Unassociated Document
As filed with the Securities and Exchange
Commission on November 9, 2010
|
UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
WASHINGTON,
D.C. 20549
|
|
FORM
10-Q
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended September 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 o
|
Accelerated
filer o
|
|
|
Non-accelerated
filer x
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of
November 1, 2010 the registrant had 1,030,780 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock and
8,750,869 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 September 30, 2010 and December 31,
2009
|
3
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30,
2010 and 2009
|
4
|
Condensed
Consolidated Statements of Equity for the nine months ended September 30,
2010 and 2009
|
5
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September 30,
2010 and 2009
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
453,273 |
|
|
$ |
654,794 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
1,375,518 |
|
|
|
1,041,923 |
|
Trading,
at fair value
|
|
|
81,913 |
|
|
|
89,972 |
|
Total
investment securities
|
|
|
1,457,431 |
|
|
|
1,131,895 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
2,434,467 |
|
|
|
2,524,867 |
|
Trading,
at fair value
|
|
|
- |
|
|
|
874,129 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
2,434,467 |
|
|
|
3,398,996 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
970,901 |
|
|
|
- |
|
Trading,
at fair value
|
|
|
354,539 |
|
|
|
- |
|
Total
USDA Guaranteed Securities
|
|
|
1,325,440 |
|
|
|
- |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
|
981,985 |
|
|
|
666,534 |
|
Loans
held for investment, at amortized cost
|
|
|
88,498 |
|
|
|
93,478 |
|
Loans
held for investment in consolidated trusts, at amortized
cost
|
|
|
1,292,716 |
|
|
|
- |
|
Allowance
for loan losses
|
|
|
(9,442 |
) |
|
|
(6,292 |
) |
Total
loans, net of allowance
|
|
|
2,353,757 |
|
|
|
753,720 |
|
Real
estate owned, at lower of cost or fair value
|
|
|
3,434 |
|
|
|
739 |
|
Financial
derivatives, at fair value
|
|
|
52,471 |
|
|
|
15,040 |
|
Interest
receivable
|
|
|
67,424 |
|
|
|
67,178 |
|
Guarantee
and commitment fees receivable
|
|
|
34,058 |
|
|
|
55,016 |
|
Deferred
tax asset, net
|
|
|
- |
|
|
|
24,146 |
|
Prepaid
expenses and other assets
|
|
|
40,987 |
|
|
|
37,289 |
|
Total
Assets
|
|
$ |
8,222,742 |
|
|
$ |
6,138,813 |
|
|
|
|
|
|
|
|
|
|
Liabilities,
Mezzanine Equity and Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
3,645,811 |
|
|
$ |
3,662,898 |
|
Due
after one year
|
|
|
2,979,147 |
|
|
|
1,908,713 |
|
Total
notes payable
|
|
|
6,624,958 |
|
|
|
5,571,611 |
|
Debt
securities of consolidated trusts held by third parties
|
|
|
849,430 |
|
|
|
- |
|
Financial
derivatives, at fair value
|
|
|
144,715 |
|
|
|
107,367 |
|
Accrued
interest payable
|
|
|
45,094 |
|
|
|
39,562 |
|
Guarantee
and commitment obligation
|
|
|
30,922 |
|
|
|
48,526 |
|
Accounts
payable and accrued expenses
|
|
|
20,239 |
|
|
|
23,445 |
|
Deferred
tax liability, net
|
|
|
2,441 |
|
|
|
- |
|
Reserve
for losses
|
|
|
9,575 |
|
|
|
7,895 |
|
Total
Liabilities
|
|
|
7,727,374 |
|
|
|
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 shares
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, 8,746,123 shares
outstanding as of September 30, 2010 and 8,610,918 shares
outstanding as of December 31, 2009
|
|
|
8,746 |
|
|
|
8,611 |
|
Additional
paid-in capital
|
|
|
99,468 |
|
|
|
97,090 |
|
Accumulated
other comprehensive income
|
|
|
47,332 |
|
|
|
3,254 |
|
Retained
earnings
|
|
|
38,860 |
|
|
|
28,127 |
|
Total
Stockholders' Equity
|
|
|
253,515 |
|
|
|
196,191 |
|
Non-controlling
interest - preferred stock
|
|
|
241,853 |
|
|
|
- |
|
Total
Equity
|
|
|
495,368 |
|
|
|
196,191 |
|
Total
Liabilities, Mezzanine Equity and Equity
|
|
$ |
8,222,742 |
|
|
$ |
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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands, except per share amounts)
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$ |
6,430 |
|
|
$ |
6,345 |
|
|
$ |
19,303 |
|
|
$ |
22,303 |
|
Farmer
Mac and USDA Guaranteed Securities
|
|
|
22,971 |
|
|
|
27,668 |
|
|
|
62,597 |
|
|
|
81,232 |
|
Loans
|
|
|
29,174 |
|
|
|
8,815 |
|
|
|
94,734 |
|
|
|
28,196 |
|
Total
interest income
|
|
|
58,575 |
|
|
|
42,828 |
|
|
|
176,634 |
|
|
|
131,731 |
|
Total
interest expense
|
|
|
33,526 |
|
|
|
23,031 |
|
|
|
106,360 |
|
|
|
68,593 |
|
Net
interest income
|
|
|
25,049 |
|
|
|
19,797 |
|
|
|
70,274 |
|
|
|
63,138 |
|
Provision
for loan losses
|
|
|
(412 |
) |
|
|
(3,098 |
) |
|
|
(1,392 |
) |
|
|
(939 |
) |
Net
interest income after provision for loan losses
|
|
|
24,637 |
|
|
|
16,699 |
|
|
|
68,882 |
|
|
|
62,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
(loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,977 |
|
|
|
8,168 |
|
|
|
17,606 |
|
|
|
23,486 |
|
(Losses)/gains
on financial derivatives
|
|
|
(6,864 |
) |
|
|
(7,733 |
) |
|
|
(28,508 |
) |
|
|
15,506 |
|
(Losses)/gains
on trading assets
|
|
|
(1,722 |
) |
|
|
25,047 |
|
|
|
6,703 |
|
|
|
56,707 |
|
Other-than-temporary
impairment losses
|
|
|
- |
|
|
|
(1,621 |
) |
|
|
- |
|
|
|
(3,994 |
) |
Gains
on sale of available-for-sale investment securities
|
|
|
24 |
|
|
|
63 |
|
|
|
264 |
|
|
|
2,913 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,581 |
|
Lower
of cost or fair value adjustment on loans held for sale
|
|
|
(906 |
) |
|
|
- |
|
|
|
(3,090 |
) |
|
|
- |
|
Other
income
|
|
|
140 |
|
|
|
874 |
|
|
|
1,180 |
|
|
|
1,209 |
|
Non-interest
(loss)/income
|
|
|
(3,351 |
) |
|
|
24,798 |
|
|
|
(5,845 |
) |
|
|
97,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
4,501 |
|
|
|
2,896 |
|
|
|
11,919 |
|
|
|
10,493 |
|
General
and administrative
|
|
|
1,775 |
|
|
|
2,432 |
|
|
|
6,329 |
|
|
|
8,332 |
|
Regulatory
fees
|
|
|
568 |
|
|
|
512 |
|
|
|
1,693 |
|
|
|
1,537 |
|
Real
estate owned operating costs, net
|
|
|
1,189 |
|
|
|
203 |
|
|
|
1,497 |
|
|
|
208 |
|
Provision
for losses
|
|
|
105 |
|
|
|
89 |
|
|
|
1,680 |
|
|
|
2,079 |
|
Non-interest
expense
|
|
|
8,138 |
|
|
|
6,132 |
|
|
|
23,118 |
|
|
|
22,649 |
|
Income
before income taxes
|
|
|
13,148 |
|
|
|
35,365 |
|
|
|
39,919 |
|
|
|
136,958 |
|
Income
tax expense
|
|
|
885 |
|
|
|
13,097 |
|
|
