate corporate debt securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
182,745 |
|
|
$ |
(1,420 |
) |
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
17,319 |
|
|
|
(40 |
) |
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
|
- |
|
|
|
- |
|
|
|
72,884 |
|
|
|
(1,216 |
) |
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
116,754 |
|
|
|
(645 |
) |
|
|
121,877 |
|
|
|
(774 |
) |
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
47,562 |
|
|
|
(22,438 |
) |
Fixed
rate GSE preferred stock
|
|
|
89,211 |
|
|
|
(1,332 |
) |
|
|
- |
|
|
|
- |
|
Fixed
rate U.S. Treasuries
|
|
|
117,760 |
|
|
|
(50 |
) |
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
323,725 |
|
|
$ |
(2,027 |
) |
|
$ |
442,387 |
|
|
$ |
(25,888 |
) |
The
temporary unrealized losses presented above are principally due to a general
widening of credit spreads from the dates of acquisition to June 30, 2010 and
December 31, 2009, 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, 2010, all of the
investment securities in an unrealized loss position were rated at least “A” by
a nationally recognized statistical rating organization. As of
December 31, 2009, all of the investment securities in an unrealized loss
position were rated at least “A,” except one that was not rated. The
unrealized losses were on 51 and 86 individual investment securities
as of June 30, 2010 and December 31, 2009, respectively.
As of
June 30, 2010, 41 of the securities in loss positions had been in loss positions
for more than 12 months and had a total unrealized loss of $28.0
million. As of December 31, 2009, 73 of the securities
in loss positions had been in loss positions for more than 12 months and had a
total unrealized loss of $25.9 million. Securities in unrealized
loss positions 12 months or more have a fair value as of June 30, 2010 that is,
on average, approximately 90 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 basis of these
securities. Accordingly, Farmer Mac has concluded that none of the
unrealized losses on these available-for-sale investment securities represent
other-than-temporary impairment as of June 30, 2010. 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.
Farmer
Mac did not own any held-to-maturity investments as of June 30, 2010 and
2009. As of June 30, 2010, Farmer Mac owned trading investments with
an amortized cost of $90.5 million, a fair value of $82.0 million, and a
weighted-average yield of 8.10 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, 2010 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, 2010
|
|
|
|
Amortized
|
|
|
|
|
|
Weighted-
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Average Yield
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
374,289 |
|
|
$ |
374,486 |
|
|
0.35%
|
|
Due
after one year through five years
|
|
|
176,535 |
|
|
|
174,617 |
|
|
0.62%
|
|
Due
after five years through ten years
|
|
|
99,355 |
|
|
|
100,120 |
|
|
2.74%
|
|
Due
after ten years
|
|
|
542,386 |
|
|
|
526,153 |
|
|
2.78%
|
|
Total
|
|
$ |
1,192,565 |
|
|
$ |
1,175,376 |
|
|
1.69%
|
|
Note
3.
|
Farmer
Mac Guaranteed Securities and USDA Guaranteed
Securities
|
The
following table sets forth information about on-balance sheet Farmer Mac
Guaranteed Securities and USDA Guaranteed Securities as of June 30, 2010 and
December 31, 2009.
|
|
June 30, 2010
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Farmer
Mac I
|
|
$ |
47,821 |
|
|
$ |
- |
|
|
$ |
47,821 |
|
Farmer
Mac II
|
|
|
40,436 |
|
|
|
- |
|
|
|
40,436 |
|
Rural
Utilities
|
|
|
1,629,883 |
|
|
|
- |
|
|
|
1,629,883 |
|
Farmer
Mac Guaranteed Securities
|
|
|
1,718,140 |
|
|
|
- |
|
|
|
1,718,140 |
|
USDA
Guaranteed Securities
|
|
|
880,424 |
|
|
|
386,496 |
|
|
|
1,266,920 |
|
Total
|
|
$ |
2,598,564 |
|
|
$ |
386,496 |
|
|
$ |
2,985,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
2,543,878 |
|
|
$ |
382,357 |
|
|
$ |
2,926,235 |
|
Unrealized
gains
|
|
|
56,187 |
|
|
|
4,369 |
|
|
|
60,556 |
|
Unrealized
losses
|
|
|
(1,501 |
) |
|
|
(230 |
) |
|
|
(1,731 |
) |
Fair
value
|
|
$ |
2,598,564 |
|
|
$ |
386,496 |
|
|
$ |
2,985,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$ |
56,864 |
|
|
$ |
- |
|
|
$ |
56,864 |
|
Farmer
Mac II
|
|
|
764,792 |
|
|
|
422,681 |
|
|
|
1,187,473 |
|
Rural
Utilities
|
|
|
1,703,211 |
|
|
|
451,448 |
|
|
|
2,154,659 |
|
Total
|
|
$ |
2,524,867 |
|
|
$ |
874,129 |
|
|
$ |
3,398,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
2,493,644 |
|
|
$ |
817,631 |
|
|
$ |
3,311,275 |
|
Unrealized
gains
|
|
|
39,657 |
|
|
|
56,569 |
|
|
|
96,226 |
|
Unrealized
losses
|
|
|
(8,434 |
) |
|
|
(71 |
) |
|
|
(8,505 |
) |
Fair
value
|
|
$ |
2,524,867 |
|
|
$ |
874,129 |
|
|
$ |
3,398,996 |
|
Upon the
adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was
determined to be the primary beneficiary of certain VIEs where Farmer Mac held
beneficial interests in trusts used as vehicles for the securitization of
agricultural real estate mortgage loans or rural utilities
loans. Prior to 2010, Farmer Mac presented these beneficial interests
as “Farmer Mac Guaranteed Securities” on the condensed consolidated balance
sheets. Upon consolidation, Farmer Mac transferred these assets from
Farmer Mac Guaranteed Securities to loans held for investment in consolidated
trusts. The transferred assets on January 1, 2010 included Farmer Mac
Guaranteed Securities – Rural Utilities with an unpaid principal balance of
$412.9 million and a fair value of $455.6 million and Farmer Mac I Guaranteed
Securities with an unpaid principal balance of $5.3 million and a fair value of
$5.6 million.
On
January 25, 2010, Farmer Mac contributed substantially all of the assets, in
excess of $1.1 billion, comprising the Farmer Mac II program to Farmer
Mac’s subsidiary, Farmer Mac II LLC. The assets that
Farmer Mac contributed to Farmer Mac II LLC consisted primarily of
USDA-guaranteed portions that had not been securitized by Farmer Mac (i.e.,
transferred to a trust whereby Farmer Mac II Guaranteed Securities were issued)
but also included $35.0 million of Farmer Mac II Guaranteed
Securities. Farmer Mac did not guarantee the timely payment of
principal and interest on the $1.1 billion of contributed USDA-guaranteed
portions and will provide a guarantee in connection with the issuance of Farmer
Mac II Guaranteed Securities only to the extent that either Farmer Mac or Farmer
Mac II LLC is approached or referred by an investor. Farmer Mac will
not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the
future. The contributed USDA-guaranteed portions had previously been
presented as Farmer Mac II Guaranteed Securities on the condensed
consolidated financial statements of Farmer Mac and are now presented as USDA
Guaranteed Securities on the condensed consolidated balance
sheets. The assets of Farmer Mac II LLC would be available to
creditors of Farmer Mac only after all obligations owed to creditors of and
equity holders in Farmer Mac II LLC had been satisfied.
The
temporary unrealized losses presented above are principally due to changes in
interest rates from the date of acquisition to June 30, 2010 and December 31,
2009, as applicable. As of June 30, 2010 and December 31, 2009, the
unrealized losses presented above are related to Farmer Mac II and USDA
Guaranteed Securities, which are backed by the full faith and credit of the
United States. Therefore, 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, 2010 and
December 31, 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.
Farmer
Mac realized no gains or losses from the sale of Farmer Mac and USDA Guaranteed
Securities for the three and six months ended June 30, 2010 and
2009.
The table
below presents a sensitivity analysis for the Corporation’s on-balance sheet
Farmer Mac and USDA Guaranteed Securities as of June 30, 2010 and December 31,
2009.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars in thousands)
|
|
Fair
value of beneficial interests retained in Farmer Mac and USDA
Guaranteed Securities
|
|
$ |
2,985,060 |
|
|
$ |
3,398,996 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
3.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
6.0 |
% |
|
|
3.8 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(1,188 |
) |
|
$ |
(18 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(2,295 |
) |
|
$ |
(36 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
2.7 |
% |
|
|
2.8 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(15,735 |
) |
|
$ |
(22,081 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(31,756 |
) |
|
$ |
(44,531 |
) |
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 loans, LTSPCs
and Farmer Mac and USDA Guaranteed Securities as of June 30, 2010 and
December 31, 2009.
Outstanding
Balance of Farmer Mac Loans and Loans Underlying
|
|
Farmer Mac and USDA Guaranteed Securities and
LTSPCs
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
844,227 |
|
|
$ |
733,422 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
4,369 |
|
|
|
5,307 |
|
Beneficial
interests owned by third party investors
|
|
|
880,035 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
43,550 |
|
|
|
48,800 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
1,218,329 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
41,756 |
|
|
|
1,164,996 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
165,388 |
|
|
|
28,644 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
406,679 |
|
|
|
412,948 |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
1,587,200 |
|
|
|
1,675,000 |
|
Total
on-balance sheet
|
|
$ |
5,191,533 |
|
|
$ |
4,069,117 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
LTSPCs
|
|
|
1,739,979 |
|
|
|
2,165,706 |
|
Farmer
Mac Guaranteed Securities
|
|
|
826,910 |
|
|
|
1,492,239 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities
|
|
|
40,860 |
|
|
|
34,802 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
|
14,393 |
|
|
|
14,240 |
|
Total
off-balance sheet
|
|
$ |
5,567,142 |
|
|
$ |
6,651,987 |
|
Total
|
|
$ |
10,758,675 |
|
|
$ |
10,721,104 |
|
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 all such defaulted loans at their
unpaid principal balance during the period in which Farmer Mac becomes entitled
to purchase the loans and therefore regains effective control over the
transferred loans. Considering the low loan-to-value ratios in its
portfolio, Farmer Mac believes that it is probable at the acquisition of these
loans that it will be able to collect all contractually required payments
receivable. 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, 2010 and 2009 and the outstanding balances and carrying amounts of all
such loans as of June 30, 2010 and December 31, 2009,
respectively.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
principal balance at acquisition date
|
|
$ |
913 |
|
|
$ |
572 |
|
|
$ |
3,403 |
|
|
$ |
5,637 |
|
Contractually
required payments receivable
|
|
|
913 |
|
|
|
572 |
|
|
|
3,470 |
|
|
|
5,646 |
|
Impairment
recognized subsequent to acquisition
|
|
|
359 |
|
|
|
5,725 |
|
|
|
1,740 |
|
|
|
7,725 |
|
Recovery/release
of allowance for defaulted loans
|
|
|
2,924 |
|
|
|
- |
|
|
|
2,924 |
|
|
|
- |
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
34,813 |
|
|
$ |
50,409 |
|
Carrying
amount
|
|
|
30,656 |
|
|
|
29,994 |
|
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, USDA Guaranteed Securities, Farmer Mac II Guaranteed Securities, or
rural utilities loans held or underlying Farmer Mac Guaranteed Securities –
Rural Utilities. 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. 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, 2010, 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, 2010, Farmer Mac had not experienced
any credit losses on any AgVantage securities. The USDA-guaranteed
portions presented as USDA Guaranteed Securities, as well as those that
collateralize Farmer Mac II Guaranteed Securities, are guaranteed by the United
States Department of Agriculture. Each USDA guarantee is an
obligation backed by the full faith and credit of the United
States. As of June 30, 2010, neither Farmer Mac nor Farmer Mac II LLC
had experienced any credit losses on any USDA Guaranteed Securities or Farmer
Mac II Guaranteed Securities. As of June 30, 2010, there were no
delinquencies and no probable losses inherent in Farmer Mac’s rural utilities
loans held or in any Farmer Mac Guaranteed Securities – Rural
Utilities. As of June 30, 2010, Farmer Mac had not experienced any
credit losses on any of those loans or securities.
|
|
90-Day
|
|
|
Net Credit
|
|
|
|
Delinquencies (1)
|
|
|
(Recoveries)/Losses (2)
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
38,709 |
|
|
$ |
35,470 |
|
|
$ |
23,546 |
|
|
$ |
(1,926 |
) |
|
$ |
6,960 |
|
Total
on-balance sheet
|
|
$ |
38,709 |
|
|
$ |
35,470 |
|
|
$ |
23,546 |
|
|
$ |
(1,926 |
) |
|
$ |
6,960 |
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
17,302 |
|
|
$ |
14,056 |
|
|
$ |
18,761 |
|
|
$ |
- |
|
|
$ |
- |
|
Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
off-balance sheet
|
|
$ |
17,302 |
|
|
$ |
14,056 |
|
|
$ |
18,761 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
56,011 |
|
|
$ |
49,526 |
|
|
$ |
42,307 |
|
|
$ |
(1,926 |
) |
|
$ |
6,960 |
|
(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, LTSPCs and
REO.
|
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, 2010 and
2009:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
8,090 |
|
|
$ |
29,515 |
|
|
$ |
21,679 |
|
|
$ |
66,969 |
|
Available-for-sale
securities, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains
|
|
|
23,853 |
|
|
|
32,178 |
|
|
|
28,353 |
|
|
|
33,941 |
|
Reclassification
adjustment for realized losses/(gains)
|
|
|
- |
|
|
|
835 |
|
|
|
(190 |
) |
|
|
835 |
|
Net
change from available-for-sale securities (1)
|
|
|
23,853 |
|
|
|
33,013 |
|
|
|
28,163 |
|
|
|
34,776 |
|
Financial
derivatives, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for amortization of financial derivatives transition adjustment
(2)
|
|
|
29 |
|
|
|
50 |
|
|
|
52 |
|
|
|
90 |
|
Other
comprehensive income, net of tax
|
|
|
23,882 |
|
|
|
33,063 |
|
|
|
28,215 |
|
|
|
34,866 |
|
Comprehensive
income
|
|
|
31,972 |
|
|
|
62,578 |
|
|
|
49,894 |
|
|
|
101,835 |
|
Less:
Comprehensive income attributable to non-controlling
interest
|
|
|
5,546 |
|
|
|
- |
|
|
|
9,614 |
|
|
|
- |
|
Total
comprehensive income
|
|
$ |
26,426 |
|
|
$ |
62,578 |
|
|
$ |
40,280 |
|
|
$ |
101,835 |
|
(1)
|
Unrealized
gains on available for sale securities is shown net of income tax expense
of $12.8 million and $17.8 million for the three months ended June 30,
2010 and 2009, respectively, and $15.3 million and $18.7 million for the
six months ended June 30, 2010 and 2009,
respectively.
|
(2)
|
Amortization
of financial derivatives transition adjustment is shown net of income tax
expense of $16,000 and $27,000 for the three months ended June 30, 2010
and 2009, respectively, and $28,000 and $48,000 for the six months ended
June 30, 2010 and 2009,
respectively.
|
The
following table presents Farmer Mac’s accumulated other comprehensive income as
of June 30, 2010 and December 31, 2009 and changes in the components of
accumulated other comprehensive income for the three months ended June 30, 2010
and the year ended December 31, 2009.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
3,300 |
|
|
$ |
(47,214 |
) |
Net
unrealized gains, net of tax
|
|
|
28,163 |
|
|
|
50,514 |
|
Ending
balance
|
|
$ |
31,463 |
|
|
$ |
3,300 |
|
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(46 |
) |
|
$ |
(198 |
) |
Amortization
of financial derivatives transition adjustment, net of tax
|
|
|
52 |
|
|
|
152 |
|
Ending
balance
|
|
$ |
6 |
|
|
$ |
(46 |
) |
Accumulated
other comprehensive income, net of tax
|
|
$ |
31,469 |
|
|
$ |
3,254 |
|
Note
5.
|
Off-Balance
Sheet Guarantees and Long Term Standby Purchase
Commitments
|
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 the Farmer Mac I program, the Farmer Mac II program or the
Rural Utilities program, and (2) Long Term Standby Purchase Commitments
(“LTSPCs”), which are available through the Farmer Mac I program or Rural
Utilities program. For securitization trusts where Farmer Mac is the
primary beneficiary, as described in Note 1(g), the trust assets and liabilities
are included on Farmer Mac’s condensed consolidated balance
sheet. Upon consolidation, Farmer Mac eliminates the portion of the
guarantee and commitment fees receivable and guarantee and commitment
obligations related to the consolidated trusts. For the remainder of
these transactions, or in the event of deconsolidation, both of these
alternatives result in the creation of off-balance sheet obligations for Farmer
Mac. Farmer Mac accounts for these transactions and other financial
guarantees in accordance with FASB guidance on accounting for
guarantees. 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, 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. 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, 2010 and 2009 were $12.9 million and $17.2 million,
respectively. The following table summarizes cash flows received from
and paid to trusts used for securitizations:
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in thousands)
|
|
Proceeds
from new securitizations
|
|
$ |
12,906 |
|
|
$ |
17,224 |
|
Guarantee
fees received
|
|
|
2,620 |
|
|
|
5,858 |
|
Purchases
of assets from the trusts
|
|
|
(2,323 |
) |
|
|
- |
|
Servicing
advances
|
|
|
(343 |
) |
|
|
7 |
|
Repayments
of servicing advances
|
|
|
174 |
|
|
|
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, 2010 and December 31,
2009, 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
Farmer
Mac Guaranteed Securities
|
|
|
826,910 |
|
|
|
1,492,239 |
|
Farmer
Mac II Guaranteed Securities
|
|
|
40,860 |
|
|
|
34,802 |
|
Rural
Utilities AgVantage
|
|
|
14,393 |
|
|
|
14,240 |
|
Total
off-balance sheet Farmer Mac Guaranteed Securities
|
|
$ |
3,827,163 |
|
|
$ |
4,486,281 |
|
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 $20.2 million as of June 30, 2010 and $33.9 million
as of December 31, 2009. Upon adoption of the new consolidation
guidance on January 1, 2010, Farmer Mac eliminated $15.5 million of the
guarantee and commitment obligation related to the consolidated
trusts. During second quarter 2010, Farmer Mac deconsolidated $414.5
million of certain securitization trusts created when loans subject to LTSPCs
were converted to Farmer Mac I Guaranteed Securities because Farmer Mac was no
longer determined to be the primary beneficiary when the counterparty to the
transaction ceased being a related party as a result of changes to the
membership of Farmer Mac’s board of directors. This deconsolidation
resulted in an increase to the guarantee and commitment obligation of $2.7
million as of June 30, 2010. See Note 1(g) for more
information. As of June 30, 2010, the weighted-average remaining
maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed
Securities, excluding AgVantage securities, was 14.1 years. For
information on Farmer Mac’s methodology for determining the reserve for losses
on off-balance sheet Farmer Mac Guaranteed Securities, see Note
1(b).
In the
future, Farmer Mac will provide a guarantee in connection with the issuance of
Farmer Mac II Guaranteed Securities only to the extent that Farmer Mac or Farmer
Mac II LLC is approached or referred by an investor. Farmer Mac will not issue
Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the
future.
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 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 $1.7 billion as of June 30, 2010 and $2.2 billion as
of December 31, 2009.
As of
June 30, 2010, the weighted-average remaining maturity of all loans underlying
LTSPCs was 14.4 years. For those LTSPCs issued or modified on or
after January 1, 2003, Farmer Mac has recorded a liability for its
obligation to stand ready under the commitment in the guarantee and commitment
obligation on the condensed consolidated balance sheet. This
liability approximated $12.5 million as of June 30, 2010 and $14.7 million as of
December 31, 2009.
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. From first quarter 2009 through second quarter 2010, Farmer
Mac paid a quarterly dividend of $0.05 per share on all classes of the
Corporation’s common stock. On August 5, 2010, Farmer Mac’s
board of directors declared a quarterly dividend of $0.05 per share on the
Corporation’s common stock that is scheduled to be paid on September 30,
2010. Farmer Mac’s ability to declare and pay a dividend could be
restricted if it failed to comply with regulatory capital
requirements.
Preferred
Stock
During
2010 and 2009, Farmer Mac had two series of preferred stock
outstanding:
|
·
|
Series
B preferred stock, which was newly issued on September 30, 2008 and on
December 15, 2008, was temporary equity and is reported as Mezzanine
Equity on the condensed consolidated balance sheets because it contained
redemption features that, although remote, were not solely within the
control of Farmer Mac, was repurchased and retired on January 25, 2010
such that none was outstanding on June 30, 2010;
and
|
|
·
|
Series
C preferred stock, which was newly issued during fourth quarter 2008 and
during 2009, is a component of Stockholders’ Equity on the condensed
consolidated balance sheets.
|
The
Series C preferred stock was issued pursuant to an initiative under which any
participant who used Farmer Mac for a credit enhancement or purchase transaction
in excess of $20.0 million was required to purchase an equity interest in
Farmer Mac in the form of shares of Series C preferred stock, thereby enabling
Farmer Mac to raise additional capital to support its mission of providing
liquidity and lending capacity to agricultural and rural utilities
lenders. Farmer Mac sold the 57,578 shares of Series C preferred
stock 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 $57.6 million or $1,000 per share. There were
57,578 shares of Series C preferred stock outstanding as of June 30, 2010,
all held by the National Rural Utilities Cooperative Finance Corporation
(“National Rural”). This initiative that required participants to
purchase Series C preferred stock ended in fourth quarter 2009.
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.
Non-Controlling
Interest in Subsidiary
On
January 25, 2010, Farmer Mac completed a private offering of $250.0 million
aggregate face amount of securities issued by a newly formed Delaware statutory
trust. The trust securities represent undivided beneficial ownership
interests in 250,000 shares of non-cumulative perpetual preferred stock (the
“Company Preferred Stock”) of Farmer Mac’s subsidiary, Farmer Mac II LLC, a
Delaware limited liability company. The Company Preferred Stock has a
liquidation preference of $1,000 per share.
The
$250.0 million of proceeds from the offering were used by the trust to purchase
the Company Preferred Stock from Farmer Mac. Farmer Mac II LLC issued
its Company Preferred Stock and its common equity interest to Farmer Mac as
consideration for the contribution by Farmer Mac to Farmer Mac II LLC of
substantially all of the assets, in excess of $1.1 billion, comprising the
Farmer Mac II program business. Farmer Mac used the proceeds
from the sale of the Company Preferred Stock to the Trust to repurchase and
retire Farmer Mac’s outstanding Series B preferred stock, which had an aggregate
liquidation preference of $150.0 million, and for general corporate
purposes. The Company Preferred Stock is permanent equity of
Farmer Mac II LLC and presented as “Non-controlling interest – preferred
stock” within permanent equity on the consolidated balance sheets of Farmer
Mac.
Statutory
and Regulatory Capital Requirements
Farmer
Mac is subject to, and as of June 30, 2010 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, 2010, Farmer Mac’s minimum and critical capital requirements were
$235.4 million and $117.7 million, respectively, and Farmer Mac’s core
capital level (common and preferred stock outstanding plus non-controlling
interest – preferred stock, additional paid-in-capital and retained earnings)
was $442.0 million, $206.6 million above the minimum capital requirement and
$324.3 million above the critical capital requirement. As of
December 31, 2009, Farmer Mac’s minimum and critical capital requirements
were $217.0 million and $108.5 million, respectively, and its actual core
capital level was $337.2 million, $120.2 million above the minimum capital
requirement and $228.7 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, 2010 was $29.9 million and Farmer Mac’s regulatory capital (core
capital plus the allowance for losses) of $461.0 million exceeded that
requirement by approximately $431.1 million. See “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Regulatory Matters” for more information about proposed changes to
the risk-based capital stress test applicable to Farmer Mac.
Note 7.
|
Fair Value
Disclosure
|
Effective
January 1, 2008, Farmer Mac adopted FASB guidance on fair value measurements,
which defines fair value, establishes a hierarchy for ranking fair value
measurements, and expands disclosures about fair value
measurements. Fair value is defined 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
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. When available, the
fair value of Farmer Mac’s financial instruments is based on quoted market
prices, valuation techniques that use observable market-based inputs or
unobservable inputs that are corroborated by market data. Pricing
information obtained from third parties is internally validated for
reasonableness prior to use in the consolidated financial
statements.
When
observable market prices are not readily available, Farmer Mac estimates 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, 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 likely use
in pricing the asset or liability at the measurement date.
The fair
value hierarchy 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 financial
instruments that are not reported at fair value each period but are subject to
fair value adjustments in certain circumstances are referred to as non-recurring
fair value measurements.
Recurring
Fair Value Measurements and Classification
Available-for-Sale
and Trading Investment Securities
The fair
value of investments in U.S. Treasuries is based on unadjusted quoted prices in
active markets. Farmer Mac classifies these fair value measurements
as level 1.
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 GSEs, fair value is
primarily determined using a reputable and nationally recognized third party
pricing service. The prices obtained are non-binding and generally
representative of recent market trades. The fair value 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 that 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, duration, interest rate yield curves, measures of volatility
and prepayment rates. Farmer Mac generally considers a market to be
thinly traded or not quoted 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.
During
first quarter 2010, Farmer Mac transferred its investments in the subordinated
debt and preferred stock of CoBank, ACB and its investment in the preferred
stock of AgFirst Farm Credit Bank, with par values of $70.0 million, $88.5
million and $88.0 million, respectively, as of December 31, 2009, from level 3
measurements to level 2 measurements. Taking into consideration its
own recently executed trades during first quarter 2010, along with an increase
in observable trading activity for these securities, Farmer Mac determined that
the best estimates of fair value for these securities as of March 31, 2010 and
June 30, 2010 were the fair values provided by an independent third party
pricing service. Farmer Mac transferred these securities out of level
3 based on their fair values as of the beginning of the first quarter
2010.
Available-for-Sale
and Trading Farmer Mac and USDA Guaranteed Securities
Farmer
Mac estimates the fair value of its Farmer Mac and USDA 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 it Farmer Mac and USDA Guaranteed Securities by obtaining a
secondary valuation from an independent third party service.
Upon the
adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was
deemed to be the primary beneficiary of certain VIEs where Farmer Mac held
beneficial interests in trusts used as vehicles for the securitization of
agricultural real estate mortgage loans or rural utilities
loans. Prior to 2010, Farmer Mac presented these beneficial interests
as “Farmer Mac Guaranteed Securities” on the condensed consolidated balance
sheet and reported them at their fair value. Upon consolidation,
Farmer Mac transferred these assets from “Farmer Mac Guaranteed Securities” to
“Loans held for investment in consolidated trusts.” Going forward,
these loans will be reported at their amortized cost and will no longer be
included in recurring fair value measurements. Farmer Mac transferred
these securities out of level 3 based on their fair values as of the beginning
of the quarterly reporting period.
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 derivatives portfolio consists primarily of interest rate swaps, credit
default 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 estimate of certain key
assumptions, which include prepayment speeds, forward yield curves and
discounted rates commensurate with the risks involved.
As of
June 30, 2010 and December 31, 2009, the consideration of credit risk related to
both Farmer Mac and the counterparties resulted in an adjustment to the
valuations of Farmer Mac’s derivative portfolio of $(1.1) million and $0.7
million, respectively. See Note 1(c) for further information
regarding 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
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, 2010, Farmer Mac recorded an adjustment of $2.3 million to report loans held
for sale at the lower of cost or fair value. As of December 31, 2009,
Farmer Mac recorded an adjustment of $0.1 million to report loans held for sale
at the lower of cost or fair value.
Loans
Held for Investment
Certain
loans in Farmer Mac’s held for investment loan portfolio are measured at fair
value when they are determined to be impaired. Impaired loans are
reported at fair value less estimated cost to sell. The fair value of
the loan is generally based on the fair value of the underlying property, which
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 comparable properties in similar geographical areas
and/or assessment through observation of such properties. Farmer Mac
classifies these fair values as level 3 measurements.
Real
Estate Owned
Farmer
Mac initially records 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
comparable 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, 2010, Farmer Mac’s assets and liabilities recorded at fair value
include financial instruments valued at $3.2 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 45 percent of the total assets and 70 percent of financial
instruments measured at fair value as of June 30, 2010. As of
December 31, 2009, Farmer Mac’s asset and liabilities recorded at fair value
included financial instruments valued at $3.7 billion whose fair values were
estimated by management in the absence of readily determinable fair values
(i.e., level 3). These financial instruments measured as level 3
represented 61 percent of the total assets and 80 percent of financial
instruments measured at fair value as of
December 31, 2009.
The
following tables present information about Farmer Mac’s asset and liabilities
measured at fair value on a recurring and nonrecurring basis as of June 30, 2010
and December 31, 2009, respectively, and indicate 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, 2010
|
|
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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
63,344 |
|
|
$ |
63,344 |
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
19,264 |
|
|
|
- |
|
|
|
19,264 |
|
Floating
rate corporate debt securities
|
|
|
- |
|
|
|
195,916 |
|
|
|
- |
|
|
|
195,916 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
408,291 |
|
|
|
- |
|
|
|
408,291 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
5,423 |
|
|
|
- |
|
|
|
5,423 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
55,145 |
|
|
|
- |
|
|
|
55,145 |
|
Floating
rate GSE preferred stock
|
|
|
- |
|
|
|
87,086 |
|
|
|
- |
|
|
|
87,086 |
|
U.S.
Treasuries
|
|
|
335,415 |
|
|
|
- |
|
|
|
- |
|
|
|
335,415 |
|
Senior
agency debt
|
|
|
- |
|
|
|
5,492 |
|
|
|
- |
|
|
|
5,492 |
|
Total
available-for-sale
|
|
|
335,415 |
|
|
|
776,617 |
|
|
|
63,344 |
|
|
|
1,175,376 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
1,412 |
|
|
|
1,412 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
80,544 |
|
|
|
- |
|
|
|
80,544 |
|
Total
trading
|
|
|
- |
|
|
|
80,544 |
|
|
|
1,412 |
|
|
|
81,956 |
|
Total
investment securities
|
|
|
335,415 |
|
|
|
857,161 |
|
|
|
64,756 |
|
|
|
1,257,332 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
- |
|
|
|
- |
|
|
|
47,821 |
|
|
|
47,821 |
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
40,436 |
|
|
|
40,436 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
1,629,883 |
|
|
|
1,629,883 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
1,718,140 |
|
|
|
1,718,140 |
|
Trading
- Farmer Mac II
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
1,718,140 |
|
|
|
1,718,140 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
880,424 |
|
|
|
880,424 |
|
Trading
|
|
|
- |
|
|
|
- |
|
|
|
386,496 |
|
|
|
386,496 |
|
Total
USDA Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
1,266,920 |
|
|
|
1,266,920 |
|
Financial
derivatives
|
|
|
- |
|
|
|
37,121 |
|
|
|
- |
|
|
|
37,121 |
|
Total
Assets at fair value
|
|
$ |
335,415 |
|
|
$ |
894,282 |
|
|
$ |
3,049,816 |
|
|
$ |
4,279,513 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
$ |
(28 |
) |
|
$ |
(128,969 |
) |
|
$ |
(3,678 |
) |
|
$ |
(132,675 |
)
|
Total
Liabilities at fair value
|
|
$ |
(28 |
) |
|
$ |
(128,969 |
) |
|
$ |
(3,678 |
) |
|
$ |
(132,675 |
)
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
163,065 |
|
|
$ |
163,065 |
|
Loans
held for investment, at fair value
|
|
|
- |
|
|
|
- |
|
|
|
4,256 |
|
|
|
4,256 |
|
Total
Assets at fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
167,321 |
|
|
$ |
167,321 |
|
Assets
and Liabilities Measured at Fair Value as of December 31, 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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
72,884 |
|
|
$ |
72,884 |
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
58,143 |
|
|
|
- |
|
|
|
58,143 |
|
Floating
rate corporate debt securities
|
|
|
- |
|
|
|
245,605 |
|
|
|
- |
|
|
|
245,605 |
|
Floating
rate Government/GSE guaranteed mortgage-backed
securities
|
|
|
- |
|
|
|
404,221 |
|
|
|
- |
|
|
|
404,221 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
6,537 |
|
|
|
- |
|
|
|
6,537 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
47,562 |
|
|
|
47,562 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
89,211 |
|
|
|
89,211 |
|
U.S.
Treasuries
|
|
|
117,760 |
|
|
|
- |
|
|
|
- |
|
|
|
117,760 |
|
Total
available-for-sale
|
|
|
117,760 |
|
|
|
714,506 |
|
|
|
209,657 |
|
|
|
1,041,923 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
1,824 |
|
|
|
1,824 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
88,148 |
|
|
|
88,148 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
89,972 |
|
|
|
89,972 |
|
Total
investment securities
|
|
|
117,760 |
|
|
|
714,506 |
|
|
|
299,629 |
|
|
|
1,131,895 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
- |
|
|
|
- |
|
|
|
56,864 |
|
|
|
56,864 |
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
764,792 |
|
|
|
764,792 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
1,703,211 |
|
|
|
1,703,211 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
2,524,867 |
|
|
|
2,524,867 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
422,681 |
|
|
|
422,681 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
451,448 |
|
|
|
451,448 |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
874,129 |
|
|
|
874,129 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
3,398,996 |
|
|
|
3,398,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
|
3 |
|
|
|
15,037 |
|
|
|
- |
|
|
|
15,040 |
|
Total
Assets at fair value
|
|
$ |
117,763 |
|
|
$ |
729,543 |
|
|
$ |
3,698,625 |
|
|
$ |
4,545,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
$ |
- |
|
|
$ |
103,714 |
|
|
$ |
3,653 |
|
|
$ |
107,367 |
|
Total
Liabilities at fair value
|
|
$ |
- |
|
|
$ |
103,714 |
|
|
$ |
3,653 |
|
|
$ |
107,367 |
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
28,505 |
|
|
$ |
28,505 |
|
Total
Assets at fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
28,505 |
|
|
$ |
28,505 |
|
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. Net transfers
in and/or out of level 3 are based on the fair values of the assets and
liabilities as of the beginning of the quarterly reporting period.
Level 3
Assets and Liabilities Measured at Fair Value for the Three Months Ended June
30, 2010
|
|
Beginning
Balance
|
|
|
Purchases,
Sales,
Issuances and
Settlements,
net
|
|
|
Realized and
Unrealized
Gains/(Losses)
included in
Income
|
|
|
Unrealized
Gains/(Losses)
included in
Other
Comprehensive
Income
|
|
|
Net
Transfers
In
and/or
Out
|
|
|
Ending
Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
62,256 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,088 |
|
|
$ |
- |
|
|
$ |
63,344 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
available-for-sale investment securities
|
|
|
62,256 |
|
|
|
- |
|
|
|
- |
|
|
|
1,088 |
|
|
|
- |
|
|
|
63,344 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,452 |
|
|
|
(166 |
) |
|
|
126 |
|
|
|
- |
|
|
|
- |
|
|
|
1,412 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
trading investment securities
|
|
|
1,452 |
|
|
|
(166 |
) |
|
|
126 |
|
|
|
- |
|
|
|
- |
|
|
|
1,412 |
|
Total
investment securities
|
|
|
63,708 |
|
|
|
(166 |
) |
|
|
126 |
|
|
|
1,088 |
|
|
|
- |
|
|
|
64,756 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
48,080 |
|
|
|
(1,508 |
) |
|
|
- |
|
|
|
1,249 |
|
|
|
- |
|
|
|
47,821 |
|
Farmer
Mac II
|
|
|
39,692 |
|
|
|
502 |
|
|
|
- |
|
|
|
242 |
|
|
|
- |
|
|
|
40,436 |
|
Rural
Utilities
|
|
|
1,706,155 |
|
|
|
(87,799 |
) |
|
|
- |
|
|
|
11,527 |
|
|
|
- |
|
|
|
1,629,883 |
|
Total
available-for-sale
|
|
|
1,793,927 |
|
|
|
(88,805 |
) |
|
|
- |
|
|
|
13,018 |
|
|
|
- |
|
|
|
1,718,140 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
1,793,927 |
|
|
|
(88,805 |
) |
|
|
- |
|
|
|
13,018 |
|
|
|
- |
|
|
|
1,718,140 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
781,823 |
|
|
|
84,682 |
|
|
|
- |
|
|
|
13,919 |
|
|
|
- |
|
|
|
880,424 |
|
Trading(2)
|
|
|
407,844 |
|
|
|
(26,931 |
) |
|
|
5,583 |
|
|
|
- |
|
|
|
- |
|
|
|
386,496 |
|
Total
USDA Guaranteed Securities
|
|
|
1,189,667 |
|
|
|
57,751 |
|
|
|
5,583 |
|
|
|
13,919 |
|
|
|
- |
|
|
|
1,266,920 |
|
Total
Assets at fair value
|
|
$ |
3,047,302 |
|
|
$ |
(31,220 |
) |
|
$ |
5,709 |
|
|
$ |
28,025 |
|
|
$ |
- |
|
|
$ |
3,049,816 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives(3)
|
|
$ |
(3,591 |
) |
|
$ |
- |
|
|
$ |
(87 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,678 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,591 |
) |
|
$ |
- |
|
|
$ |
(87 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,678 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
85,248 |
|
|
$ |
- |
|
|
$ |
90 |
|
|
$ |
- |
|
|
$ |
77,727 |
|
|
$ |
163,065 |
|
Loans
held for investment, at fair value
|
|
|
10,522 |
|
|
|
- |
|
|
|
(584 |
) |
|
|
- |
|
|
|
(5,682 |
) |
|
|
4,256 |
|
Total
Assets at fair value
|
|
$ |
95,770 |
|
|
$ |
- |
|
|
$ |
(494 |
) |
|
$ |
- |
|
|
$ |
72,045 |
|
|
$ |
167,321 |
|
(1)
Unrealized gains are attributable to assets still held as of June 30, 2010 and
are recorded in gains on trading assets.
(2)
Includes unrealized gains of $4.0 million attributable to assets still held as
of June 30, 2010 that are recorded in gains on trading assets.
(3)
Unrealized losses are attributable to liabilities still held as of June 30, 2010
and are recorded in (losses)/gains on financial derivatives.
Level 3
Assets and Liabilities Measured at Fair Value for the Three Months Ended June
30, 2009
|
|
Beginning
Balance
|
|
|
Purchases,
Sales,
Issuances
and
Settlements,
net
|
|
|
Realized and
Unrealized
Gains/(Losses)
included in
Income
|
|
|
Unrealized
Gains/(Losses)
included in Other
Comprehensive
Income
|
|
|
Net Transfers In
and/or Out
|
|
|
Ending
Balance
|
|
|
|
(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 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 on trading
assets.
(3)
Unrealized gains are attributable to liabilities still held as of June 30, 2009
and are recorded in (losses)/gains on financial derivatives.
Level 3
Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30,
2010
|
|
Beginning
Balance
|
|
|
Purchases,
Sales,
Issuances and
Settlements,
net
|
|
|
Realized and
Unrealized
Gains/(Losses)
included in
Income
|
|
|
Unrealized
Gains/(Losses)
included in Other
Comprehensive
Income
|
|
|
Net Transfers In
and/or Out
|
|
|
Ending Balance
|
|
|
|
(in
thousands)
|
|
Recurring:
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
$ |
72,884 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(9,540 |
) |
|
$ |
- |
|
|
$ |
63,344 |
|
Floating
rate GSE subordinated debt
|
|
|
47,562 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47,562 |
) |
|
|
- |
|
Fixed
rate GSE preferred stock
|
|
|
89,211 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(89,211 |
) |
|
|
- |
|
Total
available-for-sale investment securities
|
|
|
209,657 |
|
|
|
- |
|
|
|
- |
|
|
|
(9,540 |
) |
|
|
(136,773 |
) |
|
|
63,344 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,824 |
|
|
|
(402 |
) |
|
|
(10 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,412 |
|
Fixed
rate GSE preferred stock
|
|
|
88,148 |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
(88,148 |
) |
|
|
- |
|
Total
trading investment securities
|
|
|
89,972 |
|
|
|
(402 |
) |
|
|
(10 |
) |
|
|
- |
|
|
|
(88,148 |
) |
|
|
1,412 |
|
Total
investment securities
|
|
|
299,629 |
|
|
|
(402 |
) |
|
|
(10 |
) |
|
|
(9,540 |
) |
|
|
(224,921 |
) |
|
|
64,756 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
56,864 |
|
|
|
(5,265 |
) |
|
|
- |
|
|
|
1,607 |
|
|
|
(5,385 |
) |
|
|
47,821 |
|
Farmer
Mac II
|
|
|
764,792 |
|
|
|
197 |
|
|
|
- |
|
|
|
(1,369 |
) |
|
|
(723,184 |
) |
|
|
40,436 |
|
Rural
Utilities
|
|
|
1,703,211 |
|
|
|
(87,799 |
) |
|
|
- |
|
|
|
14,471 |
|
|
|
- |
|
|
|
1,629,883 |
|
Total
available-for-sale
|
|
|
2,524,867 |
|
|
|
(92,867 |
) |
|
|
- |
|
|
|
14,709 |
|
|
|
(728,569 |
) |
|
|
1,718,140 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II
|
|
|
422,681 |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
(422,681 |
) |
|
|
- |
|
Rural
Utilities
|
|
|
451,448 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(451,448 |
) |
|
|
- |
|
Total
trading
|
|
|
874,129 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(874,129 |
) |
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
3,398,996 |
|
|
|
(92,867 |
) |
|
|
- |
|
|
|
14,709 |
|
|
|
(1,602,698 |
) |
|
|
1,718,140 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
- |
|
|
|
137,579 |
|
|
|
- |
|
|
|
19,661 |
|
|
|
723,184 |
|
|
|
880,424 |
|
Trading(2)
|
|
|
- |
|
|
|
(46,789 |
) |
|
|
10,604 |
|
|
|
- |
|
|
|
422,681 |
|
|
|
386,496 |
|
Total
USDA Guaranteed Securities
|
|
|
- |
|
|
|
90,790 |
|
|
|
10,604 |
|
|
|
19,661 |
|
|
|
1,145,865 |
|
|
|
1,266,920 |
|
Total
Assets at fair value
|
|
$ |
3,698,625 |
|
|
$ |
(2,479 |
) |
|
$ |
10,594 |
|
|
$ |
24,830 |
|
|
$ |
(681,754 |
) |
|
$ |
3,049,816 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives(3)
|
|
$ |
(3,653 |
) |
|
$ |
- |
|
|
$ |
(25 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,678 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,653 |
) |
|
$ |
- |
|
|
$ |
(25 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,678 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
28,505 |
|
|
$ |
- |
|
|
$ |
(2,184 |
) |
|
$ |
- |
|
|
$ |
136,744 |
|
|
$ |
163,065 |
|
Loans
held for investment, at fair value
|
|
|
- |
|
|
|
- |
|
|
|
(668 |
) |
|
|
- |
|
|
|
4,924 |
|
|
|
4,256 |
|
Total
Assets at fair value
|
|
$ |
28,505 |
|
|
$ |
- |
|
|
$ |
(2,852 |
) |
|
$ |
- |
|
|
$ |
141,668 |
|
|
$ |
167,321 |
|
(1)
Unrealized losses are attributable to assets still held as of June 30, 2010 and
are recorded in gains on trading assets.