|
5,977 |
|
|
|
47,721 |
|
Net
income
|
|
|
12,263 |
|
|
|
22,268 |
|
|
|
33,942 |
|
|
|
89,237 |
|
Less:
Net income attributable to non-controlling interest - preferred stock
dividends
|
|
|
(5,546 |
) |
|
|
- |
|
|
|
(15,160 |
) |
|
|
- |
|
Net
income attributable to Farmer Mac
|
|
|
6,717 |
|
|
|
22,268 |
|
|
|
18,782 |
|
|
|
89,237 |
|
Preferred
stock dividends
|
|
|
(720 |
) |
|
|
(4,368 |
) |
|
|
(3,410 |
) |
|
|
(12,434 |
) |
Loss
on retirement of preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
(5,784 |
) |
|
|
- |
|
Net
income available to common stockholders
|
|
$ |
5,997 |
|
|
$ |
17,900 |
|
|
$ |
9,588 |
|
|
$ |
76,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share and dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
0.58 |
|
|
$ |
1.77 |
|
|
$ |
0.94 |
|
|
$ |
7.58 |
|
Diluted
earnings per common share
|
|
$ |
0.56 |
|
|
$ |
1.74 |
|
|
$ |
0.91 |
|
|
$ |
7.54 |
|
Common
stock dividends per common share
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 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
|
|
|
- |
|
|
|
- |
|
|
|
48 |
|
|
|
47,800 |
|
Balance,
end of period
|
|
|
58 |
|
|
$ |
57,578 |
|
|
|
57 |
|
|
$ |
57,000 |
|
Common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
10,142 |
|
|
$ |
10,142 |
|
|
|
10,132 |
|
|
$ |
10,132 |
|
Issuance
of Class C common stock
|
|
|
122 |
|
|
|
122 |
|
|
|
8 |
|
|
|
8 |
|
Exercise
of stock options and SARs
|
|
|
13 |
|
|
|
13 |
|
|
|
- |
|
|
|
- |
|
Balance,
end of period
|
|
|
10,277 |
|
|
$ |
10,277 |
|
|
|
10,140 |
|
|
$ |
10,140 |
|
Additional
paid-in capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
97,090 |
|
|
|
|
|
|
$ |
95,572 |
|
Stock-based
compensation expense
|
|
|
|
|
|
|
2,187 |
|
|
|
|
|
|
|
2,160 |
|
Issuance
of Class C common stock
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
21 |
|
Exercise,
vesting and cancellation of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
and restricted stock
|
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
(1,206 |
) |
Balance,
end of period
|
|
|
|
|
|
$ |
99,468 |
|
|
|
|
|
|
$ |
96,547 |
|
Retained
earnings/(accumulated deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
28,127 |
|
|
|
|
|
|
$ |
(52,144 |
) |
Net
income attributable to Farmer Mac
|
|
|
|
|
|
|
18,782 |
|
|
|
|
|
|
|
89,237 |
|
Cash
dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, Series B ($8.33 per share in 2010 and $75.00 per share in
2009)
|
|
|
|
|
|
|
(1,250 |
) |
|
|
|
|
|
|
(11,250 |
) |
Preferred
stock, Series C ($37.50 per share)
|
|
|
|
|
|
|
(2,160 |
) |
|
|
|
|
|
|
(1,184 |
) |
Common
stock ($0.15 per share)
|
|
|
|
|
|
|
(1,534 |
) |
|
|
|
|
|
|
(1,520 |
) |
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
|
|
|
|
|
|
$ |
38,860 |
|
|
|
|
|
|
$ |
23,139 |
|
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
|
|
|
|
|
|
|
44,000 |
|
|
|
|
|
|
|
65,427 |
|
Change
in unrealized gain on financial derivatives, net of tax and
reclassification adjustments
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
124 |
|
Balance,
end of period
|
|
|
|
|
|
$ |
47,332 |
|
|
|
|
|
|
$ |
18,139 |
|
Total
Stockholders' Equity
|
|
|
|
|
|
$ |
253,515 |
|
|
|
|
|
|
$ |
204,965 |
|
Non-controlling
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
- |
|
Preferred
stock - Farmer Mac II LLC
|
|
|
|
|
|
|
241,853 |
|
|
|
|
|
|
|
- |
|
Balance,
end of period
|
|
|
|
|
|
$ |
241,853 |
|
|
|
|
|
|
$ |
- |
|
Total
Equity
|
|
|
|
|
|
$ |
495,368 |
|
|
|
|
|
|
$ |
204,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
$ |
33,942 |
|
|
|
|
|
|
$ |
89,237 |
|
Change
in accumulated other comprehensive income, net of tax
|
|
|
|
44,078 |
|
|
|
|
|
|
|
65,551 |
|
Comprehensive
income
|
|
|
|
|
|
|
78,020 |
|
|
|
|
|
|
|
154,788 |
|
Less:
Comprehensive income attributable to non-controlling
interest
|
|
|
|
15,160 |
|
|
|
|
|
|
|
- |
|
Total
comprehensive income
|
|
|
|
|
|
$ |
62,860 |
|
|
|
|
|
|
$ |
154,788 |
|
See
accompanying notes to condensed consolidated financial
statements.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
33,942 |
|
|
$ |
89,237 |
|
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
|
|
|
8,421 |
|
|
|
3,123 |
|
Amortization
of debt premiums, discounts and issuance costs
|
|
|
5,057 |
|
|
|
10,982 |
|
Net
change in fair value of trading securities, financial derivatives and
loans held for sale
|
|
|
(5,970 |
) |
|
|
(104,312 |
) |
Amortization
of transition adjustment on financial derivatives
|
|
|
120 |
|
|
|
124 |
|
Other-than-temporary
impairment losses
|
|
|
- |
|
|
|
3,994 |
|
Gains
on sale of loans and Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
(1,581 |
) |
Gains
on the sale of available-for-sale investment securities
|
|
|
(264 |
) |
|
|
(2,913 |
) |
Total
provision for losses
|
|
|
3,072 |
|
|
|
3,018 |
|
Deferred
income taxes
|
|
|
809 |
|
|
|
73,629 |
|
Stock-based
compensation expense
|
|
|
2,188 |
|
|
|
2,159 |
|
Proceeds
from repayment and sale of trading investment securities
|
|
|
586 |
|
|
|
644 |
|
Purchases
of loans held for sale
|
|
|
(404,072 |
) |
|
|
(122,421 |
) |
Proceeds
from repayment of loans held for sale
|
|
|
82,988 |
|
|
|
51,896 |
|
Net
change in:
|
|
|
|
|
|
|
|
|
(Increase)/decrease
in interest receivable
|
|
|
(246 |
) |
|
|
16,852 |
|
Decrease
in guarantee and commitment fees receivable
|
|
|
20,958 |
|
|
|
6,637 |
|
Decrease
in other assets
|
|
|
522 |
|
|
|
24,287 |
|
Increase/(decrease)
in accrued interest payable
|
|
|
5,532 |
|
|
|
(3,082 |
) |
(Decrease)/increase
in other liabilities
|
|
|
(17,865 |
) |
|
|
11,725 |
|
Net
cash (used in)/provided by operating activities
|
|
|
(264,222 |
) |
|
|
63,998 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
(626,678 |
) |
|
|
(41,721 |
) |
Purchases
of Farmer Mac Guaranteed Securities
|
|
|
(1,151,375 |
) |
|
|
(1,952,704 |
) |
Purchases
of loans held for investment
|
|
|
(26,367 |
) |
|
|
(48,147 |
) |
Purchases
of defaulted loans
|
|
|
(5,317 |
) |
|
|
(19,631 |
) |
Proceeds
from repayment of available-for-sale investment securities
|
|
|
213,315 |
|
|
|
148,544 |
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
372,862 |
|
|
|
690,741 |
|
Proceeds
from repayment of loans held for investment
|
|
|
196,424 |
|
|
|
37,308 |
|
Proceeds
from sale of available-for-sale investment securities
|
|
|
92,767 |
|
|
|
207,879 |
|
Proceeds
from sale of trading securities - fair value option
|
|
|
5,013 |
|
|
|
- |
|
Proceeds
from sale of Farmer Mac Guaranteed Securities
|
|
|
18,860 |
|
|
|
24,232 |
|
Proceeds
from sale of real estate owned
|
|
|
- |
|
|
|
31,056 |
|
Proceeds
from sale of loans
|
|
|
- |
|
|
|
358,953 |
|
Net
cash used in investing activities
|
|
|
(910,496 |
) |
|
|
(563,490 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
50,774,678 |
|
|
|
40,680,191 |
|
Proceeds
from issuance of medium-term notes
|
|
|
1,977,609 |
|
|
|
2,962,189 |
|
Payments
to redeem discount notes
|
|
|
(50,262,407 |
) |
|
|
(41,077,281 |
) |
Payments
to redeem medium-term notes
|
|
|
(1,441,590 |
) |
|
|
(2,103,000 |
) |
Tax
benefit from tax deduction in excess of compensation cost
recognized
|
|
|
747 |
|
|
|
- |
|
Payments
to third parties on debt securities of consolidated trusts
|
|
|
(147,832 |
) |
|
|
- |
|
Proceeds
from common stock issuance
|
|
|
180 |
|
|
|
29 |
|
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
|
|
|
- |
|
|
|
47,800 |
|
Retirement
of Series B Preferred stock
|
|
|
(144,216 |
) |
|
|
- |
|
Dividends
paid - Non-controlling interest - preferred stock
|
|
|
(15,097 |
) |
|
|
- |
|
Dividends
paid on common and preferred stock
|
|
|
(4,944 |
) |
|
|
(13,954 |
) |
Net
cash provided by financing activities
|
|
|
973,197 |
|
|
|
495,974 |
|
Net
decrease in cash and cash equivalents
|
|
|
(201,521 |
) |
|
|
(3,518 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
654,794 |
|
|
|
278,412 |
|
Cash
and cash equivalents at end of period
|
|
$ |
453,273 |
|
|
$ |
274,894 |
|
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 and subsidiaries 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 and subsidiaries 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 nine months
ended September 30, 2010 and 2009.
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
Interest
|
|
$ |
57,746 |
|
|
$ |
58,994 |
|
Income
taxes
|
|
|
12,500 |
|
|
|
10,500 |
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Real
estate owned acquired through foreclosure
|
|
|
4,643 |
|
|
|
41,086 |
|
Loans
acquired and securitized as Farmer Mac Guaranteed
Securities
|
|
|
2,185 |
|
|
|
17,224 |
|
Consolidation
of Farmer Mac I Guaranteed Securities from off-balance sheet to loans held
for investment in consolidated trusts
|
|
|
1,402,556 |
|
|
|
- |
|
Consolidation
of Farmer Mac I Guaranteed Securities from off-balance sheet to debt
securities of consolidated trusts held by third parties
|
|
|
1,402,556 |
|
|
|
- |
|
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 |
|
Exchange
of GSE preferred stock - transfer from trading to
available-for-sale
|
|
|
- |
|
|
|
90,657 |
|
(b) Allowance for
Losses
As of
September 30, 2010, Farmer Mac maintained an allowance for losses to cover
estimated probable losses on loans held and loans underlying Long Term Standby
Purchase Commitments (“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 the Farmer Mac I portfolio 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 in the Farmer
Mac I portfolio 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. As of September 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.
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.
As of
September 30, 2010, Farmer Mac individually analyzed $57.7 million of its
$103.4 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $45.7 million of
impaired assets for which updated valuations were not available in the aggregate
in consideration of their similar risk characteristics and historical
statistics. Farmer Mac’s specific allowance for under-collateralized
assets was $2.9 million as of September 30, 2010 and $0.6 million as of
December 31, 2009. Farmer Mac’s non-specific or general allowances
were $16.1 million as of September 30, 2010 and $13.6 million as of
December 31, 2009.
Farmer
Mac recognized interest income of approximately $0.6 million and $1.5 million on
impaired loans during the three and nine months ended September 30, 2010,
respectively, compared to $0.4 million and $2.0 million, respectively, during
the same periods in 2009. During the three and nine months ended
September 30, 2010, Farmer Mac’s average investment in impaired loans was
$125.4 million and $109.0 million, respectively, compared to $184.6 million
and $168.0 million, respectively, for the same periods in 2009.
The table
below summarizes the components of Farmer Mac’s allowance for losses as of
September 30, 2010 and December 31, 2009:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Allowance
for loan losses
|
|
$ |
9,442 |
|
|
$ |
6,292 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
984 |
|
|
|
2,033 |
|
LTSPCs
|
|
|
8,591 |
|
|
|
5,862 |
|
Total
allowance for losses
|
|
$ |
19,017 |
|
|
$ |
14,187 |
|
The
following table summarizes the changes in the components of Farmer Mac’s
allowance for losses for the three and nine months ended September 30, 2010 and
2009:
|
|
September 30, 2010
|
|
|
September 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
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
Provision
for losses
|
|
|
412 |
|
|
|
105 |
|
|
|
517 |
|
|
|
3,098 |
|
|
|
89 |
|
|
|
3,187 |
|
Charge-offs
|
|
|
(465 |
) |
|
|
- |
|
|
|
(465 |
) |
|
|
(16 |
) |
|
|
- |
|
|
|
(16 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
9,442 |
|
|
$ |
9,575 |
|
|
$ |
19,017 |
|
|
$ |
4,892 |
|
|
$ |
7,585 |
|
|
$ |
12,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
6,292 |
|
|
$ |
7,895 |
|
|
$ |
14,187 |
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision
for losses
|
|
|
1,392 |
|
|
|
1,680 |
|
|
|
3,072 |
|
|
|
939 |
|
|
|
2,079 |
|
|
|
3,018 |
|
Charge-offs
|
|
|
(465 |
) |
|
|
- |
|
|
|
(465 |
) |
|
|
(7,741 |
) |
|
|
- |
|
|
|
(7,741 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
9,442 |
|
|
$ |
9,575 |
|
|
$ |
19,017 |
|
|
$ |
4,892 |
|
|
$ |
7,585 |
|
|
$ |
12,477 |
|
Upon the
adoption of 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 variable interest entities (“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
September 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 September 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 September 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.