(2)
Includes unrealized gains of $8.0 million attributable to assets still held as
of June 30, 2010 that are recorded in gains on trading assets.
(3)
Unrealized losses are attributable to liabilities still held as of June 30, 2010
and are recorded in (losses)/gains on financial derivatives.
Level 3
Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30,
2009
|
|
Beginning
Balance
|
|
|
Purchases,
Sales,
Issuances
and
Settlements,
net
|
|
|
Realized
and
Unrealized
Gains/(Losses)
included
in
Income
|
|
|
Unrealized
Gains/(Losses)
included
in
Other
Comprehensive
Income
|
|
|
Net
Transfers
In
and/or
Out
|
|
|
Ending
Balance
|
|
|
|
(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 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 on trading
assets.
(3)
Unrealized gains are attributable to liabilities still held as of June 30, 2009
and are recorded in (losses)/gains on financial derivatives.
Fair
Value Option
FASB
guidance on the fair value option for financial instruments 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 the occur. One of the
FASB’s stated objectives of this guidance 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.
Farmer
Mac made no fair value option elections for the three and six months ended
June 30, 2010 and 2009. For the three and six months ended June 30,
2010, Farmer Mac recorded net gains on trading assets of $4.9 million and $8.4
million, respectively, for changes in fair values of assets selected for the
fair value option, compared to $(0.1) million and $31.5 million for the same
periods ended June 30, 2009. These gains are presented as “Gains 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 amounts
for financial assets, liabilities and guarantees and commitments as of June 30,
2010 and December 31, 2009 in accordance with FASB guidance on
disclosures about fair value of financial instruments.
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
|
(in
thousands)
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
325,333 |
|
|
$ |
325,333 |
|
|
$ |
654,794 |
|
|
$ |
654,794 |
|
Investment
securities
|
|
|
1,257,332 |
|
|
|
1,257,332 |
|
|
|
1,131,895 |
|
|
|
1,131,895 |
|
Farmer
Mac Guaranteed Securities
|
|
|
1,718,140 |
|
|
|
1,718,140 |
|
|
|
3,398,996 |
|
|
|
3,398,996 |
|
USDA
Guaranteed Securities
|
|
|
1,266,920 |
|
|
|
1,266,920 |
|
|
|
- |
|
|
|
- |
|
Loans
|
|
|
2,472,261 |
|
|
|
2,327,964 |
|
|
|
779,185 |
|
|
|
753,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
|
37,121 |
|
|
|
37,121 |
|
|
|
15,040 |
|
|
|
15,040 |
|
Interest
receivable
|
|
|
72,616 |
|
|
|
72,616 |
|
|
|
67,178 |
|
|
|
67,178 |
|
Guarantee
and commitment fees receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
13,280 |
|
|
|
13,430 |
|
|
|
14,591 |
|
|
|
15,896 |
|
Farmer
Mac Guaranteed Securities
|
|
|
20,467 |
|
|
|
23,149 |
|
|
|
36,135 |
|
|
|
39,120 |
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
|
3,225,846 |
|
|
|
3,226,745 |
|
|
|
3,665,282 |
|
|
|
3,662,898 |
|
Due
after one year
|
|
|
2,382,859 |
|
|
|
2,269,421 |
|
|
|
1,964,526 |
|
|
|
1,908,713 |
|
Debt
securities of consolidated trusts held by third parties
|
|
|
957,761 |
|
|
|
882,629 |
|
|
|
- |
|
|
|
- |
|
Financial
derivatives
|
|
|
132,675 |
|
|
|
132,675 |
|
|
|
107,367 |
|
|
|
107,367 |
|
Accrued
interest payable
|
|
|
52,913 |
|
|
|
52,913 |
|
|
|
39,562 |
|
|
|
39,562 |
|
Guarantee
and commitment obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
12,366 |
|
|
|
12,516 |
|
|
|
13,370 |
|
|
|
14,676 |
|
Farmer
Mac Guaranteed Securities
|
|
|
17,564 |
|
|
|
20,246 |
|
|
|
30,865 |
|
|
|
33,850 |
|
The
carrying amount of cash and cash equivalents, certain short-term investment
securities, interest receivable and accrued interest payable is a reasonable
estimate of their approximate fair value. Farmer Mac estimates the fair value of
its loans, 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.
Note
8.
|
Business
Segment Reporting
|
Farmer
Mac accomplishes its congressional mission of providing liquidity and lending
capacity to rural lenders through three programs – Farmer Mac I, Farmer Mac II
and Rural Utilities. Prior to first quarter 2010, Farmer Mac reported its
financial results as a single segment using GAAP-basis income. Beginning in
first quarter 2010, Farmer Mac revised its segment financial reporting, by using
core earnings, a non-GAAP financial measure, to reflect the manner in which
management has begun assessing the Corporation’s performance since the
contribution of substantially all of the Farmer Mac II program business to a
subsidiary, Farmer Mac II LLC. Farmer Mac uses core earnings to measure
corporate economic performance and develop financial plans because, in
management’s view, core earnings more accurately represents Farmer Mac’s
economic performance, transaction economics and business trends. Core earnings
differs from GAAP net income primarily by excluding unrealized gains or losses
on financial derivatives and trading assets, lower of cost or fair value
adjustments on loans held for sale and other items related to the retirement of
preferred stock and the amortization of premiums on assets consolidated at fair
value. This non-GAAP financial measure may not be similar to non-GAAP financial
measures disclosed by other companies.
The
financial information presented below reflects the accounts of Farmer Mac and
its subsidiaries on a consolidated basis. Accordingly, the core earnings for
Farmer Mac’s reportable operating segments will differ from the stand-alone
financial statements of Farmer Mac’s subsidiaries. These differences will be due
to various factors, including the reversal of unrealized gains and losses
related to fair value changes of trading assets and financial derivatives, as
well as the allocation of certain expenses such as dividends and interest
expense related to the issuance of capital and the incurrence of indebtedness
managed at the corporate level. The allocation of general and administrative
expenses that are not directly attributable to an operating segment may also
result in differences. The assets of Farmer Mac’s subsidiary Farmer Mac II LLC
would be available to creditors of Farmer Mac only after all obligations owed to
creditors of and equity holders in Farmer Mac II LLC had been satisfied. As of
June 30, 2010, Farmer Mac II LLC held assets with a fair value of $1.3 billion,
had debt outstanding of $46.0 million, had preferred stock outstanding with a
liquidation preference of $250.0 million, and had $1.0 billion of common
stock outstanding, all of which is held by Farmer Mac.
Management
has determined that the Corporation’s operations consist of three reportable
segments – Farmer Mac I, Farmer Mac II and Rural Utilities. Farmer Mac uses
these three segments to generate revenue and manage business risk, and each
segment is based on distinct products and distinct business activities. In
addition to these three program operating segments, a corporate segment is
presented. That segment represents activity in Farmer Mac’s non-program
investment portfolio and other corporate activities. The segment financial
results include directly attributable revenues and expenses. Corporate charges
for administrative expenses that are not directly attributable to an operating
segment are allocated based on headcount.
Each of
the program operating segments generates revenue through purchasing loans or
securities, committing to purchase loans, or guaranteeing securities backed by
eligible loans. Purchases of both program and non-program assets are funded
through debt issuance of various maturities. Management makes decisions about
pricing, funding, guarantee and commitment fee levels, based on inherent credit
risks, resource allocation and target returns on equity separately for each
segment.
Under the
Farmer Mac I program, Farmer Mac purchases or commits to purchase eligible
mortgage loans secured by first liens on agricultural real estate, including
through the issuance of LTSPCs. Farmer Mac also guarantees securities
representing interests in, or obligations secured by, pools of eligible
agricultural real estate mortgage loans, and may purchase those
securities.
Under the
Farmer Mac II program, Farmer Mac II LLC purchases USDA-guaranteed portions of
loans. Farmer Mac currently operates only that part of the Farmer Mac II
program that involves the guarantee of Farmer Mac II Guaranteed Securities,
and only to the extent that either Farmer Mac or Farmer Mac II LLC is approached
or referred by an investor. Farmer Mac will not issue Farmer Mac II
Guaranteed Securities to Farmer Mac II LLC in the future.
Under the
Rural Utilities program, Farmer Mac’s business activities include loan
purchases, guarantees and purchases of securities with respect to eligible rural
utilities loans. To date, all of the business under the Rural
Utilities program has been with one lender, National Rural.
The
following table presents core earnings for Farmer Mac’s reportable operating
segments and a reconciliation to GAAP net income for the three and six months
ended June 30, 2010 and 2009. Farmer Mac has presented the
financial information and disclosures for the prior periods to reflect the
segment disclosures as if they had been in effect for all periods
reported.
Core Earnings by Business
Segment
For the Three Months Ended June 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Income
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
27,081 |
|
|
$ |
13,825 |
|
|
$ |
13,987 |
|
|
$ |
6,390 |
|
|
$ |
61,283 |
|
|
$ |
(3,956 |
) |
|
$ |
57,327 |
|
Interest
income related to consolidated trusts
owned by third parties reclassed to
guarantee fee income
|
|
|
(1,282 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,282 |
) |
|
|
1,282 |
|
|
|
- |
|
Interest
expense (2)
|
|
|
(18,210 |
) |
|
|
(11,262 |
) |
|
|
(11,342 |
) |
|
|
(3,638 |
) |
|
|
(44,452 |
) |
|
|
8,733 |
|
|
|
(35,719 |
) |
Net
effective spread
|
|
|
7,589 |
|
|
|
2,563 |
|
|
|
2,645 |
|
|
|
2,752 |
|
|
|
15,549 |
|
|
|
6,059 |
|
|
|
21,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,450 |
|
|
|
50 |
|
|
|
1,492 |
|
|
|
- |
|
|
|
6,992 |
|
|
|
(1,282 |
) |
|
|
5,710 |
|
Other
income/(expense) (3)
|
|
|
411 |
|
|
|
- |
|
|
|
- |
|
|
|
(784 |
) |
|
|
(373 |
) |
|
|
(10,108 |
) |
|
|
(10,481 |
) |
Non-interest
income/(loss)
|
|
|
5,861 |
|
|
|
50 |
|
|
|
1,492 |
|
|
|
(784 |
) |
|
|
6,619 |
|
|
|
(11,390 |
) |
|
|
(4,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loan losses
|
|
|
1,870 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,870 |
|
|
|
- |
|
|
|
1,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(3,043 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,043 |
) |
|
|
- |
|
|
|
(3,043 |
) |
Other
non-interest expense
|
|
|
(3,350 |
) |
|
|
(721 |
) |
|
|
(1,038 |
) |
|
|
(1,709 |
) |
|
|
(6,818 |
) |
|
|
- |
|
|
|
(6,818 |
) |
Non-interest
expense (4)
|
|
|
(6,393 |
) |
|
|
(721 |
) |
|
|
(1,038 |
) |
|
|
(1,709 |
) |
|
|
(9,861 |
) |
|
|
- |
|
|
|
(9,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
8,927 |
|
|
|
1,892 |
|
|
|
3,099 |
|
|
|
259 |
|
|
|
14,177 |
|
|
|
(5,331 |
) |
|
|
8,846 |
|
Income
tax (expense)/benefit
|
|
|
(3,124 |
) |
|
|
(662 |
) |
|
|
(1,085 |
) |
|
|
2,249 |
|
|
|
(2,622 |
) |
|
|
1,866 |
|
|
|
(756 |
) |
Net
income before dividends
|
|
|
5,803 |
|
|
|
1,230 |
|
|
|
2,014 |
|
|
|
2,508 |
|
|
|
11,555 |
|
|
|
(3,465 |
) |
|
|
8,090 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(720 |
) |
|
|
(720 |
) |
|
|
- |
|
|
|
(720 |
) |
Net
income
|
|
|
5,803 |
|
|
|
1,230 |
|
|
|
2,014 |
|
|
|
1,788 |
|
|
|
10,835 |
|
|
|
(3,465 |
) |
|
|
7,370 |
|
Non-controlling
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,546 |
) |
|
|
(5,546 |
) |
|
|
- |
|
|
|
(5,546 |
) |
Segment
core earnings
|
|
$ |
5,803 |
|
|
$ |
1,230 |
|
|
$ |
2,014 |
|
|
$ |
(3,758 |
) |
|
$ |
5,289 |
|
|
$ |
(3,465 |
) |
|
$ |
1,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
1,836,374 |
|
|
$ |
1,324,674 |
|
|
$ |
2,262,314 |
|
|
$ |
1,676,128 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,099,490 |
|
Total
on- and off-balance sheet program assets
at principal balance
|
|
|
7,288,389 |
|
|
|
1,300,944 |
|
|
|
2,173,660 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,762,993 |
|
Core Earnings by Business Segment
For the Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Income
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
9,567 |
|
|
$ |
11,656 |
|
|
$ |
13,370 |
|
|
$ |
7,049 |
|
|
$ |
41,642 |
|
|
$ |
108 |
|
|
$ |
41,750 |
|
Interest
expense (2)
|
|
|
(5,430 |
) |
|
|
(9,960 |
) |
|
|
(12,300 |
) |
|
|
(4,096 |
) |
|
|
(31,786 |
) |
|
|
9,937 |
|
|
|
(21,849 |
) |
Net
effective spread
|
|
|
4,137 |
|
|
|
1,696 |
|
|
|
1,070 |
|
|
|
2,953 |
|
|
|
9,856 |
|
|
|
10,045 |
|
|
|
19,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,871 |
|
|
|
691 |
|
|
|
1,346 |
|
|
|
- |
|
|
|
7,908 |
|
|
|
- |
|
|
|
7,908 |
|
Other
(expense)/income (3)
|
|
|
(93 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,591 |
) |
|
|
(2,684 |
) |
|
|
21,756 |
|
|
|
19,072 |
|
Non-interest
income/(loss)
|
|
|
5,778 |
|
|
|
691 |
|
|
|
1,346 |
|
|
|
(2,591 |
) |
|
|
5,224 |
|
|
|
21,756 |
|
|
|
26,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loan losses
|
|
|
5,693 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,693 |
|
|
|
- |
|
|
|
5,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of losses
|
|
|
529 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
529 |
|
|
|
- |
|
|
|
529 |
|
Other
non-interest expense
|
|
|
(3,224 |
) |
|
|
(958 |
) |
|
|
(810 |
) |
|
|
(2,062 |
) |
|
|
(7,054 |
) |
|
|
- |
|
|
|
(7,054 |
) |
Non-interest
expense (4)
|
|
|
(2,695 |
) |
|
|
(958 |
) |
|
|
(810 |
) |
|
|
(2,062 |
) |
|
|
(6,525 |
) |
|
|
- |
|
|
|
(6,525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
12,913 |
|
|
|
1,429 |
|
|
|
1,606 |
|
|
|
(1,700 |
) |
|
|
14,248 |
|
|
|
31,801 |
|
|
|
46,049 |
|
Income
tax (expense)/benefit
|
|
|
(4,520 |
) |
|
|
(500 |
) |
|
|
(562 |
) |
|
|
178 |
|
|
|
(5,404 |
) |
|
|
(11,130 |
) |
|
|
(16,534 |
) |
Net
income before dividends
|
|
|
8,393 |
|
|
|
929 |
|
|
|
1,044 |
|
|
|
(1,522 |
) |
|
|
8,844 |
|
|
|
20,671 |
|
|
|
29,515 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,130 |
) |
|
|
(4,130 |
) |
|
|
- |
|
|
|
(4,130 |
) |
Segment
core earnings
|
|
$ |
8,393 |
|
|
$ |
929 |
|
|
$ |
1,044 |
|
|
$ |
(5,652 |
) |
|
$ |
4,714 |
|
|
$ |
20,671 |
|
|
$ |
25,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
814,717 |
|
|
$ |
1,108,455 |
|
|
$ |
1,885,496 |
|
|
$ |
1,514,016 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,322,684 |
|
Total
on- and off-balance sheet program assets
at principal balance
|
|
|
7,464,419 |
|
|
|
1,115,025 |
|
|
|
1,819,033 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,398,477 |
|
(1)
|
Includes reconciling adjustments
for yield maintenance income and amortization of premiums on assets
consolidated at fair value to reflect core earnings
amounts.
|
(2)
|
Based on effective funding cost
determined for each operating segment, including the expense related to
interest rate swaps, which is included in "other income" on the
GAAP financial
statements.
|
(3)
|
Includes reconciling adjustments
for the reclassification of yield maintenance and the expense related to
interest rate swaps and fair value adjustments on loans held for sale and financial
derivatives.
|
(4)
|
Includes directly attributable
costs and an allocation of indirectly attributable costs based on
headcount.