(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 September 30, 2010 and December 31, 2009:
|
|
September 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
|
|
$ |
26,235 |
|
|
$ |
- |
|
|
$ |
(291 |
) |
|
5.42%
|
|
|
0.42%
|
|
|
|
|
|
7.24
|
|
Pay
fixed non-callable
|
|
|
1,215,137 |
|
|
|
26 |
|
|
|
(140,806 |
) |
|
4.80%
|
|
|
0.40%
|
|
|
|
|
|
3.82
|
|
Receive
fixed callable
|
|
|
40,000 |
|
|
|
14 |
|
|
|
- |
|
|
0.29%
|
|
|
0.57%
|
|
|
|
|
|
0.87
|
|
Receive
fixed non-callable
|
|
|
2,358,083 |
|
|
|
53,387 |
|
|
|
(29 |
) |
|
0.55%
|
|
|
1.56%
|
|
|
|
|
|
1.74
|
|
Basis
swaps
|
|
|
229,991 |
|
|
|
71 |
|
|
|
(3,666 |
) |
|
1.52%
|
|
|
0.46%
|
|
|
|
|
|
2.00
|
|
Credit
default swaps
|
|
|
30,000 |
|
|
|
25 |
|
|
|
(3 |
) |
|
1.00%
|
|
|
0.00%
|
|
|
|
|
|
1.30
|
|
Agency
forwards
|
|
|
117,254 |
|
|
|
- |
|
|
|
(866 |
) |
|
|
|
|
|
|
|
104.85
|
|
|
|
|
Treasury
futures
|
|
|
1,700 |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
126.12
|
|
|
|
|
|
Credit
valuation adjustment
|
|
|
- |
|
|
|
(1,052 |
) |
|
|
945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
financial derivatives
|
|
$ |
4,018,400 |
|
|
$ |
52,471 |
|
|
$ |
(144,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 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 $109.6 million. As of September 30, 2010, Farmer Mac posted
assets with a fair value of $31.2 million as collateral for its derivatives in
net liability positions. If Farmer Mac had breached certain
provisions of the derivative contracts as of September 30, 2010, it could have
been required to settle its obligations under the agreements or post additional
collateral of $78.4 million.
The
following table summarizes the effects of Farmer Mac’s financial derivatives on
the condensed consolidated statements of operations for the three and nine
months ended September 30, 2010 and 2009:
|
|
(Losses)/Gains on Financial Derivatives
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
(5,243 |
) |
|
$ |
(6,409 |
) |
|
$ |
(24,634 |
) |
|
$ |
17,971 |
|
Agency
forwards
|
|
|
(1,089 |
) |
|
|
(1,223 |
) |
|
|
(3,026 |
) |
|
|
(2,301 |
) |
Treasury
futures
|
|
|
(96 |
) |
|
|
(47 |
) |
|
|
(737 |
) |
|
|
28 |
|
Credit
default swaps
|
|
|
(396 |
) |
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
|
(6,824 |
) |
|
|
(7,679 |
) |
|
|
(28,388 |
) |
|
|
15,698 |
|
Amortization
of derivatives transition adjustment
|
|
|
(40 |
) |
|
|
(54 |
) |
|
|
(120 |
) |
|
|
(192 |
) |
Total
|
|
$ |
(6,864 |
) |
|
$ |
(7,733 |
) |
|
$ |
(28,508 |
) |
|
$ |
15,506 |
|
As of
September 30, 2010 and December 31, 2009, Farmer Mac had approximately $32,000
of net after-tax unrealized gains and $0.1 million of net after-tax
unrealized losses on financial derivatives, respectively, 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 $39,000 of unrealized losses currently reported in accumulated other
comprehensive income will be reclassified into earnings.
As of
September 30, 2010, Farmer Mac had outstanding basis swaps with Zions First
National Bank, a related party, with a total notional amount of $85.0 million
and a fair value of $(3.6) 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 gains on those outstanding
basis swaps for the three and nine months ended September 30, 2010 of
$0.1 million and $32,000 respectively, compared to unrealized losses of
$0.6 million and $0.2 million, respectively, for the same periods in
2009.
(d) Earnings Per Common
Share
Basic
earnings per common share is based on the weighted-average number of shares of
common stock outstanding. Diluted earnings per common share is 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 nine months ended September 30, 2010 and 2009:
|
|
For the Three Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 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
|
|
$ |
5,997 |
|
|
|
10,277 |
|
|
$ |
0.58 |
|
|
$ |
17,900 |
|
|
|
10,140 |
|
|
$ |
1.77 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and restricted stock (1)
|
|
|
|
|
|
|
388 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
146 |
|
|
|
(0.03 |
) |
Diluted
EPS
|
|
$ |
5,997 |
|
|
|
10,665 |
|
|
$ |
0.56 |
|
|
$ |
17,900 |
|
|
|
10,286 |
|
|
$ |
1.74 |
|
(1)
|
For
the three months ended September 30, 2010 and 2009, stock options and SARs
of 1,354,800 and 1,590,965, 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
September 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 Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 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
|
|
$ |
9,588 |
|
|
|
10,211
|
|
|
$ |
0.94 |
|
|
$ |
76,803 |
|
|
|
10,138
|
|
|
$ |
7.58 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options, SARs and restricted stock (1)
|
|
|
|
|
|
|
365
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
49
|
|
|
|
(0.04 |
) |
Diluted
EPS
|
|
$ |
9,588 |
|
|
|
10,576
|
|
|
$ |
0.91 |
|
|
$ |
76,803 |
|
|
|
10,187
|
|
|
$ |
7.54 |
|
(1)
|
For
the nine months ended September 30, 2010 and 2009, stock options and SARs
of 1,528,938 and 1,784,912, respectively, were outstanding but not
included in the computation of diluted earnings per share of common stock
because they were anti-dilutive. For the nine months ended
September 30, 2010, 111,500 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
Farmer Mac’s 2008 Omnibus Incentive
Compensation Plan 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. No SARs to directors are
outstanding. If not exercised or terminated earlier due to the
termination of employment, SARs granted to officers or employees expire after
ten years. For all SARs granted, the exercise price is equal to the
closing price of Farmer Mac’s Class C Non-Voting Common Stock on the date of
grant. SARs granted to officers during 2010 have exercise prices of
$12.20 per share. As of September 30, 2010, there are no
outstanding SARs awarded to directors. Restricted stock awarded to
directors during 2010 vests fully after approximately one
year. Restricted stock awarded to officers during 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 nine months ended
September 30, 2010, Farmer Mac recognized $0.7 million and $2.2
million, respectively, of compensation expense related to stock options, SARs
and restricted stock, compared to $0.6 million and $2.2 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 nine months ended September
30, 2010 and 2009:
|
|
September 30, 2010
|
|
|
September 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
|
|
|
1,923,050
|
|
|
$ |
21.53 |
|
|
|
1,755,965
|
|
|
$ |
23.06 |
|
Granted
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
Exercised
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
Canceled
|
|
|
(48,250
|
) |
|
|
25.43 |
|
|
|
(1,500
|
) |
|
|
22.94 |
|
Outstanding,
end of period
|
|
|
1,874,800
|
|
|
$ |
21.43 |
|
|
|
1,754,465
|
|
|
$ |
23.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine 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
|
|
|
(150,334
|
) |
|
|
22.34 |
|
|
|
(648,246
|
) |
|
|
27.27 |
|
Outstanding,
end of period
|
|
|
1,874,800
|
|
|
$ |
21.43 |
|
|
|
1,754,465
|
|
|
$ |
23.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and SARs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercisable
at the end of the period
|
|
|
1,440,211
|
|
|
$ |
24.53 |
|
|
|
1,398,262
|
|
|
$ |
25.17 |
|
|
|
September 30, 2010
|
|
|
September 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
|
|
|
181,986
|
|
|
$ |
9.66 |
|
|
|
200,548
|
|
|
$ |
5.93 |
|
Granted
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
Canceled
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
Vested
and issued
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
Outstanding,
end of period
|
|
|
181,986
|
|
|
$ |
9.66 |
|
|
|
200,548
|
|
|
$ |
5.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine 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 nine 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 nine 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 nine months ended September 30, 2010, adjustments to additional
paid-in capital from exercises or expiration of stock options and SARs and the
vesting or expiration of restricted stock was $(0.1) million and $0.2
million, respectively. 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
nine months ended September 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 September 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
|
|
8.5 years
|
|
|
113,003
|
|
|
8.4
years
|
|
|
|
245,001
|
|
8.5 years
|
10.00
- 14.99
|
|
|
247,000
|
|
9.5
years
|
|
|
-
|
|
|
-
|
|
|
|
222,300
|
|
9.5
years
|
15.00
- 19.99
|
|
|
73,291
|
|
3.9
years
|
|
|
73,291
|
|
|
3.9
years
|
|
|
|
73,291
|
|
3.9
years
|
20.00
- 24.99
|
|
|
483,457
|
|
3.9
years
|
|
|
483,457
|
|
|
3.9
years
|
|
|
|
483,457
|
|
3.9
years
|
25.00
- 29.99
|
|
|
584,384
|
|
4.0
years
|
|
|
556,792
|
|
|
3.8
years
|
|
|
|
581,424
|
|
4.0
years
|
30.00
- 34.99
|
|
|
213,668
|
|
1.4
years
|
|
|
213,668
|
|
|
1.4
years
|
|
|
|
213,668
|
|
1.4
years
|
|
|
|
1,874,800
|
|
|
|
|
1,440,211
|
|
|
|
|
|
|
1,819,141
|
|
|
|
|
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
|
|
1.5
years
|
|
|
67,500
|
|
1.5
years
|
10.00
- 14.99
|
|
|
104,287
|
|
1.5
years
|
|
|
93,858
|
|
1.5
years
|
15.00
- 19.99
|
|
|
2,699
|
|
0.5
years
|
|
|
2,426
|
|
0.5
years
|
|
|
|
181,986
|
|
|
|
|
163,784
|
|
|
The
weighted-average grant date fair value of SARs granted during the nine months
ended September 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 nine months ended September 30, 2010 and 2009 were
$12.28 and $5.93 per share, respectively. The fair values for SARs
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
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
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 had a significant impact on the
presentation of Farmer Mac’s consolidated financial statements. 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 related 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 presented as either
“Farmer Mac Guaranteed Securities” or “Investment securities” on the condensed
consolidated balance sheets. 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 AgVantage
securities. 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 the primary beneficiary of those trusts. For VIEs
classified as investment securities, which include auction-rate certificates,
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 September 30, 2010, the Farmer Mac Guaranteed Securities
trusts and investment securities trusts have carrying amounts on the condensed
consolidated balance sheet totaling $639.3 million and $517.7 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 September 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 are 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 Statements 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 or on its financial position, results of operations or cash
flows.
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
did not have a material effect on Farmer Mac’s financial position, results of
operations or cash flows.
Embedded
Credit Derivatives
On March 5, 2010, the FASB issued ASU
2010-11, Scope Exception
Related to Embedded Credit Derivatives, which amends and clarifies the
accounting for credit derivatives embedded in interests in securitized financial
assets. The new guidance addresses situations where an embedded
credit derivative requires bifurcation and separate measurement. The
ASU was effective for third quarter 2010. Adoption of ASU 2010-11 did
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 September 30, 2010 and December 31,
2009.
|
|
September 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 |
|
|
$ |
- |
|
|
$ |
(8,414 |
) |
|
$ |
65,686 |
|
Floating
rate asset-backed securities
|
|
|
11,714 |
|
|
|
7 |
|
|
|
(4 |
) |
|
|
11,717 |
|
Floating
rate corporate debt securities
|
|
|
154,385 |
|
|
|
521 |
|
|
|
(495 |
) |
|
|
154,411 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
428,863 |
|
|
|
5,373 |
|
|
|
(329 |
) |
|
|
433,907 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
4,714 |
|
|
|
314 |
|
|
|
- |
|
|
|
5,028 |
|
Floating
rate GSE subordinated debt
|
|
|
70,000 |
|
|
|
- |
|
|
|
(15,544 |
) |
|
|
54,456 |
|
Fixed
rate GSE preferred stock
|
|
|
80,082 |
|
|
|
5,876 |
|
|
|
- |
|
|
|
85,958 |
|
Fixed
rate senior agency debt
|
|
|
5,495 |
|
|
|
3 |
|
|
|
- |
|
|
|
5,498 |
|
Fixed
rate U.S. Treasuries
|
|
|
558,519 |
|
|
|
338 |
|
|
|
- |
|
|
|
558,857 |
|
Total
available-for-sale
|
|
|
1,387,872 |
|
|
|
12,432 |
|
|
|
(24,786 |
) |
|
|
1,375,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
6,122 |
|
|
|
- |
|
|
|
(4,753 |
) |
|
|
1,369 |
|
Fixed
rate GSE preferred stock
|
|
|
83,999 |
|
|
|
- |
|
|
|
(3,455 |
) |
|
|
80,544 |
|
Total
trading
|
|
|
90,121 |
|
|
|
- |
|
|
|
(8,208 |
) |
|
|
81,913 |
|
Total
investment securities
|
|
$ |
1,477,993 |
|
|
$ |
12,432 |
|
|
$ |
(32,994 |
) |
|
$ |
1,457,431 |
|
|
|
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 nine months ended September 30, 2010, Farmer Mac did not recognize
in earnings any other-than-temporary impairment charges, compared to charges of
$1.6 million and $2.7 million, respectively, for the same periods in
2009. The other-than-temporary impairment charges in 2009 were
related to investments in HSBC Finance and CIT Group, Inc. corporate debt
securities and Fannie Mae floating rate preferred stock.
During
the three months ended September 30, 2010, Farmer Mac received
$23.6 million from the sale of securities from its available-for-sale
investment portfolio, resulting in gross realized gains of $26,000 and gross
realized losses of $2,000, compared to proceeds of $54.8 million for the
same period in 2009, resulting in gross realized gains of $1.0 million and
gross realized losses of $0.9 million. During the nine months ended
September 30, 2010, Farmer Mac received proceeds of $92.8 million from the
sale of securities from its available-for-sale investment portfolio, resulting
in gross realized gains of $0.5 million and gross realized losses of $0.2
million, compared to proceeds of $207.9 million for the same period in 2009,
resulting in gross realized gains of $4.1 million and gross realized losses of
$1.2 million.
As of
September 30, 2010 and December 31, 2009, unrealized losses on
available-for-sale investment securities were as follows:
|
|
September 30, 2010
|
|
|
|
Available-for-Sale Securities
|
|
|
|
Unrealized loss position for
|
|
|
Unrealized loss position for
|
|
|
|
less than 12 months
|
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate corporate debt securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
99,503 |
|
|
$ |
(495 |
) |
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
3,913 |
|
|
|
(4 |
) |
Floating
rate auction-rate certificates backed by Government guaranteed student
loans
|
|
|
- |
|
|
|
- |
|
|
|
65,686 |
|
|
|
(8,414 |
) |
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
34,040 |
|
|
|
(269 |
) |
|
|
15,157 |
|
|
|
(60 |
) |
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
54,456 |
|
|
|
(15,544 |
) |
Total
|
|
$ |
34,040 |
|
|
$ |
(269 |
) |
|
$ |
238,715 |
|
|
$ |
(24,517 |
) |
|
|
December 31, 2009
|
|
|
|
Available-for-Sale Securities
|
|
|
|
Unrealized loss position for
|
|
|
Unrealized loss position for
|
|
|
|
less than 12 months
|
|
|
more than 12 months
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate corporate debt securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
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 September 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 September 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 37 and
86 individual investment securities as of September 30, 2010 and
December 31, 2009, respectively.