|
Core Earnings by Business
Segment
For the Six Months Ended June 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Income
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
55,763 |
|
|
$ |
26,431 |
|
|
$ |
27,940 |
|
|
$ |
12,873 |
|
|
$ |
123,007 |
|
|
$ |
(4,948 |
) |
|
$ |
118,059 |
|
Interest
income related to consolidated trusts
owned by third parties reclassed to
guarantee fee income
|
|
|
(2,749 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,749 |
) |
|
|
2,749 |
|
|
|
- |
|
Interest
expense (2)
|
|
|
(38,250 |
) |
|
|
(21,721 |
) |
|
|
(22,636 |
) |
|
|
(7,295 |
) |
|
|
(89,902 |
) |
|
|
17,068 |
|
|
|
(72,834 |
) |
Net
effective spread
|
|
|
14,764 |
|
|
|
4,710 |
|
|
|
5,304 |
|
|
|
5,578 |
|
|
|
30,356 |
|
|
|
14,869 |
|
|
|
45,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
11,000 |
|
|
|
351 |
|
|
|
3,027 |
|
|
|
- |
|
|
|
14,378 |
|
|
|
(2,749 |
) |
|
|
11,629 |
|
Other
income/(expense) (3)
|
|
|
1,297 |
|
|
|
- |
|
|
|
- |
|
|
|
(1,233 |
) |
|
|
64 |
|
|
|
(14,187 |
) |
|
|
(14,123 |
) |
Non-interest
income/(loss)
|
|
|
12,297 |
|
|
|
351 |
|
|
|
3,027 |
|
|
|
(1,233 |
) |
|
|
14,442 |
|
|
|
(16,936 |
) |
|
|
(2,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(980 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(980 |
) |
|
|
- |
|
|
|
(980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(1,575 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,575 |
) |
|
|
- |
|
|
|
(1,575 |
) |
Other
non-interest expense
|
|
|
(6,386 |
) |
|
|
(1,548 |
) |
|
|
(2,067 |
) |
|
|
(3,404 |
) |
|
|
(13,405 |
) |
|
|
- |
|
|
|
(13,405 |
) |
Non-interest
expense (4)
|
|
|
(7,961 |
) |
|
|
(1,548 |
) |
|
|
(2,067 |
) |
|
|
(3,404 |
) |
|
|
(14,980 |
) |
|
|
- |
|
|
|
(14,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
18,120 |
|
|
|
3,513 |
|
|
|
6,264 |
|
|
|
941 |
|
|
|
28,838 |
|
|
|
(2,067 |
) |
|
|
26,771 |
|
Income
tax (expense)/benefit
|
|
|
(6,342 |
) |
|
|
(1,230 |
) |
|
|
(2,192 |
) |
|
|
3,949 |
|
|
|
(5,815 |
) |
|
|
723 |
|
|
|
(5,092 |
) |
Net
income before dividends
|
|
|
11,778 |
|
|
|
2,283 |
|
|
|
4,072 |
|
|
|
4,890 |
|
|
|
23,023 |
|
|
|
(1,344 |
) |
|
|
21,679 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,690 |
) |
|
|
(2,690 |
) |
|
|
(5,784 |
) |
|
|
(8,474 |
) |
Net
income
|
|
|
11,778 |
|
|
|
2,283 |
|
|
|
4,072 |
|
|
|
2,200 |
|
|
|
20,333 |
|
|
|
(7,128 |
) |
|
|
13,205 |
|
Non-controlling
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,614 |
) |
|
|
(9,614 |
) |
|
|
- |
|
|
|
(9,614 |
) |
Segment
core earnings
|
|
$ |
11,778 |
|
|
$ |
2,283 |
|
|
$ |
4,072 |
|
|
$ |
(7,414 |
) |
|
$ |
10,719 |
|
|
$ |
(7,128 |
) |
|
$ |
3,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
1,836,374 |
|
|
$ |
1,324,674 |
|
|
$ |
2,262,314 |
|
|
$ |
1,676,128 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,099,490 |
|
Total
on- and off-balance sheet program assets
at principal balance
|
|
|
7,288,389 |
|
|
|
1,300,944 |
|
|
|
2,173,660 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,762,993 |
|
Core Earnings by Business
Segment
For the Six Months Ended June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Income
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
24,589 |
|
|
$ |
23,101 |
|
|
$ |
24,883 |
|
|
$ |
15,958 |
|
|
$ |
88,531 |
|
|
$ |
372 |
|
|
$ |
88,903 |
|
Interest
expense (2)
|
|
|
(13,878 |
) |
|
|
(20,241 |
) |
|
|
(22,829 |
) |
|
|
(9,139 |
) |
|
|
(66,087 |
) |
|
|
20,525 |
|
|
|
(45,562 |
) |
Net
effective spread
|
|
|
10,711 |
|
|
|
2,860 |
|
|
|
2,054 |
|
|
|
6,819 |
|
|
|
22,444 |
|
|
|
20,897 |
|
|
|
43,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
11,761 |
|
|
|
1,343 |
|
|
|
2,214 |
|
|
|
- |
|
|
|
15,318 |
|
|
|
- |
|
|
|
15,318 |
|
Other
income/(expense) (3)
|
|
|
2,287 |
|
|
|
- |
|
|
|
- |
|
|
|
(92 |
) |
|
|
2,195 |
|
|
|
55,097 |
|
|
|
57,292 |
|
Non-interest
income/(loss)
|
|
|
14,048 |
|
|
|
1,343 |
|
|
|
2,214 |
|
|
|
(92 |
) |
|
|
17,513 |
|
|
|
55,097 |
|
|
|
72,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loan losses
|
|
|
2,159 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,159 |
|
|
|
- |
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(1,990 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,990 |
) |
|
|
- |
|
|
|
(1,990 |
) |
Other
non-interest expense
|
|
|
(6,661 |
) |
|
|
(1,967 |
) |
|
|
(1,664 |
) |
|
|
(4,235 |
) |
|
|
(14,527 |
) |
|
|
- |
|
|
|
(14,527 |
) |
Non-interest
expense (4)
|
|
|
(8,651 |
) |
|
|
(1,967 |
) |
|
|
(1,664 |
) |
|
|
(4,235 |
) |
|
|
(16,517 |
) |
|
|
- |
|
|
|
(16,517 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
18,267 |
|
|
|
2,236 |
|
|
|
2,604 |
|
|
|
2,492 |
|
|
|
25,599 |
|
|
|
75,994 |
|
|
|
101,593 |
|
Income
tax (expense)/benefit
|
|
|
(6,393 |
) |
|
|
(783 |
) |
|
|
(911 |
) |
|
|
61 |
|
|
|
(8,026 |
) |
|
|
(26,598 |
) |
|
|
(34,624 |
) |
Net
income before dividends
|
|
|
11,874 |
|
|
|
1,453 |
|
|
|
1,693 |
|
|
|
2,553 |
|
|
|
17,573 |
|
|
|
49,396 |
|
|
|
66,969 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,066 |
) |
|
|
(8,066 |
) |
|
|
- |
|
|
|
(8,066 |
) |
Segment
core earnings
|
|
$ |
11,874 |
|
|
$ |
1,453 |
|
|
$ |
1,693 |
|
|
$ |
(5,513 |
) |
|
$ |
9,507 |
|
|
$ |
49,396 |
|
|
$ |
58,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
814,717 |
|
|
$ |
1,108,455 |
|
|
$ |
1,885,496 |
|
|
$ |
1,514,016 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,322,684 |
|
Total
on- and off-balance sheet program assets
at principal balance
|
|
|
7,464,419 |
|
|
|
1,115,025 |
|
|
|
1,819,033 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,398,477 |
|
(1)
|
Includes reconciling adjustments
for yield maintenance income and amortization of premiums on assets
consolidated at fair value to reflect core earnings
amounts.
|
(2)
|
Based on effective funding cost
determined for each operating segment, including the expense related to
interest rate swaps, which is included in "other income" on the
GAAP financial
statements.
|
(3)
|
Includes reconciling adjustments
for the reclassification of yield maintenance and the expense related to
interest rate swaps and fair value adjustments on loans held for sale and financial
derivatives.
|
(4)
|
Includes directly attributable
costs and an allocation of indirectly attributable costs based on
headcount.
|
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
subsidiaries, Farmer Mac Mortgage Securities Corporation and Farmer Mac II
LLC. Farmer Mac II LLC was formed as a Delaware limited
liability company in December 2009 to operate substantially all of the business
related to the Farmer Mac II program – primarily the acquisition of
USDA-guaranteed portions. The business operations of Farmer Mac II
LLC began in January 2010. In the future, Farmer Mac will operate
only that part of the Farmer Mac II program that involves the issuance of Farmer
Mac II Guaranteed Securities, and only to the extent that Farmer Mac is
approached or referred by an investor. Farmer Mac will not issue
Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the
future.
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; (2) Farmer Mac’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 filed with the SEC on March 16, 2010;
and (3) the Current Report on Form 8-K filed with the SEC on August 4, 2010,
which updated the aforementioned Form 10-K.
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, 2009 filed with the SEC on March 16, 2010, as well as
uncertainties regarding:
|
·
|
the
availability to Farmer Mac and Farmer Mac II LLC of debt financing on
reasonable rates and terms;
|
|
·
|
legislative
or regulatory developments that could affect Farmer
Mac;
|
|
·
|
fluctuations
in the fair value of assets held by Farmer Mac and Farmer Mac II
LLC;
|
|
·
|
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;
|
|
·
|
the
impact of economic conditions and real estate values on agricultural
mortgage lending;
|
|
·
|
the
willingness of investors to invest in Farmer Mac Guaranteed
Securities;
|
|
·
|
developments
in the financial markets, including possible investor, analyst and rating
agency reactions to events involving GSEs, including Farmer Mac;
and
|
|
·
|
the
future level of interest rates, commodity prices, and export demand for
U.S. agricultural products.
|
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.
Overview
With the
new capital raised during first quarter 2010, Farmer Mac is well-positioned to
partner with agricultural and rural utilities lenders, and Farmer Mac II LLC is
well-positioned to partner with lenders participating in USDA’s guaranteed loan
programs, to continue to fulfill Farmer Mac’s mission to provide capital and
liquidity to rural America. As of June 30, 2010, Farmer Mac’s excess
core capital above its statutory minimum capital requirement was
$206.6 million.
During
first and second quarters 2010, increased loan purchase activity in the
Farmer Mac I program continued in part due to attractive long-term
fixed interest rates offered by Farmer Mac along with farmers and ranchers
reaching Farmer Mac’s commercial bank business partners’ borrower exposure
limits. Similarly, purchases of USDA Guaranteed Securities by Farmer
Mac II LLC were at a record pace for second quarter 2010. While
Farmer Mac did not complete any of the larger portfolio transactions during
second quarter that have contributed to its historical growth, in July 2010
Farmer Mac purchased an aggregate of $250.0 million of AgVantage securities in
two transactions. Those purchases were the first Farmer Mac I program
portfolio transactions of comparable size completed since third quarter
2008.
The
growth in Farmer Mac’s Rural Utilities program continued during 2010 with the
purchase of $136.7 million of loans under that program during the six
months ended June 30, 2010. That growth occurred at a lower rate than
in 2008 and 2009 when Farmer Mac purchased general obligation notes from
National Rural secured by eligible rural utilities loans in AgVantage structures
in several larger transactions. Beginning in August 2009 and
continuing through 2010, the majority of Farmer Mac’s rural utilities business
was direct purchases of distribution cooperative rural utilities loans, and this
trend of purchasing eligible rural utilities loans, as opposed to guaranteeing
general obligations secured by eligible loans in AgVantage transactions, is
expected to continue for the foreseeable future under the Rural Utilities
program. In late 2009, Farmer Mac developed underwriting standards
for the purchase of loans to generation and transmission
cooperatives. Farmer Mac expects to begin purchasing these types of
rural utilities loans during third quarter 2010.
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 position and results of operations
and require complex, subjective judgments are the accounting policies
for: (1) the allowance for losses, (2) fair value measurement,
and (3) other-than-temporary impairment.
For a
discussion of Farmer Mac’s critical accounting policies related to the allowance
for losses, fair value measurement and other-than-temporary impairment 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, 2009
filed with the SEC on March 16, 2010 (as updated by the Current Report on Form
8-K filed with the SEC on August 4, 2010).
Results of
Operations
Farmer
Mac’s net income available to common stockholders for second quarter 2010 was
$1.8 million or $0.17 per diluted common share, compared to net income of
$25.4 million or $2.49 per diluted common share for second quarter
2009. For the six months ended June 30, 2010, Farmer
Mac’s
net income available to common stockholders was $3.6 million, compared to $58.9
million for the six months ended June 30, 2009.
Farmer
Mac uses core earnings, a non-GAAP financial measure, to measure corporate
economic performance and develop financial plans because, in financial
management’s view, core earnings more accurately represents Farmer Mac’s
economic performance, transaction economics and business trends. Core
earnings differs from GAAP net income primarily by excluding unrealized gains or
losses on financial derivatives and trading assets, lower of cost or fair value
adjustments on loans held for sale and other items related to the retirement of
preferred stock and the amortization of premiums on assets consolidated at fair
value. Farmer Mac’s disclosure of this non-GAAP measure is not
intended to replace GAAP information but, rather, to supplement it. A
reconciliation of Farmer Mac’s GAAP net income available to common stockholders
to core earnings is presented in the following table, and those reconciling
items are described in more detail below the table.
Reconciliation of GAAP Net Income
Available to Common Stockholders to Core
Earnings
|
|
|
For the Three Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
GAAP net income
available to common
stockholders
|
|
$ |
1,824 |
|
|
$ |
0.17 |
|
|
$ |
25,385 |
|
|
$ |
2.49 |
|
Less the net of tax effects
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses)/gains on
financial derivatives
|
|
|
(4,016 |
) |
|
|
(0.38 |
) |
|
|
20,281 |
|
|
|
1.99 |
|
Unrealized gains on trading
assets
|
|
|
3,288 |
|
|
|
0.31 |
|
|
|
23 |
|
|
|
- |
|
Amortization of premiums on assets
consolidated at fair value
|
|
|
(2,701 |
) |
|
|
(0.25 |
) |
|
|
- |
|
|
|
- |
|
Issuance costs on the retirement
of preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net effects of settlements on
agency forward contracts
|
|
|
(94 |
) |
|
|
(0.01 |
) |
|
|
367 |
|
|
|
0.04 |
|
Lower of cost or fair value
adjustment on loans held for sale
|
|
|
58 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Core
earnings
|
|
$ |
5,289 |
|
|
$ |
0.50 |
|
|
$ |
4,714 |
|
|
$ |
0.46 |
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
GAAP net income
available to common
stockholders
|
|
$ |
3,591 |
|
|
$ |
0.34 |
|
|
$ |
58,903 |
|
|
$ |
5.80 |
|
Less the net of tax effects
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses)/gains on
financial derivatives
|
|
|
(2,129 |
) |
|
|
(0.20 |
) |
|
|
30,009 |
|
|
|
2.95 |
|
Unrealized gains on trading
assets
|
|
|
5,476 |
|
|
|
0.52 |
|
|
|
20,580 |
|
|
|
2.03 |
|
Amortization of premiums on assets
consolidated at fair value
|
|
|
(3,383 |
) |
|
|
(0.32 |
) |
|
|
- |
|
|
|
- |
|
Issuance costs on the retirement
of preferred stock
|
|
|
(5,784 |
) |
|
|
(0.56 |
) |
|
|
- |
|
|
|
- |
|
Net effects of settlements on
agency forward contracts
|
|
|
112 |
|
|
|
0.01 |
|
|
|
(1,193 |
) |
|
|
(0.12 |
) |
Lower of cost or fair value
adjustment on loans held for sale
|
|
|
(1,420 |
) |
|
|
(0.13 |
) |
|
|
- |
|
|
|
- |
|
Core
earnings
|
|
$ |
10,719 |
|
|
$ |
1.02 |
|
|
$ |
9,507 |
|
|
$ |
0.94 |
|
Changes
in the fair values of financial derivatives and trading assets have historically
contributed significant volatility to Farmer Mac’s periodic
earnings. Consistent with that trend, Farmer Mac’s second quarter
2010 loss on financial derivatives was $15.8 million, compared to a gain of
$21.5 million during second quarter 2009. For the six months ended
June 30, 2010, the loss on financial derivatives was $21.6 million, compared to
a gain of $23.2 million for the six months ended June 30, 2009. Fair
value gains on trading assets totaled $5.1 million for second quarter 2010,
compared to gains of $35,000 for second quarter 2009. For the
six months ended June 30, 2010 the gains on trading assets totaled $8.4 million,
compared to $31.7 million for the same period in 2009. While
these volatile changes in fair values of derivatives and trading assets may at
times produce significant income, as was the case in 2009, they may also produce
significant losses, as was the case in the first six months of 2010 and as has
been the case in previous reporting periods. Future changes in those
values cannot be reliably predicted; however, as of June 30, 2010, the
cumulative fair value of after-tax losses recorded on financial derivatives was
$62.1 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 if the
financial derivatives are held to maturity, as is generally expected.
Upon the
adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was
determined to be the primary beneficiary of certain VIEs where Farmer Mac held
beneficial interests in trusts used as vehicles for the securitization of rural
utilities loans. Upon consolidation, Farmer Mac transferred these
assets from “Farmer Mac Guaranteed Securities” to “Loans held for investment in
consolidated trusts” on its condensed consolidated balance
sheet. Farmer Mac transferred these assets at their fair value, which
resulted in an unamortized premium of $42.7 million. This premium is
being amortized over the contractual lives of the underlying loans and that
amortization is not included in Farmer Mac’s core earnings.
In
January 2010, Farmer Mac contributed substantially all of the assets, in excess
of $1.1 billion, comprising the Farmer Mac II program to a subsidiary,
Farmer Mac II LLC. Farmer Mac transferred these assets
at their fair value, which resulted in an unamortized premium of
$39.1 million being recorded by Farmer Mac II LLC. This premium
is being amortized over the estimated remaining lives of the underlying
USDA-guaranteed portions and is not included in Farmer Mac’s core
earnings.
In
January 2010, Farmer Mac retired and repurchased all of the outstanding shares
of Series B preferred stock with proceeds from the completed capital
raise. As a result of the repurchase, Farmer Mac wrote off $5.8
million of deferred issuance costs related to those Series B preferred shares as
loss on retirement of preferred stock on the condensed consolidated statements
of operations.
In
addition to those adjustments to reconcile Farmer Mac’s GAAP net income
available to common stockholders to core earnings, Farmer Mac’s year-to-date
2009 results benefited from two transactions that were not replicated in the
year-to-date 2010 results. The first was the sale of a pool of loans
with a total principal balance of $354.5 million that resulted in a gain of
$1.6 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 those
securities during first quarter 2009 for $8.6 million resulted in a $3.2
million recovery of previously written off losses.
The
following sections provide more detail regarding specific components of Farmer
Mac’s results of operations.
Net
Interest Income. Net interest income for the three and six
months ended June 30, 2010 was $21.6 million and $45.2 million,
respectively, compared to $19.9 million and $43.3 million for the same
periods during 2009. Beginning in first quarter 2010, net interest
income includes the reclassification of guarantee fees related to certain Farmer
Mac Guaranteed Securities previously reported as off-balance sheet as a result
of the adoption of the new consolidation guidance. For the three and
six months ended June 30, 2010, these reclassifications resulted in an increase
in net interest income of $1.3 million and $2.7 million, respectively and a
decrease in the net interest yield of 18 basis points and 19 basis points,
respectively. The decrease in the net interest yield is the result of
the average rate earned on guarantee fees being lower than the net interest
spread earned on assets Farmer Mac purchases and holds on-balance
sheet. For the six months ended June 30, 2010 and 2009, the net
interest yield was 129 basis and 176 basis points,
respectively. Excluding the impacts of the guarantee fee
reclassifications, the net interest yield was 148 basis points for the six
months ended June 30, 2010, compared to 176 basis points for the six months
ended June 30, 2009.
The
following table provides information regarding interest-earning assets and
funding for the six months ended June 30, 2010 and 2009. The balance
of non-accruing loans is included in the average balance of interest-earning
loans and Farmer Mac and USDA 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 balance of
consolidated loans with beneficial interests owned by third parties is disclosed
in the net effect of consolidated trusts and is not included in the average
balances of interest-earning assets and interest-bearing
liabilities. The interest income and expense associated with these
trusts are shown net in the net effect of consolidated trusts. The
average rate earned on cash and investments reflects lower short-term market
rates during the six months ended June 30, 2010 compared to the six months ended
June 30, 2009. The lower average rate on loans and Farmer Mac
and USDA Guaranteed Securities during the six months ended June 30, 2010
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, throughout 2009 and the first half of 2010.
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
June 30, 2009
|
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
1,535,482 |
|
|
$ |
12,873 |
|
|
1.68%
|
|
$ |
1,554,738 |
|
|
$ |
15,958 |
|
|
2.05%
|
|
Loans
and Farmer Mac and USDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities (1)
|
|
|
4,194,011 |
|
|
|
70,980 |
|
|
3.38%
|
|
|
3,359,356 |
|
|
|
72,945 |
|
|
4.34%
|
|
Total
interest-earning assets
|
|
|
5,729,493 |
|
|
|
83,853 |
|
|
2.93%
|
|
|
4,914,094 |
|
|
|
88,903 |
|
|
3.62%
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
3,049,991 |
|
|
|
5,137 |
|
|
0.34%
|
|
|
3,223,496 |
|
|
|
15,144 |
|
|
0.94%
|
|
Notes
payable due after one year (2)
|
|
|
2,276,958 |
|
|
|
36,240 |
|
|
3.18%
|
|
|
1,482,193 |
|
|
|
30,418 |
|
|
4.10%
|
|
Total
interest-bearing liabilities (3)
|
|
|
5,326,949 |
|
|
|
41,377 |
|
|
1.55%
|
|
|
4,705,689 |
|
|
|
45,562 |
|
|
1.94%
|
|
Net
non-interest-bearing funding
|
|
|
402,544 |
|
|
|
- |
|
|
|
|
|
208,405 |
|
|
|
- |
|
|
|
|
Total
funding
|
|
|
5,729,493 |
|
|
|
41,377 |
|
|
1.44%
|
|
|
4,914,094 |
|
|
|
45,562 |
|
|
1.85%
|
|
Net
interest income/yield prior to consolidation of certain
trusts
|
|
|
5,729,493 |
|
|
|
42,476 |
|
|
1.48%
|
|
|
4,914,094 |
|
|
|
43,341 |
|
|
1.76%
|
|
Net
effect of consolidated trusts (4)
|
|
|
1,308,514 |
|
|
|
2,749 |
|
|
0.42%
|
|
|
- |
|
|
|
- |
|
|
0.00%
|
|
Adjusted
net interest income/yield
|
|
$ |
7,038,007 |
|
|
$ |
45,225 |
|
|
1.29%
|
|
$ |
4,914,094 |
|
|
$ |
43,341 |
|
|
1.76%
|
|
(1)
|
Excludes
interest income of $34.2 million related to consolidated trusts with
beneficial interests owned by third
parties.
|
(2)
|
Includes
current portion of long-term notes.
|
(3)
|
Excludes
interest expense of $31.5 million related to consolidated trusts with
beneficial interests owned by third
parties.
|
(4)
|
Includes
the effect of consolidated trusts with beneficial interests owned by third
party investors.
|
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 and
USDA 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, 2010
|
|
|
|
Compared to the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
|
Increase/(Decrease) Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
(2,889 |
) |
|
$ |
(195 |
) |
|
$ |
(3,084 |
) |
Loans
and Farmer Mac and USDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
(17,970 |
) |
|
|
16,005 |
|
|
|
(1,965 |
) |
Total
|
|
|
(20,859 |
) |
|
|
15,810 |
|
|
|
(5,049 |
) |
Expense
from interest-bearing liabilities
|
|
|
(9,724 |
) |
|
|
5,540 |
|
|
|
(4,184 |
) |
Change
in net interest income prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidation
of certain trusts (1)
|
|
$ |
(11,135 |
) |
|
$ |
10,270 |
|
|
$ |
(865 |
) |
(1)
Excludes the effect of consolidated trusts with beneficial interests owned by
third parties.