As of
September 30, 2010, 33 of the securities in loss positions had been in loss
positions for more than 12 months and had a total unrealized loss of $24.5
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 September 30, 2010 that is, on average, approximately 91
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 September 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 September 30, 2010 and
2009. As of September 30, 2010, Farmer Mac owned trading investments
with an amortized cost of $90.1 million, a fair value of $81.9 million, and
a weighted-average yield of 8.12 percent. The amortized cost, fair
value and weighted-average yield of investments by remaining contractual
maturity for available-for-sale investment securities as of September 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 September 30, 2010
|
|
|
|
Amortized
|
|
|
|
|
|
Weighted-
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Average Yield
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
$ |
588,416 |
|
|
$ |
589,005 |
|
|
|
0.05%
|
|
Due
after one year through five years
|
|
|
140,915 |
|
|
|
140,678 |
|
|
|
0.64%
|
|
Due
after five years through ten years
|
|
|
94,607 |
|
|
|
96,392 |
|
|
|
2.82%
|
|
Due
after ten years
|
|
|
563,934 |
|
|
|
549,443 |
|
|
|
2.67%
|
|
Total
|
|
$ |
1,387,872 |
|
|
$ |
1,375,518 |
|
|
|
1.37%
|
|
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 September 30, 2010
and December 31, 2009.
|
|
September 30, 2010
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
for-Sale
|
|
|
Trading
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Farmer
Mac I
|
|
$ |
608,794 |
|
|
$ |
- |
|
|
$ |
608,794 |
|
Farmer
Mac II
|
|
|
41,980 |
|
|
|
- |
|
|
|
41,980 |
|
Rural
Utilities
|
|
|
1,783,693 |
|
|
|
- |
|
|
|
1,783,693 |
|
Farmer
Mac Guaranteed Securities
|
|
|
2,434,467 |
|
|
|
- |
|
|
|
2,434,467 |
|
USDA
Guaranteed Securities
|
|
|
970,901 |
|
|
|
354,539 |
|
|
|
1,325,440 |
|
Total
|
|
$ |
3,405,368 |
|
|
$ |
354,539 |
|
|
$ |
3,759,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$ |
3,331,151 |
|
|
$ |
352,467 |
|
|
$ |
3,683,618 |
|
Unrealized
gains
|
|
|
74,702 |
|
|
|
2,072 |
|
|
|
76,774 |
|
Unrealized
losses
|
|
|
(485 |
) |
|
|
- |
|
|
|
(485 |
) |
Fair
value
|
|
$ |
3,405,368 |
|
|
$ |
354,539 |
|
|
$ |
3,759,907 |
|
|
|
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 |
|
The
temporary unrealized losses presented above are principally due to changes in
interest rates from the date of acquisition to September 30, 2010 and December
31, 2009, as applicable. As of September 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 II and USDA Guaranteed
Securities represent other-than-temporary impairment as of September 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.
Upon the
adoption of new consolidation guidance on January 1, 2010, Farmer Mac determined
itself 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
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 (i.e.,
transferred to a trust from which 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. 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.
Farmer
Mac realized no gains or losses from the sale of Farmer Mac and USDA Guaranteed
Securities for the three and nine months ended September 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 September 30, 2010 and December
31, 2009.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Fair
value of beneficial interests retained in Farmer Mac and USDA Guaranteed
Securities
|
|
$ |
3,759,907 |
|
|
$ |
3,398,996 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
3.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
5.2 |
% |
|
|
3.8 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(1,385 |
) |
|
$ |
(18 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(2,658 |
) |
|
$ |
(36 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
2.4 |
% |
|
|
2.8 |
% |
Effect
on fair value of a 10% adverse change
|
|
$ |
(20,115 |
) |
|
$ |
(22,081 |
) |
Effect
on fair value of a 20% adverse change
|
|
$ |
(40,424 |
) |
|
$ |
(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 values 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 September 30, 2010 and
December 31, 2009.
Outstanding
Balance of Farmer Mac Loans and Loans Underlying
Farmer
Mac and USDA Guaranteed Securities and LTSPCs
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
875,709 |
|
|
$ |
733,422 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
3,781 |
|
|
|
5,307 |
|
Beneficial
interests owned by third party investors
|
|
|
847,794 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
591,500 |
|
|
|
48,800 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
1,278,814 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
42,921 |
|
|
|
1,164,996 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
198,921 |
|
|
|
28,644 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
400,228 |
|
|
|
412,948 |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
1,737,200 |
|
|
|
1,675,000 |
|
Total
on-balance sheet
|
|
$ |
5,976,868 |
|
|
$ |
4,069,117 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
LTSPCs
|
|
|
1,697,578 |
|
|
|
2,165,706 |
|
Farmer
Mac Guaranteed Securities
|
|
|
795,400 |
|
|
|
1,492,239 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities
|
|
|
44,258 |
|
|
|
34,802 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
|
17,104 |
|
|
|
14,240 |
|
Total
off-balance sheet
|
|
$ |
5,499,340 |
|
|
$ |
6,651,987 |
|
Total
|
|
$ |
11,476,208 |
|
|
$ |
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 gains 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 nine months ended September 30, 2010 and 2009 and the outstanding
balances and carrying amounts of all such loans as of September 30, 2010 and
December 31, 2009, respectively.
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
principal balance at acquisition date
|
|
$ |
1,914 |
|
|
$ |
14,029 |
|
|
$ |
5,317 |
|
|
$ |
19,666 |
|
Contractually
required payments receivable
|
|
|
1,965 |
|
|
|
14,029 |
|
|
|
5,435 |
|
|
|
19,675 |
|
Impairment
recognized subsequent to acquisition
|
|
|
376 |
|
|
|
16 |
|
|
|
2,116 |
|
|
|
7,741 |
|
Recovery/release
of allowance for defaulted loans
|
|
|
10 |
|
|
|
- |
|
|
|
2,934 |
|
|
|
- |
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Outstanding
balance
|
|
$ |
34,619 |
|
|
$ |
50,409 |
|
Carrying
amount
|
|
|
30,502 |
|
|
|
29,994 |
|
Net
credit losses and 90-day delinquencies as of and for the periods indicated for
Farmer Mac I 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 September 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 September 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 USDA. Each USDA
guarantee is an obligation backed by the full faith and credit of the United
States. As of September 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 September 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 September 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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
40,846 |
|
|
$ |
35,470 |
|
|
$ |
47,288 |
|
|
$ |
(275 |
) |
|
$ |
6,976 |
|
Total
on-balance sheet
|
|
$ |
40,846 |
|
|
$ |
35,470 |
|
|
$ |
47,288 |
|
|
$ |
(275 |
) |
|
$ |
6,976 |
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$ |
23,954 |
|
|
$ |
14,056 |
|
|
$ |
12,150 |
|
|
$ |
- |
|
|
$ |
- |
|
Guaranteed
Securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
off-balance sheet
|
|
$ |
23,954 |
|
|
$ |
14,056 |
|
|
$ |
12,150 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
64,800 |
|
|
$ |
49,526 |
|
|
$ |
59,438 |
|
|
$ |
(275 |
) |
|
$ |
6,976 |
|
(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 nine months ended September 30, 2010 and
2009:
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,263 |
|
|
$ |
22,268 |
|
|
$ |
33,942 |
|
|
$ |
89,237 |
|
Available-for-sale
securities, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains
|
|
|
15,852 |
|
|
|
30,237 |
|
|
|
44,206 |
|
|
|
64,178 |
|
Reclassification
adjustment for realized (gains)/losses
|
|
|
(15 |
) |
|
|
414 |
|
|
|
(206 |
) |
|
|
1,249 |
|
Net
change from available-for-sale securities (1)
|
|
|
15,837 |
|
|
|
30,651 |
|
|
|
44,000 |
|
|
|
65,427 |
|
Financial
derivatives, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for amortization of financial derivatives transition adjustment
(2)
|
|
|
26 |
|
|
|
34 |
|
|
|
78 |
|
|
|
124 |
|
Other
comprehensive income, net of tax
|
|
|
15,863 |
|
|
|
30,685 |
|
|
|
44,078 |
|
|
|
65,551 |
|
Comprehensive
income
|
|
|
28,126 |
|
|
|
52,953 |
|
|
|
78,020 |
|
|
|
154,788 |
|
Less:
Comprehensive income attributable to non-controlling
interest
|
|
|
5,546 |
|
|
|
- |
|
|
|
15,160 |
|
|
|
- |
|
Total
comprehensive income
|
|
$ |
22,580 |
|
|
$ |
52,953 |
|
|
$ |
62,860 |
|
|
$ |
154,788 |
|
(1)
|
Unrealized
gains on available for sale securities is shown net of income tax expense
of $8.5 million and $16.5 million for the three months ended September 30,
2010 and 2009, respectively, and $23.7 million and $35.2 million for the
nine months ended September 30, 2010 and 2009,
respectively.