In
addition to the guarantee fee reclassification described above, the net interest
yield includes yield maintenance payments received upon the early payoff of
certain borrower’s loans and the amortization of premiums on assets consolidated
at fair value and excludes the accrual of income and expense related to the
payments on financial derivatives. 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, 2010, this resulted
in an increase of the net interest yield of $8.7 million (60 basis points),
compared to an increase of the net interest yield of $9.9 million (83 basis
points) for the three months ended June 30, 2009. For the six months
ended June 30, 2010, this resulted in an increase of the net interest yield of
$17.1 million (60 basis points), compared to an increase of the net
interest yield of $20.5 million (84 basis points) for the six months ended June
30, 2009.
Farmer
Mac’s net interest income and net interest yields for the three months ended
June 30, 2010 and 2009 included the benefits of yield maintenance payments
of $0.2 million (1 basis point) and $0.1 million (1 basis point),
respectively. The net interest yields for the six months ended June
30, 2010 and 2009 included the benefits of yield maintenance payments of $0.3
million (1 basis point) and $0.4 million (2 basis points),
respectively. Yield maintenance payments represent the present value
of expected future interest income streams and accelerate the recognition of
interest income from the related loans. Because the timing and size
of these payments vary greatly, variations do not necessarily indicate positive
or negative trends to gauge future financial results.
Upon
the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac
was determined to be the primary beneficiary of certain VIEs where Farmer Mac
held beneficial interests in trusts used as vehicles for the securitization of
agricultural real estate mortgage loans or rural utilities
loans. Upon consolidation, Farmer Mac transferred these assets from
“Farmer Mac Guaranteed Securities” to “Loans held for investment in consolidated
trusts.” The transferred assets on January 1, 2010 included Farmer
Mac Guaranteed Securities – Rural Utilities with an unpaid principal balance of
$412.9 million and a fair value of $455.6 million. Farmer Mac
was reporting these assets at their fair values, with changes in fair value
recorded in earnings, based on its election of the fair value option in
2008. Upon consolidation of the underlying rural utilities loans,
Farmer Mac reclassified the unrealized gain of $42.7 million as of January 1,
2010 to unamortized premiums on loans held for investment. The
related premium is being amortized over the contractual lives of the underlying
rural utilities loans.
On
January 25, 2010, Farmer Mac contributed substantially all of the assets, in
excess of $1.1 billion, comprising the Farmer Mac II program to Farmer
Mac’s subsidiary, Farmer Mac II LLC. Farmer Mac
transferred these assets at their fair value which resulted in an unamortized
premium of $39.1 million being recorded by Farmer Mac II LLC. This
premium is being amortized over the estimated remaining lives of the underlying
USDA Guaranteed Securities.
Farmer
Mac’s net interest income and net interest yield for the three and six months
ended June 30, 2010 include expenses of $4.2 million (29 basis points) and $5.2
million (18 basis points), respectively, related to the amortization of the
premiums described above.
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 and the amortization of premiums on
assets consolidated at fair value.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/yield
|
|
$ |
20,326 |
|
|
1.40%
|
|
|
$ |
19,901 |
|
|
1.66%
|
|
|
$ |
42,476 |
|
|
1.48%
|
|
|
$ |
43,341 |
|
|
1.76%
|
|
Expense
related to financial
derivatives
|
|
|
(8,733 |
) |
|
-0.60%
|
|
|
|
(9,937 |
) |
|
-0.83%
|
|
|
|
(17,068 |
) |
|
-0.60%
|
|
|
|
(20,525 |
) |
|
-0.84%
|
|
Yield
maintenance payments
|
|
|
(200 |
) |
|
-0.01%
|
|
|
|
(108 |
) |
|
-0.01%
|
|
|
|
(256 |
) |
|
-0.01%
|
|
|
|
(372 |
) |
|
-0.02%
|
|
Amortization
of premiums on assets consolidated at fair
value
|
|
|
4,156 |
|
|
0.29%
|
|
|
|
- |
|
|
-
|
|
|
|
5,204 |
|
|
0.18%
|
|
|
|
- |
|
|
-
|
|
Net
effective spread
|
|
$ |
15,549 |
|
|
1.08%
|
|
|
$ |
9,856 |
|
|
0.82%
|
|
|
$ |
30,356 |
|
|
1.05%
|
|
|
$ |
22,444 |
|
|
0.90%
|
|
Provision
for Loan Losses. During the three months ended June 30, 2010, Farmer Mac
recorded releases to its allowance for loan losses of $1.9 million and
recoveries of $2.2 million. The releases recorded during second
quarter 2010 were the result of increased provision needs of $0.3 million offset
by recoveries of $2.2 million on a loan secured by an ethanol
plant. During the six months ended June 30, 2010, Farmer Mac recorded
provisions to its allowance for loan losses of $1.0 million and recoveries of
$2.2 million. The provisions to the allowance for loan losses during
the first half of 2010 include:
|
·
|
the
reclassification of $2.0 million from the reserve for losses to the
allowance for loan losses upon adoption of the new consolidation guidance
in first quarter 2010;
|
|
·
|
increased
provision needs of $1.2 million; offset
by
|
|
·
|
recoveries
of $2.2 million on a loan secured by an ethanol
plant.
|
During
the three and six months ended June 30, 2009, Farmer Mac recorded releases to
its allowance for loan losses of $5.7 million and $2.2 million,
respectively. Farmer Mac also recorded $5.7 million and $7.7
million of charge-offs, respectively, for the three and six months ended
June 30, 2009. Farmer Mac recorded no recoveries during the
three months ended June 30, 2009 and $0.8 million of recoveries for
the six months ended June 30, 2009. The activity in the allowance for
loan losses in 2009 was 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, 2010, Farmer Mac’s
total allowance for loan losses was $9.5 million, compared to
$6.3 million as of December 31, 2009 and $1.8 million as of June 30,
2009. See “—Risk Management—Credit Risk – Loans.”
Provision
for Losses. During the three and six months ended June 30,
2010, Farmer Mac recorded provisions to its reserve for losses of
$3.0 million and $1.6 million, respectively. The provisions
recorded in the second quarter 2010 primarily relate to Farmer Mac’s exposure to
the ethanol industry pursuant to loans underlying LTSPCs. Farmer Mac
recorded provisions to its reserve for losses of $3.6 million in the first half
of 2010, which were partially offset by the reclassification of $2.0 million
from the reserve for losses to the allowance for loan losses upon adoption of
the new consolidation guidance in first quarter 2010. 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. As of
June 30, 2010, Farmer Mac’s reserve for losses was $9.5 million,
compared to $7.9 million as of December 31, 2009 and $7.5 million as of
June 30, 2009. 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 $5.7 million for second quarter 2010
and $11.6 million for the six months ended June 30, 2010, compared to $7.9
million for second quarter 2009 and $15.3 million for the six months ended June
30, 2009. Guarantee and commitment fees for the three and six months
ended June 30, 2010 includes the reclassification of $1.3 million and $2.7
million, respectively, to net interest income related to Farmer Mac Guaranteed
Securities previously reported as off- balance sheet as a result of the adoption
of the new consolidation guidance.
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 FASB guidance on
derivatives. The net effect of gains and losses on financial
derivatives for the three and six months ended June 30, 2010 was a net loss of
$15.8 million and $21.6 million, respectively, compared to net gains of
$21.5 million and $23.2 million, respectively, for the same periods in
2009. The components of
gains and losses on financial derivatives for the three and six months ended
June 30, 2010 and 2009 are summarized in the following
table:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense related to financial
derivatives
|
|
$ |
(8,733 |
) |
|
$ |
(9,937 |
) |
|
$ |
(17,068 |
) |
|
$ |
(20,525 |
) |
(Losses)/gains due to terminations
or net settlements
|
|
|
(885 |
) |
|
|
255 |
|
|
|
(1,257 |
) |
|
|
(2,378 |
) |
Unrealized (losses)/gains due to
fair value changes
|
|
|
(6,177 |
) |
|
|
31,287 |
|
|
|
(3,239 |
) |
|
|
46,280 |
|
Amortization of financial
derivatives transition adjustment
|
|
|
(45 |
) |
|
|
(77 |
) |
|
|
(80 |
) |
|
|
(138 |
) |
(Losses)/gains on financial
derivatives
|
|
$ |
(15,840 |
) |
|
$ |
21,528 |
|
|
$ |
(21,644 |
) |
|
$ |
23,239 |
|
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 the debt of other
GSEs and U.S. Treasury futures are included in gains/(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
financial derivatives transition adjustment reflects the reclassification into
earnings of the unrealized gains/(losses) on financial derivatives included in
accumulated other comprehensive income/(loss) as a result of the adoption of the
FASB standard on derivatives. The remaining financial
derivatives transition adjustment 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.
For the
three and six months ended June 30, 2010, Farmer Mac was a party to interest
rate swap contracts with one related party, Zions First National
Bank. Farmer Mac realized expenses of $0.8 million and $1.6 million
for three and six months ended June 30, 2010 and June 30, 2009,
respectively. Farmer Mac recognized unrealized losses $0.1 million
and $25,000 for the three and six months ended June 30, 2010, respectively,
compared to unrealized gains of $0.8 million and $0.3 million, respectively, for
the same periods in 2009.
Gains
and Losses on Trading Assets. During the three and six months
ended June 30, 2010, Farmer Mac recognized gains on trading assets of
$5.1 million and $8.4 million, respectively, compared to gains of $35,000
and $31.7 million, respectively, for the same periods in 2009. During
first quarter 2010, Farmer Mac changed its primary source of valuation for its
investment in the preferred stock of AgFirst Farm Credit Bank. Taking
into consideration its own recently executed trades during first quarter 2010,
along with an increase in observable trading activity for this and similar
securities, Farmer Mac determined that the best estimates of fair value for this
security as of March 31, 2010 and June 30, 2010 were the fair values provided by
an independent third party pricing service. For the three and six
months ended June 30, 2010, Farmer Mac recorded $0.7 million and $2.2 million of
trading losses, respectively, related to the decline in the fair value of its
investment in AgFirst Farm Credit Bank preferred stock. During first
and second quarters 2010, Farmer Mac also recorded trading gains of $5.0 million
and $5.6 million, respectively, related to an increase in the fair value of the
USDA Guaranteed Securities contributed to its subsidiary, Farmer Mac II LLC,
which had previously been selected for the fair value option.
Farmer
Mac made no fair value option elections during the three and six months ended
June 30, 2010 and 2009.
Gains
and Losses on Sale of Available-for-Sale Investment
Securities. During the three months ended June 30, 2010,
Farmer Mac did not sell any securities from its available-for-sale- portfolio,
compared to realized losses of $0.3 million from the sale of securities for the
three months ended June 30, 2009. During the six months ended June
30, 2010, Farmer Mac realized gains of $0.2 million from the sale of securities
from its available-for-sale portfolio, compared to gains of $2.9 million six
months ended June 30, 2009.
General
and Administrative Expenses. General and administrative
expenses, including legal, independent audit, and consulting fees, were
$2.1 million for second quarter 2010 and $4.6 million for the six
months ended June 30, 2010, compared to $3.0 million and $5.9 million,
respectively, for the same periods in 2009. The higher level of
expenses in 2009 compared to 2010 was 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, 2010 were $0.6
million and $1.1 million, respectively, compared to $0.5 million and $1.0
million for the same periods in 2009. FCA has advised Farmer Mac that
its estimated fees for the federal fiscal year ending September 30, 2010
will be $2.3 million, compared to $2.1 million for the federal fiscal year
ended September 30, 2009. 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.
Income
Tax Expense/Benefit. Income tax expense totaled $0.8 million
and $5.1 million for the three and six months ended June 30, 2010, respectively,
compared to $16.5 million and $34.6 million, respectively, for the same periods
in 2009. Income tax expense decreased significantly primarily due to
the decrease in pre-tax book income. Farmer Mac’s effective tax rates
for the three and six months ended June 30, 2010 were 8.5 percent and 19.0
percent, respectively, compared to 35.9 percent and 34.0 percent, respectively,
for the same periods in 2009. The reduction in the effective tax rate
was due primarily to the income attributed to the non-controlling interest in
Farmer Mac II LLC, for which Farmer Mac does not accrue income tax
expense.
Business
Volume. During second
quarter 2010, Farmer Mac added $331.5 million of new program volume in the form
of:
|
·
|
purchases
of $98.2 million of Farmer Mac I
loans;
|
|
·
|
the
placement of $32.4 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchases
of $123.2 million of USDA-guaranteed portions of loans;
and
|
|
·
|
purchases
of $77.7 million of Rural Utilities
loans.
|
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 $10.8 billion as
of June 30, 2010.
In addition to the second quarter
business volume, in July 2010 Farmer Mac purchased (1) $200.0 million
of AgVantage securities representing a five-year general obligation of MetLife
Insurance Company of Connecticut secured by agricultural mortgage loans eligible
for the Farmer Mac I program; and (2) $50.0 million of AgVantage
securities representing a five-year general obligation of Metropolitan Life
Insurance Company secured by agricultural mortgage loans eligible for the Farmer
Mac I program.
The
following table sets forth loan purchase, LTSPC and guarantee activities for
current loans under the Farmer Mac I, Farmer Mac II and Rural Utilities programs
during the periods indicated:
Farmer
Mac Loan Purchases, Guarantees and
LTSPCs
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
98,235 |
|
|
$ |
37,900 |
|
|
$ |
176,183 |
|
|
$ |
67,714 |
|
LTSPCs
|
|
|
32,430 |
|
|
|
22,717 |
|
|
|
109,573 |
|
|
|
88,437 |
|
AgVantage
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
115,109 |
|
|
|
- |
|
|
|
201,672 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
7,953 |
|
|
|
96,322 |
|
|
|
13,678 |
|
|
|
175,377 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
77,726 |
|
|
|
- |
|
|
|
136,744 |
|
|
|
- |
|
Guaranteed
Securities
|
|
|
- |
|
|
|
900,000 |
|
|
|
- |
|
|
|
1,170,000 |
|
Total
purchases, guarantees and commitments
|
|
$ |
331,453 |
|
|
$ |
1,056,939 |
|
|
$ |
637,850 |
|
|
$ |
1,501,528 |
|
The
outstanding principal balance of loans held and loans underlying LTSPCs and on-
and off-balance sheet Farmer Mac and USDA Guaranteed Securities was
$10.8 billion as of June 30, 2010 and $10.7 billion as of
December 31, 2009. The following table sets forth information
regarding those outstanding balances as of the dates indicated:
Outstanding
Balance of Farmer Mac Loans and Loans Underlying
|
Farmer
Mac and USDA Guaranteed Securities and
LTSPCs
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
844,227 |
|
|
$ |
733,422 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
4,369 |
|
|
|
5,307 |
|
Beneficial
interests owned by third party investors
|
|
|
880,035 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
43,550 |
|
|
|
48,800 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
1,218,329 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
41,756 |
|
|
|
1,164,996 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
165,388 |
|
|
|
28,644 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
406,679 |
|
|
|
412,948 |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
1,587,200 |
|
|
|
1,675,000 |
|
Total
on-balance sheet
|
|
$ |
5,191,533 |
|
|
$ |
4,069,117 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
LTSPCs
|
|
|
1,739,979 |
|
|
|
2,165,706 |
|
Farmer
Mac Guaranteed Securities
|
|
|
826,910 |
|
|
|
1,492,239 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities
|
|
|
40,860 |
|
|
|
34,802 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
|
14,393 |
|
|
|
14,240 |
|
Total
off-balance sheet
|
|
$ |
5,567,142 |
|
|
$ |
6,651,987 |
|
Total
|
|
$ |
10,758,675 |
|
|
$ |
10,721,104 |
|
Of the
$10.8 billion outstanding principal balance of volume included in Farmer Mac’s
three programs as of June 30, 2010, $4.6 billion are Farmer Mac Guaranteed
Securities structured as AgVantage 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. Unlike business volume
in the form of purchased loans and loans underlying LTSPCs and non-AgVantage
Farmer Mac Guaranteed Securities, the Farmer Mac Guaranteed Securities
structured as AgVantage securities generally do not pay down principal based on
amortization schedules and instead have fixed maturity dates when the secured
general obligation is due.
The
following table summarizes by maturity date the outstanding principal amount of
AgVantage securities as of June 30, 2010.
AgVantage Balances by Year of Maturity
|
|
|
|
As
of
|
|
|
|
June 30, 2010
|
|
|
|
(in thousands)
|
|
|
|
|
|
2010
|
|
$ |
102,550 |
|
2011
|
|
|
2,051,400 |
|
2012
|
|
|
497,000 |
|
2013
|
|
|
157,750 |
|
2014
|
|
|
761,900 |
|
Thereafter
|
|
|
1,019,543 |
|
Total
|
|
$ |
4,590,143 |
|
As shown
in the table above, $2.1 billion of the outstanding $4.6 billion of
AgVantage securities matures in 2011. If the issuer of a maturing
AgVantage security does not refinance the security through Farmer Mac and Farmer
Mac does not find alternate sources of business volume, the Corporation’s income
could be adversely affected. However, the income effect of less
AgVantage business may not be material and will likely not be proportional to
the amount of any decrease in business volume as a result of the maturity of
AgVantage securities.
The
weighted-average ages of the Farmer Mac I newly originated and current seasoned
loans purchased during each of second quarter 2010 and second quarter 2009 was
less than one month. Of the Farmer Mac I newly originated and
current seasoned loans purchased during second quarter 2010 and second quarter
2009, 75 percent and 77 percent, respectively, had principal amortization
periods longer than the maturity date, resulting in balloon payments at
maturity, with a weighted-average remaining terms to maturity of 15.0 years and
16.2 years, respectively. The weighted-average age of delinquent
loans purchased out of securitized pools and LTSPCs during second quarter 2010
and second quarter 2009 was 5.6 years and 2.3 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, 2009 filed with the SEC on March 16, 2010
(as updated by the Current Report on Form 8-K filed with the SEC on August 4,
2010).
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I newly originated and current seasoned loan purchases
|
|
$ |
98,235 |
|
|
$ |
37,900 |
|
|
$ |
176,183 |
|
|
$ |
67,714 |
|
Defaulted
loans purchased underlying Farmer
Mac I Guaranteed Securities owned by third party
investors
|
|
|
- |
|
|
|
- |
|
|
|
2,323 |
|
|
|
- |
|
Defaulted
loans purchased underlying LTSPCs
|
|
|
913 |
|
|
|
572 |
|
|
|
1,080 |
|
|
|
3,386 |
|
Defaulted
loans underlying on-balance sheet Farmer Mac I Guaranteed Securities
transferred to loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,216 |
|
Total
loan purchases
|
|
$ |
99,148 |
|
|
$ |
38,472 |
|
|
$ |
179,586 |
|
|
$ |
73,316 |
|
Farmer
Mac II LLC. In January 2010,
Farmer Mac contributed substantially all of the assets comprising the Farmer Mac
II program (in excess of $1.1 billion) to Farmer Mac’s subsidiary, Farmer Mac II
LLC. The assets that Farmer Mac contributed to Farmer Mac II LLC
consisted primarily of USDA-guaranteed portions that had not been securitized by
Farmer Mac but also included $35.0 million of Farmer Mac II Guaranteed
Securities. Farmer Mac did not guarantee the timely payment of
principal and interest on the $1.1 billion of contributed USDA-guaranteed
portions and will provide a guarantee in connection with the issuance of Farmer
Mac II Guaranteed Securities only to the extent that either Farmer Mac or Farmer
Mac II LLC is approached by an investor. The contributed
USDA-guaranteed portions had previously been presented as Farmer Mac II
Guaranteed Securities on the condensed consolidated financial statements of
Farmer Mac and are now presented as “USDA Guaranteed Securities” on the
condensed consolidated balance sheets. The financial information
presented in this report reflects the accounts of Farmer Mac and its
subsidiaries on a consolidated basis. Accordingly, Farmer Mac’s
reportable operating segments presented in this report will differ from the
stand-alone financial statements of Farmer Mac II LLC. Those separate
financial statements are available on the website of Farmer Mac II
LLC.
The
assets of Farmer Mac II LLC would be available to creditors of Farmer Mac only
after all obligations owed to creditors of and equity holders in Farmer Mac II
LLC had been satisfied. As of June 30, 2010, Farmer Mac II LLC held
assets with a fair value of $1.3 billion, had debt outstanding of $46.0 million,
had preferred stock outstanding with a liquidation preference of
$250.0 million, and had $1.0 billion of common stock outstanding, all of
which is held by Farmer Mac. For more information about the formation
and operations of Farmer Mac II LLC and the features of the preferred stock
issued by Farmer Mac II LLC in January 2010, see Notes 3, 5, 6 and 8 to the
condensed consolidated financial statements and Note 15 to the consolidated
financial statements in the Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by
the Current Report on Form 8-K filed with the SEC on August 4,
2010).
Outlook. The
agricultural sector is made up of diverse industries that respond in different
ways to changes in economic conditions. Those industries often are
affected differently, sometimes positively and sometimes negatively, by
prevailing economic conditions, which results in cycles where one or more
industries may be under stress at any one time. Conditions in the
agricultural sector during 2009 and the first half of 2010 were more stable than
the national economy in general, but agriculture was not completely insulated
from the effects of the economic downturn and remained subject to traditional
commodity price cycles and national agricultural and energy policy
reconsideration. Although some industries in the agricultural sector
prospered, others, such as the dairy sector, experienced operating losses
throughout most of 2009 due to oversupply and the worldwide economic
slowdown. This situation has only slightly moderated throughout 2010,
as low-cost dairy operators began to operate close to or slightly above
break-even cash flow levels. Farmer Mac expects that the remainder of
2010 will continue to be a challenge for dairy producers, which could lead to
higher delinquencies and additional provisions for losses and
charge-offs. The protein sector (i.e., cattle, poultry and pork
producers) has seen continued improvement in prices received during the first
half of 2010. However, given the multi-year period of stress and
recent trends in feed prices, these industries will continue to be monitored
closely. In addition, competing interests for the water supply have
limited the flow to farmers in some areas to a level well below that embedded in
long-standing water contract agreements. Ethanol margins tightened
during the first half of 2010, and, on average, ethanol plants operated at
breakeven levels. Federal support of this industry, in the form of an
excise tax credit and an import tariff, expire at the end of 2010 and Congress
is in the process of considering what, if any, future price supports should be
in place. Congress is considering an increase in the mandate for
ethanol use, which would be a positive for the industry, but a reduction in or
loss of current price supports via blending credits or tax policies would be
detrimental to the industry. Farmer Mac will continue to closely
monitor developments in industries and geographic areas experiencing
stress. The cyclical credit issues related to the agricultural sector
are expected to remain within Farmer Mac’s historical experience, but are likely
to be greater than the historical average.
With
respect to the agricultural operating and lending markets, recent farmland sales
have reflected more limited interest and the effects of reduced profitability in
some of the noted agricultural sectors. Elevated farm input costs and
lower current commodity prices have significantly squeezed profits and the
related farmer demand for additional land, especially in the dairy sector and
those isolated stressed irrigation water areas. Although these
factors have slowed the rapid farm real estate value appreciation of the past
several years, Farmer Mac generally expects farmland values to remain
stable. Farmer Mac also monitors the establishment and evolution of
governmental policies and regulations that affect farmers, ranchers, and
lenders, including agricultural polices contained in the current Farm Bill due
to expire in 2012. Congress has begun the process of preparing a new
Farm Bill that is targeted to be passed in 2012.
Broader
trends underway now, such as the deleveraging of capital, will also have an
effect in reducing credit availability from traditional lenders to the
agricultural sector. Accordingly, Farmer Mac expects a growing need
for financial vehicles to expand credit availability to those agricultural
industries that have sound financial fundamentals, which presents both a
challenge and an opportunity that Farmer Mac is actively
pursuing. For example, based on recent communications between a
Farmer Mac commercial bank business partner and its banking regulator, it is
expected that loans from commercial banks that are placed in the LTSPC program
will receive favorable capital treatment, thereby increasing opportunities for
LTSPC transactions with commercial banks. As the disruptions in the
financial industry subside and agricultural lenders’ business strategies are
recast, Farmer Mac has identified and is pursuing related business opportunities
and is confident new business partners will result.
Farmer
Mac also foresees opportunities for continued business growth in the rural
utilities segment, though not at the pace experienced during 2008 and
2009. In the near term, Farmer Mac expects that the majority of any
new rural utilities business will be in the form of direct credit exposures to
both electric distribution and generation and transmission loans through
purchases of those loans, rather than indirect credit exposures to those loans
through AgVantage transactions.
Farmer
Mac expects that, in the near term, demand for rural utilities loans will
reflect the state of the general economy. Recently, electric
consumption has been reduced, which has slowed loan demand, but is expected to
return as the economy strengthens. The industry recently added
significant new generation capacity for the first time since the 1970s, and in
some areas planned residential and commercial development did not keep pace with
generation expansion. Nonetheless, Farmer Mac believes that the rural
utilities sector is a strong and growing industry with significant needs for
future financing during the next five to ten years, as capital will be needed to
finance the construction of new generation and transmission facilities,
modernize existing equipment, and comply with environmental
regulations. Farmer Mac’s ability to participate in the growth of the
rural utilities portion of its business will be limited by Farmer Mac’s limits
on borrower exposures, its overall risk tolerance, and the ability of Farmer Mac
to maintain its funding costs at levels conducive to further growth in the Rural
Utilities program.
The
electrical power generated by and for rural electric cooperatives generally uses
coal as a fuel, and Farmer Mac continues to closely monitor the risk factors
associated with the electric industry and their potential effect on the
Corporation’s rural utilities portfolio. As green energy sources
continue to be developed, new power transmission lines will be needed to support
the development and operation of many new wind and solar power plants to
transfer their power from remote locations to the ultimate
consumer. Public policy shifts in the energy sector, such as carbon
tax, cap and trade legislation, and clean energy incentives, may also alter
Farmer Mac’s opportunities in this area as cooperatives invest in clean energy
projects and demand-side management and have more limited funding options for
the construction of new coal-fired generating projects. Any of those
developments could lead to increased or decreased business volume for Farmer Mac
in the rural utilities sector depending on how any new initiatives, legislation,
or regulations are implemented and their effect on lending to rural utilities
cooperative borrowers.
With
lenders in both the agricultural and rural utilities sectors continuing to face
capital markets and economic challenges, Farmer Mac represents a source of
liquidity, capital, and risk management to help lenders meet the borrowing needs
of their customers. Farmer Mac intends to continue to explore new
possibilities for advancing the Corporation’s mission of serving the financing
needs of agriculture and rural America, especially as the structures,
strategies, and programs deployed by the financial markets continue to evolve in
attempts to unlock the credit markets. These efforts will take time
to develop, but Farmer Mac believes that the flexibility provided in its charter
is a strength that offers advantages in current market
conditions. The charter permits both (1) loan purchases, which create
value in new loan originations by providing liquidity for them, and (2)
guarantees and LTSPCs, which enhance the value of eligible loans already in the
portfolios of lenders while reducing the required regulatory capital support for
those loans. Farmer Mac’s business strategies in the near term will
focus on flexibility, identification of opportunities, and growth through
multiple channels and with numerous business partners. In pursuing
these objectives, Farmer Mac intends to actively search for new program
business, aggressively work with business partners to create new products,
continue to improve operations with the goal of improving the customer
experience, and continue to seek out new relationships and strengthen long-term
relationships.
Balance Sheet
Review
During
first quarter 2010, Farmer Mac adopted two new accounting standards that
eliminated the concept of QSPEs and amended the accounting for transfers of
financial assets and the consolidation model for VIEs. The impact
upon adoption was an increase in consolidated assets and liabilities of $1.5
billion, which resulted in an incremental regulatory capital requirement of
$30.4 million. Pursuant to this new guidance, Farmer Mac
routinely assesses its securitization trusts to determine whether it is the
primary beneficiary and thereby required to consolidate the assets and
liabilities of the trust onto its balance sheet, or if determined not to be the
primary beneficiary of a previously consolidated trust, deconsolidate the assets
and liabilities from its balance sheet.
As of
March 31, 2010, Farmer Mac consolidated $1.1 billion of its outstanding
$1.4 billion securitization trusts created when loans subject to LTSPCs
were converted to Farmer Mac I Guaranteed Securities at the request of program
participants. Those securitization transactions contain provisions
resulting in shared power over default mitigation decisions. For
those transactions where the power is shared with a related party (as defined by
applicable accounting guidance), Farmer Mac was determined to be the primary
beneficiary and thus is required to consolidate the assets and liabilities of
the trust onto its balance sheet. For those transactions where the
power was shared with an unrelated party, Farmer Mac was not determined to be
the primary beneficiary and is not required to consolidate the assets and
liabilities of the trust onto its balance sheet.
Determinations
about which business partners of Farmer Mac are related parties often depend on
whether an officer or director of that business partner is a member of Farmer
Mac’s board of directors, ten of whom are elected on an annual basis by the
holders of Farmer Mac’s outstanding voting common stock. Changes in
the membership of the board of directors may result in Farmer Mac consolidating
a trust previously disclosed as off-balance sheet, or deconsolidating a trust
previously consolidated on balance sheet. Although this will have no
net effect on Farmer Mac’s net income, it may, at times, produce volatility in
the statutory minimum capital Farmer Mac is required to hold.
At Farmer
Mac’s Annual Meeting of Stockholders on June 3, 2010, ten directors were elected
to serve one-year terms, nine of whom were re-elected as directors of Farmer Mac
and one of whom was new to Farmer Mac’s board. As a result of this
change in membership of the board of directors, Farmer Mac deconsolidated $0.4
billion of securitization transactions with a business partner that was no
longer a related party (as defined by applicable accounting
guidance). As of June 30, 2010, Farmer Mac consolidated $0.6 billion
of its outstanding $1.4 billion securitization trusts created when loans
subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities at the
request of program participants.
For more
information on Farmer Mac’s policy relating to the consolidation of VIEs, see
Note 1(g) to the condensed consolidated financial
statements. For a discussion of Farmer Mac’s related party
transactions, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Related Party Transactions” and Note 3 in the
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009
filed with the SEC on March 16, 2010 (as updated by the Current Report
on Form 8-K filed with the SEC on August 4, 2010).
Assets. Total
assets were $7.1 billion as of June 30, 2010 and $6.1 billion as of
December 31, 2009. The increase in the first half of 2010 was
largely attributable to the consolidation as of March 31, 2010 of $1.3
billion of off-balance sheet Farmer Mac Guaranteed Securities resulting from the
adoption of new consolidation guidance. During the second quarter
2010, this increase was partially offset by the deconsolidation of $0.4 billion
of Farmer Mac Guaranteed Securities due to a change in related party
status. A corresponding increase to liabilities was also recorded and
presented as “Debt securities of consolidated trusts held by third parties” on
the condensed consolidated balance sheets.
As of
June 30, 2010, Farmer Mac had $325.3 million of cash and cash equivalents,
compared to $654.8 million as of December 31, 2009. As of June
30, 2010, Farmer Mac had $1.3 billion of investment securities, compared to
$1.1 billion as of December 31, 2009.
Liabilities
and Total Equity. During the six months ended June 30, 2010,
total liabilities increased $0.8 billion as a result of the consolidation of
trusts. Total equity, including mezzanine equity, increased $133.1
million during the same period. The increase in total equity was
primarily the result of raising new capital. On January 25, 2010,
Farmer Mac used the proceeds from the sale of $250.0 million of preferred stock
of its subsidiary, Farmer Mac II LLC, to repurchase and retire the
Corporation’s $150.0 million of outstanding Series B preferred stock and to
further strengthen Farmer Mac’s financial position to support the continued
fulfillment of its mission. That transaction provided Farmer Mac with
additional capital at a significantly lower cost, with the net effective cost of
the new $250.0 million of preferred stock of 5.77 percent per year
after consideration of the consolidated tax benefits to Farmer
Mac. As a result, the net cost of the new preferred stock on Farmer
Mac’s consolidated financial statements will be approximately $14.4 million
per year, compared to an annual cost of $18.0 million per year for the $150.0
million of Series B preferred stock (based on the 2010 dividend rate of
12 percent for the Series B preferred stock, which was scheduled to
increase to 14 percent at the end of 2010 and 16 percent in 2011).
Regulatory
Capital Compliance. Farmer Mac was in compliance with its
statutory minimum capital requirement and its risk-based capital standard as of
June 30, 2010. 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, 2010, Farmer Mac’s
core capital totaled $442.0 million and exceeded its statutory minimum
capital requirement of $235.4 million by $206.6 million. As of
December 31, 2009, Farmer Mac’s core capital totaled $337.2 million and exceeded
its statutory minimum capital requirement of $217.0 million by $120.2
million. As of June 30, 2010, Farmer Mac’s risk-based capital stress
test generated a risk-based capital requirement of $29.9
million. Farmer Mac’s regulatory capital of $461.0 million exceeded
that amount by approximately $431.1 million. Accumulated other
comprehensive income/(loss) is not a component of Farmer Mac’s core capital or
regulatory capital. For more information, see “—Liquidity and Capital
Resources—Capital” and “—Regulatory Matters.”
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. For securitization trusts where Farmer
Mac is the primary beneficiary, the trust assets and liabilities are included on
Farmer Mac’s condensed consolidated balance sheet. For the remainder
of these transactions, and in the event of deconsolidation, both of these
alternatives result in the creation of off-balance sheet obligations for Farmer
Mac. In the future, Farmer Mac will operate only that part of the
Farmer Mac II program that involves the transfer of USDA-guaranteed portions to
trusts and the issuance of Farmer Mac II Guaranteed Securities, and will only do
so to the extent that Farmer Mac is approached or referred by an
investor. Farmer Mac will not issue Farmer Mac II Guaranteed
Securities to Farmer Mac II LLC in the future. See Note 5 to the
condensed consolidated financial statements for further information regarding
Farmer Mac’s off-balance sheet program activities.
Risk
Management
|
·
|
loans
underlying Farmer Mac Guaranteed Securities;
and
|
|
·
|
loans
underlying LTSPCs.
|
Farmer
Mac generally assumes 100 percent of the credit risk on loans held and
loans underlying Farmer Mac I Guaranteed Securities, LTSPCs and Farmer Mac
Guaranteed Securities – Rural Utilities. Farmer Mac has direct credit
exposure on loans in non-AgVantage transactions and indirect credit exposure on
AgVantage transactions, which involve a general obligation of a lender secured
by qualified loans. The credit exposure of Farmer Mac and Farmer Mac
II LLC on USDA-guaranteed portions is covered by the full faith and credit of
the United States. Farmer Mac believes that the Corporation and
Farmer Mac II LLC have little or no credit risk exposure to USDA-guaranteed
portions because of the USDA guarantee. As of June 30, 2010, neither
Farmer Mac nor Farmer Mac II LLC had experienced any credit losses on any
USDA-guaranteed portions or Farmer Mac II Guaranteed 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. In general, Farmer Mac limits its maximum loan size
to $22.5 million for transactions involving direct exposure to credit risk on
loans and $50.0 million for AgVantage and similar Rural Utilities transactions
that involve a general obligation of a lender and include indirect exposure to
credit risk on the underlying loans. More detailed information
regarding loan limits and 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, 2009 filed with the SEC on
March 16, 2010.
Farmer
Mac has developed different underwriting standards for rural utilities loans
that depend on whether direct or indirect credit exposure is assumed on a loan
and whether the borrower is an electric distribution cooperative or a generation
and transmission cooperative. As of June 30, 2010, there were no
delinquencies or non-performing assets in Farmer Mac’s portfolio of rural
utilities loans, which includes rural utilities loans held and rural utilities
loans underlying or securing Farmer Mac Guaranteed Securities – Rural
Utilities. Farmer Mac’s current direct credit exposure to rural
utilities loans as of June 30, 2010 was $572.1 million, all of which loans were
to electric distribution cooperatives. Farmer Mac also had indirect
credit exposure to the rural utilities loans securing Farmer Mac Guaranteed
Securities – Rural Utilities structured as AgVantage securities, some of which
were secured by loans to generation and transmission
cooperatives. See “—Credit Risk – Institutional” for more information
about Farmer Mac’s credit risk on AgVantage securities.
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, 2010, 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 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. 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, 2009 filed with the SEC on March 16, 2010 (as updated by the
Current Report on Form 8-K filed with the SEC on August 4,
2010). 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 FASB standards on accounting for contingencies and on measuring individual
impairment of a loan.
The
following table summarizes the components of Farmer Mac’s allowance for losses
as of June 30, 2010 and December 31, 2009:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$ |
9,495 |
|
|
$ |
6,292 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
560 |
|
|
|
2,033 |
|
LTSPCs
|
|
|
8,910 |
|
|
|
5,862 |
|
Total
|
|
$ |
18,965 |
|
|
$ |
14,187 |
|
Upon the
adoption of the new consolidation guidance on January 1, 2010, Farmer Mac
reclassified $2.0 million from the reserve for losses to the allowance for loan
losses as a result of Farmer Mac being determined the primary beneficiary of
certain VIEs with beneficial interests owned by third party
investors. In June 2010, Farmer Mac deconsolidated certain VIEs with
beneficial interests owned by third party investors because Farmer Mac was no
longer determined to be the primary beneficiary. This deconsolidation
did not result in a material reclassification from the allowance for loan losses
to the reserve for losses during second quarter 2010. Consolidated
interests in VIEs with beneficial interests owned by third party investors are
presented as “loans held for investment in consolidated trusts” on Farmer Mac’s
condensed consolidated balance sheets. Upon deconsolidation, Farmer
Mac classifies these interests as off-balance sheet Farmer Mac Guaranteed
Securities.
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, 2010 and
2009:
|
|
June
30, 2010
|
|
|
June
30, 2009
|
|
|
|
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
|
|
$ |
9,142 |
|
|
$ |
6,427 |
|
|
$ |
15,569 |
|
|
$ |
13,228 |
|
|
$ |
8,025 |
|
|
$ |
21,253 |
|
Provision/(recovery)
for losses
|
|
|
(1,870 |
) |
|
|
3,043 |
|
|
|
1,173 |
|
|
|
(5,693 |
) |
|
|
(529 |
) |
|
|
(6,222 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,725 |
) |
|
|
- |
|
|
|
(5,725 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
6,292 |
|
|
$ |
7,895 |
|
|
$ |
14,187 |
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision/(recovery)
for losses
|
|
|
980 |
|
|
|
1,575 |
|
|
|
2,555 |
|
|
|
(2,159 |
) |
|
|
1,990 |
|
|
|
(169 |
) |
Charge-offs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,725 |
) |
|
|
- |
|
|
|
(7,725 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
During
the three and six months ended June 30, 2010, Farmer Mac recorded a provision to
its allowance for losses of $1.2 million and $2.6 million, respectively,
compared to releases of its allowance for losses of $6.2 million and $0.2
million, respectively, for the same periods in 2009. Farmer Mac
recorded no charge-offs during the three and six months ended June 30, 2010,
compared to charge-offs of $5.7 million and $7.7 million during the same periods
in 2009. Farmer Mac recorded recoveries of $2.2 million for both the
three and six months ended June 30, 2010, compared to no recoveries in
three months ended June 30, 2009 and $0.8 million in recoveries for the six
months ended June 30, 2009. There was no previously accrued or
advanced interest on loans or Farmer Mac I Guaranteed Securities charged off in
second quarter 2010 or second quarter 2009. As of June 30, 2010,
Farmer Mac’s allowance for losses totaled $19.0 million, or 44 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 $14.2 million or 32 basis points as of
December 31, 2009.