|
(2)
|
Amortization
of financial derivatives transition adjustment is shown net of income tax
expense of $14,000 and $19,000 for the three months ended September 30,
2010 and 2009, respectively, and $42,000 and $67,000 for the nine months
ended September 30, 2010 and 2009,
respectively.
|
The
following table presents Farmer Mac’s accumulated other comprehensive income as
of September 30, 2010 and December 31, 2009 and changes in the components of
accumulated other comprehensive income for the nine months ended September 30,
2010 and the year ended December 31, 2009.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
3,300 |
|
|
$ |
(47,214 |
) |
Net
unrealized gains, net of tax
|
|
|
44,000 |
|
|
|
50,514 |
|
Ending
balance
|
|
$ |
47,300 |
|
|
$ |
3,300 |
|
|
|
|
|
|
|
|
|
|
Financial
derivatives:
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(46 |
) |
|
$ |
(198 |
) |
Amortization
of financial derivatives transition adjustment, net of tax
|
|
|
78 |
|
|
|
152 |
|
Ending
balance
|
|
$ |
32 |
|
|
$ |
(46 |
) |
Accumulated
other comprehensive income, net of tax
|
|
$ |
47,332 |
|
|
$ |
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) 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 nine months ended September 30,
2010 and 2009 were $18.9 million and $17.2 million, respectively. The
following table summarizes cash flows received from and paid to trusts used for
securitizations:
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(in
thousands)
|
|
Proceeds
from new securitizations
|
|
$ |
18,860 |
|
|
$ |
17,224 |
|
Guarantee
fees received
|
|
|
5,610 |
|
|
|
9,673 |
|
Purchases
of assets from the trusts
|
|
|
(3,456 |
) |
|
|
(841 |
) |
Servicing
advances
|
|
|
(14 |
) |
|
|
(11 |
) |
Repayments
of servicing advances
|
|
|
22 |
|
|
|
10 |
|
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 September 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
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
Farmer
Mac Guaranteed Securities
|
|
|
795,400 |
|
|
|
1,492,239 |
|
Farmer
Mac II Guaranteed Securities
|
|
|
44,258 |
|
|
|
34,802 |
|
Rural
Utilities AgVantage
|
|
|
17,104 |
|
|
|
14,240 |
|
Total
off-balance sheet Farmer Mac Guaranteed Securities
|
|
$ |
3,801,762 |
|
|
$ |
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 $19.3 million as of September 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 September 30, 2010,
the weighted-average remaining maturity of all loans underlying off-balance
sheet Farmer Mac Guaranteed Securities, excluding AgVantage securities, was 13.9
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).
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 September 30, 2010 and $2.2
billion as of December 31, 2009.
As of
September 30, 2010, the weighted-average remaining maturity of all loans
underlying LTSPCs was 14.2 years. For those LTSPCs issued or modified on
or after January 1, 2003, Farmer Mac has recorded a liability for its
obligation to stand ready under the commitment in the guarantee and commitment
obligation on the condensed consolidated balance sheet. This liability
approximated $11.6 million as of September 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 was 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, and was repurchased and retired on January 25, 2010
such that none was outstanding on September 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 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 September 30, 2010, all held by the
National Rural Utilities Cooperative Finance Corporation (“CFC”), a related
party. 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 September 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
September 30, 2010, Farmer Mac’s minimum and critical capital requirements were
$264.8 million and $132.4 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 $448.0 million, $183.2 million above the minimum capital requirement and
$315.6 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 September 30, 2010 was $36.7 million and Farmer Mac’s regulatory capital
(core capital plus the allowance for losses) of $467.0 million exceeded
that requirement by approximately $430.3 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 condensed 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, senior agency 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
continuing through September 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
its 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.” These loans are reported at their amortized cost and
are no longer 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 first quarter 2010.
Financial
Derivatives
The fair
value of exchange-traded U.S. Treasury futures is based on unadjusted quoted
prices for identical financial instruments. Farmer Mac classifies these
fair value measurements as level 1.
Farmer
Mac’s derivative portfolio consists primarily of interest rate swaps, 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
September 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 $(0.1) 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 condensed
consolidated balance sheets. Farmer Mac internally models the fair value
of loans by discounting the projected cash flows of these instruments at
projected interest rates. The fair values are based on the present value
of expected cash flows using management’s best estimate of certain key
assumptions, which include prepayment speeds, forward yield curves and discount
rates commensurate with the risks involved. The fair values of these
instruments are classified as level 3 measurements. As of September
30, 2010, Farmer Mac recorded an adjustment of $3.2 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
September 30, 2010, Farmer Mac’s assets and liabilities recorded at fair value
include financial instruments valued at $4.0 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 49 percent of the total assets and 72 percent of financial
instruments measured at fair value as of September 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 September 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 September 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
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
65,686 |
|
|
$ |
65,686 |
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
11,717 |
|
|
|
- |
|
|
|
11,717 |
|
Floating
rate corporate debt securities
|
|
|
- |
|
|
|
154,411 |
|
|
|
- |
|
|
|
154,411 |
|
Floating
rate Government/GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
433,907 |
|
|
|
- |
|
|
|
433,907 |
|
Fixed
rate GSE guaranteed mortgage-backed securities
|
|
|
- |
|
|
|
5,028 |
|
|
|
- |
|
|
|
5,028 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
54,456 |
|
|
|
- |
|
|
|
54,456 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
85,958 |
|
|
|
- |
|
|
|
85,958 |
|
U.S.