As of
June 30, 2010, Farmer Mac’s 90-day delinquencies were $56.0 million
(1.30 percent), compared to $42.3 million (0.95 percent) as of
June 30, 2009. Ethanol loans comprised $10.9 million of the
90-day delinquencies as of June 30, 2010, compared to $18.8 million as of
June 30, 2009. As of June 30, 2010, Farmer Mac’s non-performing
assets totaled $71.3 million (1.66 percent), compared to
$97.1 million (2.17 percent) as of
June 30, 2009. Ethanol loans comprised $10.9 million of
non-performing assets as of June 30, 2010, compared to $59.7 million
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 annual (January 1st)
and semi-annual (January 1st and
July 1st)
payment characteristics of most Farmer Mac I loans.
As of
June 30, 2010, Farmer Mac’s ethanol exposure, which includes loans held and
loans subject to LTSPCs, was $239.8 million on 29 different plants, with an
additional $50.9 million of undisbursed commitments. Other than
the undisbursed commitments, Farmer Mac is not seeking to add more ethanol loan
exposure to its portfolio.
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, 2010
|
|
$ |
4,299,417 |
|
|
$ |
71,300 |
|
|
1.66%
|
|
|
$ |
15,289 |
|
|
$ |
56,011 |
|
|
1.30%
|
|
March
31, 2010
|
|
|
4,303,663 |
|
|
|
83,977 |
|
|
1.95%
|
|
|
|
13,542 |
|
|
|
70,435 |
|
|
1.64%
|
|
December
31, 2009
|
|
|
4,396,642 |
|
|
|
62,020 |
|
|
1.41%
|
|
|
|
12,494 |
|
|
|
49,526 |
|
|
1.13%
|
|
September
30, 2009
|
|
|
4,379,450 |
|
|
|
84,779 |
|
|
1.94%
|
|
|
|
25,341 |
|
|
|
59,438 |
|
|
1.36%
|
|
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%
|
|
(1)
Excludes loans underlying AgVantage securities.
As of
June 30, 2010, Farmer Mac individually analyzed $49.2 million of its
$147.4 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $98.2 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, 2010, Farmer Mac had recorded
specific allowances of $3.0 million for under-collateralized
assets. Farmer Mac’s non-specific or general allowances were $16.0
million as of June 30, 2010.
As of
June 30, 2010, 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 51.2 percent, and the weighted-average
original LTV for all non-performing assets was
54.6 percent.
The
following table presents outstanding loans held and loans underlying LTSPCs and
Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and
non-performing assets as of June 30, 2010 by year of origination, geographic
region and commodity/collateral type.
Farmer
Mac I Non-performing Assets as of June 30, 2010
|
|
|
|
Distribution
of
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Loans,
|
|
|
|
|
|
|
|
|
|
Loans,
|
|
Guarantees,
|
|
|
Non-
|
|
|
Non-
|
|
|
|
Guarantees,
|
|
LTSPCs
|
|
|
performing
|
|
|
performing
|
|
|
|
LTSPCs and REO
|
|
and REO (1)
|
|
|
Assets (2)
|
|
|
Asset Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
7%
|
|
$ |
294,463 |
|
|
$ |
7,526 |
|
|
2.56%
|
|
1997
|
|
3%
|
|
|
114,511 |
|
|
|
1,634 |
|
|
1.43%
|
|
1998
|
|
4%
|
|
|
169,036 |
|
|
|
3,912 |
|
|
2.31%
|
|
1999
|
|
5%
|
|
|
227,130 |
|
|
|
2,749 |
|
|
1.21%
|
|
2000
|
|
3%
|
|
|
117,116 |
|
|
|
1,105 |
|
|
0.94%
|
|
2001
|
|
5%
|
|
|
220,277 |
|
|
|
6,900 |
|
|
3.13%
|
|
2002
|
|
7%
|
|
|
294,580 |
|
|
|
5,644 |
|
|
1.92%
|
|
2003
|
|
8%
|
|
|
341,848 |
|
|
|
3,878 |
|
|
1.13%
|
|
2004
|
|
6%
|
|
|
279,141 |
|
|
|
1,420 |
|
|
0.51%
|
|
2005
|
|
10%
|
|
|
410,563 |
|
|
|
2,189 |
|
|
0.53%
|
|
2006
|
|
11%
|
|
|
462,031 |
|
|
|
1,890 |
|
|
0.41%
|
|
2007
|
|
10%
|
|
|
436,435 |
|
|
|
21,766 |
|
|
4.99%
|
|
2008
|
|
10%
|
|
|
461,879 |
|
|
|
10,687 |
|
|
2.31%
|
|
2009
|
|
6%
|
|
|
274,210 |
|
|
|
- |
|
|
0.00%
|
|
2010
|
|
5%
|
|
|
196,197 |
|
|
|
- |
|
|
0.00%
|
|
Total
|
|
100%
|
|
$ |
4,299,417 |
|
|
$ |
71,300 |
|
|
1.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
15%
|
|
$ |
655,873 |
|
|
$ |
17,375 |
|
|
2.65%
|
|
Southwest
|
|
40%
|
|
|
1,692,623 |
|
|
|
16,438 |
|
|
0.97%
|
|
Mid-North
|
|
21%
|
|
|
920,198 |
|
|
|
17,116 |
|
|
1.86%
|
|
Mid-South
|
|
12%
|
|
|
534,883 |
|
|
|
11,030 |
|
|
2.06%
|
|
Northeast
|
|
8%
|
|
|
338,517 |
|
|
|
4,068 |
|
|
1.20%
|
|
Southeast
|
|
4%
|
|
|
157,323 |
|
|
|
5,273 |
|
|
3.35%
|
|
Total
|
|
100%
|
|
$ |
4,299,417 |
|
|
$ |
71,300 |
|
|
1.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
40%
|
|
$ |
1,692,849 |
|
|
$ |
25,299 |
|
|
1.49%
|
|
Permanent
plantings
|
|
19%
|
|
|
831,908 |
|
|
|
12,536 |
|
|
1.51%
|
|
Livestock
|
|
27%
|
|
|
1,180,931 |
|
|
|
15,741 |
|
|
1.33%
|
|
Part-time
farm/rural housing
|
|
7%
|
|
|
314,928 |
|
|
|
6,600 |
|
|
2.10%
|
|
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
6%
|
|
|
252,639 |
|
|
|
10,893 |
|
|
4.31%
|
|
Other
|
|
1%
|
|
|
26,162 |
|
|
|
231 |
|
|
0.88%
|
|
Total
|
|
100%
|
|
$ |
4,299,417 |
|
|
$ |
71,300 |
|
|
1.66%
|
|
|
(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, 2010, by year of origination, geographic region and
commodity/collateral type. The purpose of this information is to
present information regarding losses relative to original guarantees and
commitments.
Farmer
Mac I Credit Losses Relative to all
|
|
Cumulative
Original Loans, Guarantees and LTSPCs
|
|
As
of June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
Original Loans,
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
Guarantees and
|
|
|
Net Credit
|
|
|
Loss
|
|
|
|
LTSPCs
|
|
|
Losses
|
|
|
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
$ |
3,449,100 |
|
|
$ |
1,593 |
|
|
0.05%
|
|
1997
|
|
|
765,895 |
|
|
|
2,256 |
|
|
0.29%
|
|
1998
|
|
|
1,142,569 |
|
|
|
3,885 |
|
|
0.34%
|
|
1999
|
|
|
1,164,917 |
|
|
|
1,291 |
|
|
0.11%
|
|
2000
|
|
|
763,480 |
|
|
|
2,550 |
|
|
0.33%
|
|
2001
|
|
|
1,121,439 |
|
|
|
45 |
|
|
0.00%
|
|
2002
|
|
|
1,123,116 |
|
|
|
- |
|
|
0.00%
|
|
2003
|
|
|
931,446 |
|
|
|
- |
|
|
0.00%
|
|
2004
|
|
|
652,102 |
|
|
|
32 |
|
|
0.00%
|
|
2005
|
|
|
778,419 |
|
|
|
131 |
|
|
0.02%
|
|
2006
|
|
|
809,238 |
|
|
|
7,689 |
|
|
0.95%
|
|
2007
|
|
|
582,272 |
|
|
|
750 |
|
|
0.13%
|
|
2008
|
|
|
578,451 |
|
|
|
1,821 |
|
|
0.31%
|
|
2009
|
|
|
323,946 |
|
|
|
1,193 |
|
|
0.37%
|
|
2010
|
|
|
216,792 |
|
|
|
- |
|
|
0.00%
|
|
Total
|
|
$ |
14,403,182 |
|
|
$ |
23,236 |
|
|
0.16%
|
|
By
geographic region (1):
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,632,691 |
|
|
$ |
10,569 |
|
|
0.40%
|
|
Southwest
|
|
|
5,657,975 |
|
|
|
6,010 |
|
|
0.11%
|
|
Mid-North
|
|
|
2,451,650 |
|
|
|
6,659 |
|
|
0.27%
|
|
Mid-South
|
|
|
1,336,984 |
|
|
|
(314 |
) |
|
-0.02%
|
|
Northeast
|
|
|
1,299,422 |
|
|
|
83 |
|
|
0.01%
|
|
Southeast
|
|
|
1,024,460 |
|
|
|
229 |
|
|
0.02%
|
|
Total
|
|
$ |
14,403,182 |
|
|
$ |
23,236 |
|
|
0.16%
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
5,772,301 |
|
|
$ |
1,309 |
|
|
0.02%
|
|
Permanent
plantings
|
|
|
3,193,304 |
|
|
|
9,378 |
|
|
0.29%
|
|
Livestock
|
|
|
3,732,126 |
|
|
|
2,676 |
|
|
0.07%
|
|
Part-time
farm/rural housing
|
|
|
1,010,283 |
|
|
|
371 |
|
|
0.04%
|
|
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities) (2)
|
|
|
545,556 |
|
|
|
9,502 |
|
|
1.74%
|
|
Other
|
|
|
149,612 |
|
|
|
- |
|
|
0.00%
|
|
Total
|
|
$ |
14,403,182 |
|
|
$ |
23,236 |
|
|
0.16%
|
|
|
(1)
|
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).
|
|
(2)
|
Several
of the loans underlying agricultural storage and processing LTSPCs are for
facilities under construction and, as of June 30, 2010, approximately
$50.9 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, and corn) 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 overcollateralization also required for
Farmer Mac I AgVantage securities. The required collateralization
level is established at the time of issuance and does not change during the life
of the security. In AgVantage 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,
2009 filed with the SEC on March 16, 2010.
Outstanding
AgVantage on-balance sheet Farmer Mac I Guaranteed Securities totaled
$43.6 million and $48.8 million as of June 30, 2010 and December 31, 2009,
respectively. Farmer Mac Guaranteed Securities – Rural Utilities
structured as AgVantage transactions issued by National Rural totaled $1.6
billion and $1.7 billion as of June 30, 2010 and December 31, 2009,
respectively. In addition, outstanding off-balance sheet AgVantage
Farmer Mac I Guaranteed Securities totaled $2.9 billion as of June
30, 2010 and December 31, 2009. 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, 2010 and
December 31, 2009.
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Credit
|
|
|
Required
|
|
|
|
|
|
Credit
|
|
|
Required
|
|
Counterparty
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MetLife
(1)
|
|
$ |
2,500,000 |
|
|
AA-
|
|
|
103%
|
|
|
$ |
2,500,000 |
|
|
AA-
|
|
|
103%
|
|
National
Rural
|
|
|
1,601,593 |
|
|
A
|
|
|
100%
|
|
|
|
1,689,240 |
|
|
A
|
|
|
100%
|
|
M&I
Bank
|
|
|
475,000 |
|
|
BBB
|
|
|
106%
|
|
|
|
475,000 |
|
|
BBB
|
|
|
106%
|
|
Other
(2)
|
|
|
13,550 |
|
|
N/A
|
|
|
111%
to 120%
|
|
|
|
18,800 |
|
|
N/A
|
|
|
111%
to 120%
|
|
Total
outstanding
|
|
$ |
4,590,143 |
|
|
|
|
|
|
|
|
$ |
4,683,040 |
|
|
|
|
|
|
|
(1)
|
MetLife
was put on credit watch negative (*-) in February
2010.
|
(2)
|
Consists
of AgVantage securities issued by 5 different issuers as of June 30, 2010
and 6 different issuers as of December 31,
2009.
|
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,
2009 filed with the SEC on March 16, 2010.
Credit
Risk – Other Investments. As of June 30, 2010, Farmer Mac had
$325.3 million of cash and cash equivalents and $1.3 billion of investment
securities. The management of the credit risk inherent in these
investments is governed by Farmer Mac’s own policies and FCA’s Liquidity and
Investment Regulations.
In
general, these policies and regulations 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 investments for which 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 diversified investment funds are further limited to those funds that are
holding only instruments approved for direct investment by Farmer
Mac.
FCA’s
Liquidity and Investment Regulations and Farmer Mac’s policies also establish
concentration limits, which are intended to limit exposure to any one
counterparty. FCA’s Liquidity and Investment Regulations limit Farmer
Mac’s total credit exposure to any single issuer of securities and
uncollateralized financial derivatives is limited by regulation to 25 percent of
the Corporation’s regulatory capital (as of June 30, 2010, 25 percent of Farmer
Mac’s regulatory capital was $115.2 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. Since June 2009,
Farmer Mac’s policies applicable to new investments have limited the
Corporation’s total exposure to any single issuer of securities and
uncollateralized financial derivatives to the lower of (1) 10 percent of the
Corporation’s regulatory capital and (2) 50 percent of the expected net interest
income from the investment portfolio over 12 months.
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 and rural utilities 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, 2010, 17 percent of the outstanding balance of loans in the Farmer Mac
I program where Farmer Mac either owned the loan or the beneficial interest in
the underlying loan had yield maintenance provisions and 8 percent had other
forms of prepayment protection (together covering 48 percent of all loans with
fixed interest rates). Of the Farmer Mac I current loans
purchased in second quarter 2010, none had yield maintenance or other forms of
prepayment protection. As of June 30, 2010, none of the
USDA-guaranteed portions held or underlying Farmer Mac II Guaranteed Securities
had yield maintenance provisions; however, 12 percent contained prepayment
penalties. Of the USDA-guaranteed portions purchased in the first six
months of 2010, 8 percent contained various forms of prepayment
penalties. As of June 30, 2010, 29 percent of the rural
utilities loans owned by Farmer Mac had yield maintenance
provisions. Of the rural utilities loans purchased in second quarter
2010, 37 percent had yield maintenance provisions. As of June
30, 2010, all of the rural utilities loans held in trusts where Farmer Mac owned
the beneficial interest in the underlying loan had yield maintenance
provisions.
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’ behaviors 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 $325.3 million of cash and cash equivalents mature within three months and
are funded with discount notes having similar maturities. As of June
30, 2010, $743.4 million of the $1.3 billion of investment securities
(59 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. As of June 30, 2010, Farmer Mac had outstanding discount
notes of $2.1 billion, medium-term notes that mature within one year of $1.1
billion and medium-term notes that mature after one year of $2.3
billion.
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 loans. 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 better match the durations of the Corporation’s
assets and liabilities, 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 management’s estimate of 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. Farmer Mac’s MVE sensitivity decreased
significantly during the first half of 2010. This reduction in
sensitivity resulted from the $250.0 million of preferred stock issued by the
Corporation’s subsidiary, Farmer Mac II LLC. This transaction
extended the duration of Farmer Mac’s liabilities relative to its assets thereby
reducing MVE sensitivity. The following schedule summarizes the
results of Farmer Mac’s MVE sensitivity analysis as of June 30, 2010 and
December 31, 2009 to an immediate and instantaneous uniform or “parallel”
shift in the yield curve.
|
|
Percentage Change in MVE from
Base Case
|
|
Interest Rate
|
|
June 30,
|
|
|
December 31,
|
|
Scenario
|
|
2010
|
|
|
2009
|
|
+
300 bp
|
|
3.4%
|
|
|
-23.1%
|
|
+
200 bp
|
|
4.9%
|
|
|
-13.8%
|
|
+
100 bp
|
|
4.1%
|
|
|
-5.4%
|
|
-
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, 2010, Farmer Mac’s effective duration gap, another standard measure of
interest rate risk that measures the difference between the sensitivities of
assets compared to that of liabilities, was minus 2.2 months, compared to
plus 1.1 months as of December 31, 2009. This change
in duration gap is also attributable to the preferred stock issued by Farmer Mac
II LLC. Duration matching helps to maintain the correlation of cash
flows and stabilize portfolio earnings even when interest rates are not
stable.
Farmer
Mac also calculates the sensitivity of net interest income (“NII”) to changes in
interest rates which represents a shorter-term measure of interest rate
risk. As of June 30, 2010, a parallel increase of 100 basis
points would have decreased Farmer Mac’s NII by 7.1 percent, while a
parallel decrease of 25 basis points would have decreased NII by 3.2 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, 2010, 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, credit exposure 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;
|
|
·
|
“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; and
|
|
·
|
“credit
default swaps,” in which it pays a periodic fee to a counterparty in
exchange for the counterparty’s agreement to make payments in the event of
an instrument’s default or other credit
event.
|
As of
June 30, 2010, Farmer Mac had $4.1 billion combined notional amount of interest
rate and credit default swaps, with terms ranging from one to fifteen
years, of which $1.3 billion were pay-fixed interest rate swaps,
$2.5 billion were receive-fixed interest rate swaps, $0.2 billion were
basis swaps and $30.0 million were credit default 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 2010. 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. In accordance with the
calculation prescribed by FCA regulations, Farmer Mac maintains a minimum of 60
days of liquidity and a target of 90 days of liquidity. In
accordance with the methodology prescribed by those regulations, Farmer Mac
maintained an average of 155 days of liquidity during second quarter 2010
and had 169 days of liquidity as of June 30, 2010.
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 investment activities, 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, 2009 filed with the SEC on March 16,
2010 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 $5.5 billion was outstanding
as of June 30, 2010), 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. Prior to 2009, 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, interest rate 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 its LIBOR-based floating rate
assets. Conversely, if the rates on the Farmer Mac discount notes
were to decrease relative to LIBOR, Farmer Mac would benefit from a commensurate
increase on its net interest yield on the notional amount of its pay-fixed
interest rate swaps and its 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 systematically entered
into various offsetting interest rate swaps (receive-fixed swaps) to counteract
the fair value movements of previously-existing swaps. These
transactions have dampened the susceptibility of Farmer Mac’s regulatory capital
surplus to changes in the fair values of its financial
derivatives. Farmer Mac remains cautious about using pay-fixed
interest rate swaps, but may use that type of financial derivative as necessary
in the future to manage specific interest rate risks for specific
transactions.
The
following table presents Farmer Mac’s cash and cash equivalents and investment
securities which, in addition to the proceeds from the issuance of discount
notes and medium-term notes, comprise Farmer Mac’s primary sources of
liquidity.
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
$ |
325,333 |
|
|
$ |
654,794 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Guaranteed
by US Government agencies
|
|
|
636,489 |
|
|
|
635,679 |
|
Guaranteed
by GSEs
|
|
|
340,907 |
|
|
|
117,760 |
|
Corporate
debt securities
|
|
|
195,916 |
|
|
|
245,605 |
|
Asset-backed
securities principally backed by Government
|
|
|
|
|
|
|
|
|
guaranteed
student loans (1)
|
|
|
84,020 |
|
|
|
132,851 |
|
Total
|
|
$ |
1,582,665 |
|
|
$ |
1,786,689 |
|
|
(1)
|
None
of Farmer Mac's asset-backed securities were backed by sub-prime or Alt-A
residential or commercial mortgages or home-equity
loans.
|
Farmer
Mac’s asset-backed investment securities include callable, AAA-rated
auction-rate certificates (“ARCs”), the interest rates on which are reset
through an auction process, most commonly at intervals of 28 days, or at
formula-based floating rates as set forth in the related transaction documents
in the event of a failed auction. These formula-based floating rates,
which may at times reset to zero, are intended to preserve the underlying
principal balance of the securities and avoid overall cash
shortfalls. Accordingly, payments of accrued interest may also be
delayed and are ultimately subject to cash availability. 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. All ARCs held by Farmer Mac are
collateralized entirely by pools of Federal Family Education Loan Program
(“FFELP”) guaranteed student loans that are backed by the full faith and credit
of the United States. Farmer Mac continues to believe that the credit
quality of these securities is high, based on the underlying collateralization
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.
Farmer
Mac held $63.3 million of ARCs as of June 30, 2010, compared to
$72.9 million as of December 31, 2009. As of June 30, 2010,
Farmer Mac’s carrying value of its ARCs was 85 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, 2010 and December 31, 2009, Farmer Mac had a remaining investment of
$0.5 million and $5.3 million, respectively, in The Reserve Primary Fund
(the “Fund”), a money market fund that has suspended redemptions and is being
liquidated. Farmer Mac has presented its unsettled trades in the Fund
as “Prepaid expenses and other assets” on the condensed consolidated balance
sheets. Farmer Mac received the remaining investment in the Fund on
July 16, 2010, resulting in a recovery of $37,000 of amounts previously
written off.
Capital. During
the six months ended June 30, 2010, Farmer Mac issued $250.0 million of
non-voting, non-cumulative preferred stock of its newly formed subsidiary Farmer
Mac II LLC and simultaneously retired and repurchased all $150.0 million Farmer
Mac Series B preferred stock. No Series C preferred stock was issued
in first or second quarters 2010. For more information about the
Series C preferred stock, see Note 6 to the condensed consolidated financial
statements and Farmer Mac’s Form 10-K for the fiscal year ended December 31,
2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on
Form 8-K filed with the SEC on August 4, 2010). See “—Balance
Sheet Review—Capital” for more information about Farmer Mac’s capital position
and “—Regulatory Matters” for more information about proposed changes to the
risk-based capital stress test applicable to Farmer Mac.
Other
Matters
Common
Stock Dividends. For the first and second quarters of 2010 and
for each quarter in 2009, Farmer Mac’s board of directors declared a quarterly
dividend of $0.05 per share on the Corporation’s common stock. Farmer
Mac’s ability to pay dividends on its common stock is subject to the payment of
dividends on its outstanding preferred stock. On August 5, 2010,
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, 2010 to shareholders
of record on September 15, 2010. 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, 2009 filed with
the SEC on March 16, 2010.
Preferred
Stock Dividends. For the first and second quarters of 2010,
Farmer Mac’s board of directors declared a quarterly dividend of $12.50 per
share on the Corporation’s Series C Preferred Stock. On
August 5, 2010, Farmer Mac’s board of directors declared a quarterly
dividend of $12.50 per share on the Corporation’s Series C Preferred Stock,
payable on September 30, 2010 to shareholders of record on September 15, 2010.
On January 25, 2010, all of the outstanding shares of the Corporation’s Series B
preferred stock was repurchased and retired. The price paid to
repurchase the Series B Preferred Stock included accrued dividends of $8.33 per
share through the purchase date.
Non-controlling
Interest. For the first and second quarter 2010, Farmer Mac II
LLC’s board of directors declared a quarterly dividend of $16.02 per share and
$22.1875 per share, respectively, on the company’s preferred
stock. On August 5, 2010, Farmer Mac II LLC’s board of directors
declared a quarterly dividend of $22.1875 per share payable on September 30,
2010 to holders of record on September 15, 2010. Farmer Mac’s net
income attributable to non-controlling interest totaled $5.5 million and
$9.6 million for the three and six months ended June 30, 2010,
respectively. These amounts represent the gross dividend cost of the
Farmer Mac II LLC preferred stock held by third parties. Pre-tax
income is reduced by this dividend cost before Farmer Mac’s income tax expense
is determined.
Regulatory
Matters
In the
January 22, 2010 issue of the Federal Register, FCA published for public
comment a proposed rule that would revise certain FCA regulations governing the
risk-based capital stress test applicable to Farmer Mac. In its
announcement of the proposed rule, FCA stated that the purpose of the proposed
changes is to update the risk-based capital model to address the addition of
rural utilities loans to Farmer Mac’s program authorities, to revise the
existing treatment of risk mitigations of general obligations in the AgVantage
structure, and to revise the treatment of counterparty risk on Farmer Mac’s
non-program investments. The public comment period for the proposed
rule closed April 22, 2010. Farmer Mac has provided written
comments on the proposed rule to FCA.
In the
preamble to the proposed rule, FCA noted that had the proposed rule been in
effect on March 31, 2009, Farmer Mac’s risk-based capital requirement as of
that date would have been approximately $62.9 million, compared to the
risk-based capital requirement of approximately $40.1 million under the
existing risk-based capital stress test at that time. Farmer Mac is
required to hold capital at the higher of the statutory minimum capital
requirement or the amount required by the risk-based capital stress
test. As of June 30, 2010, Farmer Mac’s minimum capital
requirement was $235.4 million, and Farmer Mac’s core capital level was
$442.0 million, $206.6 million above the minimum capital
requirement. Based on the risk-based capital stress test currently in
effect, Farmer Mac’s risk-based capital requirement as of June 30, 2010 was
$29.9 million, and Farmer Mac’s regulatory capital of $461.0 million
exceeded that requirement by approximately $431.1 million.
On May
19, 2010, FCA issued an advance notice of proposed rulemaking (“ANPRM”)
regarding the Corporation’s investments and liquidity portfolio policies and
solicited comments. The public comment period for the ANPRM closed on
July 6, 2010, and Farmer Mac provided written comments to the ANPRM on July 2,
2010.
On July
21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act
contains a variety of provisions designed to regulate financial markets,
including credit and derivatives transactions. Certain provisions of
the Dodd-Frank Act, such as the requirement to retain a five percent credit risk
in any securitized loan, do not apply to Farmer Mac or, with respect to any loan
sold to Farmer Mac, the seller of such loan. In addition, Farmer
Mac’s equity and debt securities are excluded from the Dodd-Frank Act’s
prohibitions on proprietary trading by banking entities. However,
certain provisions of the Dodd-Frank Act, such as those regarding derivatives
regulation, corporate governance and executive compensation, do not contain
specific exemptions for Farmer Mac. Until various studies are
completed and final regulations are promulgated pursuant to the Dodd-Frank Act,
the full effect of the legislation on the Corporation’s business activities and
operations cannot be completely assessed, particularly how it will affect
the Corporation’s
hedging operations and costs. Farmer Mac will continue to monitor all
applicable developments in the implementation of the Dodd-Frank Act and expects
to be able to adapt successfully to any new applicable legislative and
regulatory requirements.
Supplemental
Information
The
following tables present quarterly and annual information regarding loan
purchases, guarantees and LTSPCs and outstanding loans, guarantees and
LTSPCs.
Farmer
Mac Purchases, Guarantees and LTSPCs
|
|
|
|
Farmer
Mac I
|
|
|
Farmer
Mac II
|
|
|
Rural
Utilities
|
|
|
|
|
|
|
Loans
and
|
|
|
|
|
|
and
USDA
|
|
|
Loans
and
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
Guaranteed
|
|
|
Guaranteed
|
|
|
|
|
|
|
Securities
|
|
|
LTSPCs
(1)
|
|
|
Securities
|
|
|
Securities
(2)
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2010
|
|
$ |
98,235 |
|
|
$ |
32,430 |
|
|
$ |
123,062 |
|
|
$ |
77,726 |
|
|
$ |
331,453 |
|
March
31, 2010
|
|
|
77,948 |
|
|
|
77,143 |
|
|
|
92,288 |
|
|
|
59,018 |
|
|
|
306,397 |
|
December
31, 2009
|
|
|
86,872 |
|
|
|
108,646 |
|
|
|
94,936 |
|
|
|
16,009 |
|
|
|
306,463 |
|
September
30, 2009
|
|
|
40,732 |
|
|
|
37,083 |
|
|
|
76,119 |
|
|
|
553,644 |
|
|
|
707,578 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
195,318 |
|
|
|
234,166 |
|
|
|
346,432 |
|
|
|
1,739,653 |
|
|
|
2,515,569 |
|
December
31, 2008
|
|
|
671,622 |
|
|
|
530,363 |
|
|
|
303,941 |
|
|
|
1,560,676 |
|
|
|
3,066,602 |
|
(1)
|
As
of June 30, 2010, approximately $50.9 million of the loans underlying
$545.6 million of AgStorage and processing LTSPCs (including ethanol
facilities) were not yet disbursed by the
lender.
|
(2)
|
The
enactment of the Farm Bill on May 22, 2008 expanded Farmer Mac’s
authorities to include providing a secondary market for rural electric and
telephone loans made by cooperative
lenders.
|
|
|
Guarantees
and LTSPCs and USDA Guarantees
|
|
|
|
Farmer
Mac I
|
|
|
Farmer
Mac II
|
|
|
Rural
Utilities
|
|
|
|
|
|
|
Loans
and
|
|
|
|
|
|
and
USDA
|
|
|
Loans
and
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
Guaranteed
|
|
|
Guaranteed
|
|
|
|
|
|
|
Securities
|
|
|
LTSPCs
|
|
|
Securities
|
|
|
Securities
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2010 (1)
|
|
$ |
5,544,091 |
|
|
$ |
1,739,979 |
|
|
$ |
1,300,945 |
|
|
$ |
2,173,660 |
|
|
$ |
10,758,675 |
|
March
31, 2010 (2)
|
|
|
5,444,448 |
|
|
|
1,846,244 |
|
|
|
1,237,539 |
|
|
|
2,183,576 |
|
|
|
10,711,807 |
|
December
31, 2009
|
|
|
5,224,768 |
|
|
|
2,165,706 |
|
|
|
1,199,798 |
|
|
|
2,130,832 |
|
|
|
10,721,104 |
|
September
30, 2009
|
|
|
5,227,939 |
|
|
|
2,135,445 |
|
|
|
1,141,570 |
|
|
|
2,266,592 |
|
|
|
10,771,546 |
|
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 |
|
(1)
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $86.0 million of existing LTSPCs to Farmer Mac I Guaranteed Securities
during the second quarter 2010 at the request of a program
participant.
|
|
The
Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion
of $265.8 million of existing LTSPCs to Farmer Mac I Guaranteed Securities
during the first quarter 2010 at the request of a program
participant.
|
Outstanding
Balance of Loans Held and Loans Underlying
|
|
On-Balance
Sheet Farmer Mac and USDA 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, 2010
|
|
$ |
2,347,206 |
|
|
$ |
1,051,722 |
|
|
$ |
1,914,096 |
|
|
$ |
5,313,024 |
|
March
31, 2010
|
|
|
2,431,701 |
|
|
|
1,340,856 |
|
|
|
1,840,181 |
|
|
|
5,612,738 |
|
December
31, 2009
|
|
|
1,983,749 |
|
|
|
729,700 |
|
|
|
1,439,267 |
|
|
|
4,152,716 |
|
September
30, 2009
|
|
|
2,138,544 |
|
|
|
685,553 |
|
|
|
1,403,298 |
|
|
|
4,227,395 |
|
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 |
|
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 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,
2010.
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, 2010.
(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, 2010 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
|
None.
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, 2009 filed with
the SEC on March 16, 2010.
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 2010, two types of transactions occurred related to Farmer Mac
common stock that were not registered under the Securities Act of 1933 and not
otherwise reported on a Current Report on Form 8-K:
|
1.
|
On
April 26, 2010, 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 cash retainers, Farmer Mac issued an
aggregate of 1,114 shares of its Class C Non-Voting Common Stock
to the five 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 $11.33 per share, which was the closing
price of the Class C Non-Voting Common Stock on March 31, 2010 as
reported by the New York Stock
Exchange.
|
|
2.
|
On
June 3, 2010, Richard H. Davidson was granted 2,699 restricted
shares of Farmer Mac’s Class C Non-Voting Common Stock in connection with
his election as a director of the Corporation. Those restricted
shares have the same terms as the restricted shares granted to the other
Farmer Mac directors on April 1, 2010 (as reported on a Current Report on
Form 8-K filed on April 5, 2010) and will vest on March 31, 2011 or upon
Mr. Davidson’s (i) death, (ii) disability or (iii) involuntary
removal as a director without
cause.
|
Item
3.
|
Defaults Upon Senior
Securities
|
Item
4.
|
(Removed and
Reserved)
|
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.
|
|
|
|
|
|
|
|
*
|
|
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
|
|
-
|
|
Amended
and Restated Certificate of Designation of Terms and Conditions of
Non-Voting Cumulative Preferred Stock, Series C (Previously filed as
Exhibit 4.7 to Form 10-Q filed November 9, 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).
|
|
|
|
|
|
|
|
†*
|
|
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).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory
plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
†*
|
|
10.3
|
|
-
|
|
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 (Form 10-Q filed August 10,
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).
|
|
|
|
|
|
|
|
*#
|
|
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
(Form 10-Q filed August 10, 2009).
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory
plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
*#
|
|
10.12
|
|
-
|
|
Loan
Closing File Review Agreement dated as of August 2, 2005 between Zions
First National Bank and the Registrant (Form 10-Q filed November 9,
2005).
|
|
|
|
|
|
|
|
*#
|
|
10.13
|
|
-
|
|
Long
Term Standby Commitment to Purchase dated as of August 1, 1998 between
AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 14,
2002).
|
|
|
|
|
|
|
|
*#
|
|
10.13.1
|
|
-
|
|
Amendment
No. 1 dated as of January 1, 2000 to Long Term Standby Commitment to
Purchase dated as of August 1, 1998 between AgFirst Farm Credit Bank and
the Registrant (Form 10-Q filed November 14, 2002).
|
|
|
|
|
|
|
|
*
|
|
10.13.2
|
|
-
|
|
Amendment
No. 2 dated as of September 1, 2002 to Long Term Standby Commitment to
Purchase dated as of August 1, 1998, as amended by Amendment No. 1 dated
as of January 1, 2000, between AgFirst Farm Credit Bank and the Registrant
(Form 10-Q filed November 14, 2002).
|
|
|
|
|
|
|
|
*
|
|
10.14
|
|
-
|
|
Lease
Agreement, dated June 28, 2001 between EOP – Two Lafayette, L.L.C. and the
Registrant (Previously filed as Exhibit 10.10 to Form 10-K filed March 27,
2002).
|
|
|
|
|
|
|
|
*#
|
|
10.15
|
|
-
|
|
Long
Term Standby Commitment to Purchase dated as of August 1, 2007 between
Farm Credit Bank of Texas and the Registrant (Previously filed as Exhibit
10.20 to Form 10-Q filed November 8, 2007).
|
|
|
|
|
|
|
|
*#
|
|
10.16
|
|
-
|
|
Long
Term Standby Commitment to Purchase dated as of June 1, 2003 between Farm
Credit Bank of Texas and the Registrant (Form 10-Q filed November 9,
2004).
|
|
|
|
|
|
|
|
*#
|
|
10.16.1
|
|
-
|
|
Amendment
No. 1 dated as of December 8, 2006 to Long Term Standby Commitment to
Purchase dated as of June 1, 2003 between Farm Credit Bank of Texas and
the Registrant (Form 10-K filed March 15, 2007).
|
|
|
|
|
|
|
|
*#
|
|
10.17
|
|
-
|
|
Central
Servicer Delinquent Loan Servicing Transfer Agreement dated as of July 1,
2004 between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed
November 9, 2004).
|
|
|
|
|
|
|
|
†*
|
|
10.18
|
|
-
|
|
Form
of Indemnification Agreement for Directors (Previously filed as Exhibit
10.1 to Form 8-K filed April 9, 2008).
|
|
|
|
|
|
|
|
†*
|
|
10.19
|
|
-
|
|
Description
of compensation agreement between the Registrant and its directors (Form
10-Q filed August 9, 2007).
|
*
|
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.
|
†*
|
|
10.20
|
|
-
|
|
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).
|
|
|
|
|
|
|
|
**
|
|
10.22
|
|
|
|
Master
Trust, Sale and Servicing Agreement dated as of October 20, 2006 between
CFC Advantage, LLC, National Rural Utilities Cooperative Finance
Corporation, U.S. Bank National Association, and the
Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.23
|
|
|
|
Registration
Rights Agreement Series 2007-1 dated as of February 15, 2007 between CFC
Advantage, LLC, National Rural Utilities Cooperative Finance Corporation,
and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.24
|
|
|
|
Registration
Rights Agreement Series 2007-2 dated as of August 10, 2007 between CFC
Advantage, LLC, National Rural Utilities Cooperative Finance Corporation
and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.25
|
|
|
|
Note
Purchase Agreement dated as of December 15, 2008 between Farmer Mac
Mortgage Securities Corporation, National Rural Utilities Cooperative
Finance Corporation, and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.25.1
|
|
|
|
First
Amendment to Note Purchase Agreement dated as of July 13, 2009 between
Farmer Mac Mortgage Securities Corporation, National Rural Utilities
Cooperative Finance Corporation, and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.26
|
|
|
|
Pledge
Agreement dated as of December 15, 2008 between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance
Corporation, U.S. Bank Trust National Association, and the
Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.26.1
|
|
|
|
First
Amendment to Pledge Agreement dated as of September 23, 2009 between
Farmer Mac Mortgage Securities Corporation, National Rural Utilities
Cooperative Finance Corporation, U.S. Bank Trust National Association, and
the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.27
|
|
|
|
Setoff
Rights Letter Agreement dated as of December 15, 2008 between National
Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage
Securities Corporation, and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.28
|
|
|
|
Note
Purchase Agreement dated as of February 5, 2009 between Farmer Mac
Mortgage Securities Corporation, National Rural Utilities Cooperative
Finance Corporation, and the
Registrant.
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory
plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
**
|
|
10.28.1
|
|
First
Amendment to Note Purchase Agreement dated as of July 13, 2009 between
Farmer Mac Mortgage Securities Corporation, National Rural Utilities
Cooperative Finance Corporation, and the Registrant.
|
|
|
|
|
|
**
|
|
10.29
|
|
Pledge
Agreement dated as of February 5, 2009 between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance
Corporation, U.S. Bank Trust National Association, and the
Registrant.
|
|
|
|
|
|
**
|
|
10.29.1
|
|
First
Amendment to Pledge Agreement dated as of September 23, 2009 between
Farmer Mac Mortgage Securities Corporation, National Rural Utilities
Cooperative Finance Corporation, U.S. Bank Trust National Association, and
the Registrant.
|
|
|
|
|
|
**
|
|
10.30
|
|
Setoff
Rights Letter Agreement dated as of February 5, 2009 between National
Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage
Securities Corporation, and the Registrant.
|
|
|
|
|
|
**
|
|
10.31
|
|
Note
Purchase Agreement dated as of March 23, 2009 between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance
Corporation, and the Registrant.
|
|
|
|
|
|
**
|
|
10.32
|
|
Pledge
Agreement dated as of March 23, 2009 between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance
Corporation, U.S. Bank Trust National Association, and the
Registrant.
|
|
|
|
|
|
**
|
|
10.32.1
|
|
First
Amendment to Pledge Agreement dated as of September 23, 2009 between
Farmer Mac Mortgage Securities Corporation, National Rural Utilities
Cooperative Finance Corporation, U.S. Bank Trust National Association, and
the Registrant.
|
|
|
|
|
|
**
|
|
10.33
|
|
Setoff
Rights Letter Agreement dated as of March 23, 2009 between National Rural
Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities
Corporation, and the Registrant.
|
|
|
|
|
|
**
|
|
10.34
|
|
Note
Purchase Agreement dated as of May 22, 2009 between Farmer Mac Mortgage
Securities Corporation, National Rural Utilities Cooperative Finance
Corporation, and the Registrant.
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory
plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
**
|
|
10.35
|
|
|
|
Pledge
Agreement dated as of May 22, 2009 between Farmer Mac Mortgage Securities
Corporation, National Rural Utilities Cooperative Finance Corporation,
U.S. Bank Trust National Association, and the
Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.36
|
|
|
|
Setoff
Rights Letter Agreement dated as of May 22, 2009 between National Rural
Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities
Corporation, and the Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.37
|
|
|
|
Master
Sale and Servicing Agreement dated as of July 24, 2009 between National
Rural Utilities Cooperative Finance Corporation and the
Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.37.1
|
|
|
|
Amendment
No. 1 to Master Sale and Servicing Agreement dated as of February 1, 2010
between National Rural Utilities Cooperative Finance Corporation and the
Registrant.
|
|
|
|
|
|
|
|
**#
|
|
10.38
|
|
|
|
Credit
Support Agreement dated as of September 1, 2009 between National Rural
Utilities Cooperative Finance Corporation and the
Registrant.
|
|
|
|
|
|
|
|
**
|
|
10.39
|
|
|
|
Indenture
dated as of September 1, 2009 between National Rural Utilities Cooperative
Finance Corporation, U.S. Bank National Association and the
Registrant.
|
|
|
|
|
|
|
|
*
|
|
21
|
|
-
|
|
List
of Registrant’s subsidiaries (Form 10-K filed March 16,
2010).
|
|
|
|
|
|
|
|
**
|
|
31.1
|
|
-
|
|
Certification
of Chief Executive Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2010, 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, 2010, 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,
2010, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
*
|
Incorporated
by reference to the indicated prior
filing.
|
**
|
Filed
with this report.
|
†
|
Management
contract or compensatory
plan.
|
#
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
August 9,
2010
|
By:
|
/s/
Michael A. Gerber
|
|
|
Michael
A. Gerber
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
/s/
Timothy L. Buzby
|
|
|
Timothy
L. Buzby
Senior
Vice President – Chief Financial Officer and Treasurer
(Principal
Financial Officer)
|