Treasuries
|
|
|
558,857 |
|
|
|
- |
|
|
|
- |
|
|
|
558,857 |
|
Senior
agency debt
|
|
|
- |
|
|
|
5,498 |
|
|
|
- |
|
|
|
5,498 |
|
Total
available-for-sale
|
|
|
558,857 |
|
|
|
750,975 |
|
|
|
65,686 |
|
|
|
1,375,518 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities
|
|
|
- |
|
|
|
- |
|
|
|
1,369 |
|
|
|
1,369 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
80,544 |
|
|
|
- |
|
|
|
80,544 |
|
Total
trading
|
|
|
- |
|
|
|
80,544 |
|
|
|
1,369 |
|
|
|
81,913 |
|
Total
Investment Securities
|
|
|
558,857 |
|
|
|
831,519 |
|
|
|
67,055 |
|
|
|
1,457,431 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
- |
|
|
|
- |
|
|
|
608,794 |
|
|
|
608,794 |
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
41,980 |
|
|
|
41,980 |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
1,783,693 |
|
|
|
1,783,693 |
|
Total
available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
2,434,467 |
|
|
|
2,434,467 |
|
Trading
- Farmer Mac II
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
2,434,467 |
|
|
|
2,434,467 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
- |
|
|
|
- |
|
|
|
970,901 |
|
|
|
970,901 |
|
Trading
|
|
|
- |
|
|
|
- |
|
|
|
354,539 |
|
|
|
354,539 |
|
Total
USDA Guaranteed Securities
|
|
|
- |
|
|
|
- |
|
|
|
1,325,440 |
|
|
|
1,325,440 |
|
Financial
derivatives
|
|
|
- |
|
|
|
52,471 |
|
|
|
- |
|
|
|
52,471 |
|
Total
Assets at fair value
|
|
$ |
558,857 |
|
|
$ |
883,990 |
|
|
$ |
3,826,962 |
|
|
$ |
5,269,809 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
|
$ |
1 |
|
|
$ |
(141,095 |
) |
|
$ |
(3,621 |
) |
|
$ |
(144,715 |
) |
Total
Liabilities at fair value
|
|
$ |
1 |
|
|
$ |
(141,095 |
) |
|
$ |
(3,621 |
) |
|
$ |
(144,715 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
195,692 |
|
|
$ |
195,692 |
|
Loans
held for investment, at fair value
|
|
|
- |
|
|
|
- |
|
|
|
3,476 |
|
|
|
3,476 |
|
REO
|
|
|
- |
|
|
|
- |
|
|
|
3,719 |
|
|
|
3,719 |
|
Total
Nonrecurring Assets at fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
202,887 |
|
|
$ |
202,887 |
|
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
Nonrecurring 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 classified as level
3 measurements. 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 September 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
|
|
$ |
63,344 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,342 |
|
|
$ |
- |
|
|
$ |
65,686 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
available-for-sale investment securities
|
|
|
63,344 |
|
|
|
- |
|
|
|
- |
|
|
|
2,342 |
|
|
|
- |
|
|
|
65,686 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,412 |
|
|
|
(185 |
) |
|
|
142 |
|
|
|
- |
|
|
|
- |
|
|
|
1,369 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
trading investment securities
|
|
|
1,412 |
|
|
|
(185 |
) |
|
|
142 |
|
|
|
- |
|
|
|
- |
|
|
|
1,369 |
|
Total
Investment Securities
|
|
|
64,756 |
|
|
|
(185 |
) |
|
|
142 |
|
|
|
2,342 |
|
|
|
- |
|
|
|
67,055 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
47,821 |
|
|
|
547,942 |
|
|
|
- |
|
|
|
13,031 |
|
|
|
- |
|
|
|
608,794 |
|
Farmer
Mac II
|
|
|
40,436 |
|
|
|
1,214 |
|
|
|
- |
|
|
|
330 |
|
|
|
- |
|
|
|
41,980 |
|
Rural
Utilities
|
|
|
1,629,883 |
|
|
|
150,000 |
|
|
|
- |
|
|
|
3,810 |
|
|
|
- |
|
|
|
1,783,693 |
|
Total
available-for-sale
|
|
|
1,718,140 |
|
|
|
699,156 |
|
|
|
- |
|
|
|
17,171 |
|
|
|
- |
|
|
|
2,434,467 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Rural
Utilities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
trading
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
1,718,140 |
|
|
|
699,156 |
|
|
|
- |
|
|
|
17,171 |
|
|
|
- |
|
|
|
2,434,467 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
880,424 |
|
|
|
88,117 |
|
|
|
- |
|
|
|
2,360 |
|
|
|
- |
|
|
|
970,901 |
|
Trading(2)
|
|
|
386,496 |
|
|
|
(29,890 |
) |
|
|
(2,067 |
) |
|
|
- |
|
|
|
- |
|
|
|
354,539 |
|
Total
USDA Guaranteed Securities
|
|
|
1,266,920 |
|
|
|
58,227 |
|
|
|
(2,067 |
) |
|
|
2,360 |
|
|
|
- |
|
|
|
1,325,440 |
|
Total
Assets at fair value
|
|
$ |
3,049,816 |
|
|
$ |
757,198 |
|
|
$ |
(1,925 |
) |
|
$ |
21,873 |
|
|
$ |
- |
|
|
$ |
3,826,962 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives(3)
|
|
$ |
(3,678 |
) |
|
$ |
- |
|
|
$ |
57 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,621 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,678 |
) |
|
$ |
- |
|
|
$ |
57 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,621 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
163,065 |
|
|
$ |
- |
|
|
$ |
(906 |
) |
|
$ |
- |
|
|
$ |
33,533 |
|
|
$ |
195,692 |
|
Loans
held for investment, at fair value
|
|
|
4,256 |
|
|
|
- |
|
|
|
(374 |
) |
|
|
- |
|
|
|
(406 |
) |
|
|
3,476 |
|
REO
|
|
|
- |
|
|
|
- |
|
|
|
(1,483 |
) |
|
|
- |
|
|
|
5,202 |
|
|
|
3,719 |
|
Total
Nonrecurring Assets at fair value
|
|
$ |
167,321 |
|
|
$ |
- |
|
|
$ |
(2,763 |
) |
|
$ |
- |
|
|
$ |
38,329 |
|
|
$ |
202,887 |
|
(1)
|
Unrealized
gains are attributable to assets still held as of September 30, 2010 and
are recorded in (losses)/gains on trading
assets.
|
(2)
|
Includes
unrealized losses of $3.6 million attributable to assets still held as of
September 30, 2010 that are recorded in (losses)/gains on trading
assets.
|
(3)
|
Unrealized
gains are attributable to liabilities still held as of September 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 September 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
|
|
$ |
68,716 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,019 |
|
|
$ |
- |
|
|
$ |
72,735 |
|
Floating
rate GSE subordinated debt
|
|
|
54,187 |
|
|
|
- |
|
|
|
- |
|
|
|
6,129 |
|
|
|
- |
|
|
|
60,316 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
(35 |
) |
|
|
- |
|
|
|
7,904 |
|
|
|
90,657 |
|
|
|
98,526 |
|
Total
available-for-sale
|
|
|
122,903 |
|
|
|
(35 |
) |
|
|
- |
|
|
|
18,052 |
|
|
|
90,657 |
|
|
|
231,577 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,937 |
|
|
|
(172 |
) |
|
|
83 |
|
|
|
- |
|
|
|
- |
|
|
|
1,848 |
|
Fixed
rate GSE preferred stock(2)
|
|
|
183,500 |
|
|
|
(309 |
) |
|
|
3,056 |
|
|
|
- |
|
|
|
(90,657 |
) |
|
|
95,590 |
|
Total
trading
|
|
|
185,437 |
|
|
|
(481 |
) |
|
|
3,139 |
|
|
|
- |
|
|
|
(90,657 |
) |
|
|
97,438 |
|
Total
Investment Securities
|
|
|
308,340 |
|
|
|
(516 |
) |
|
|
3,139 |
|
|
|
18,052 |
|
|
|
- |
|
|
|
329,015 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
55,632 |
|
|
|
1,493 |
|
|
|
- |
|
|
|
686 |
|
|
|
- |
|
|
|
57,811 |
|
Farmer
Mac II
|
|
|
644,572 |
|
|
|
42,323 |
|
|
|
- |
|
|
|
9,134 |
|
|
|
- |
|
|
|
696,029 |
|
Rural
Utilities
|
|
|
1,424,077 |
|
|
|
425,000 |
|
|
|
- |
|
|
|
6,268 |
|
|
|
- |
|
|
|
1,855,345 |
|
Total
available-for-sale
|
|
|
2,124,281 |
|
|
|
468,816 |
|
|
|
- |
|
|
|
16,088 |
|
|
|
- |
|
|
|
2,609,185 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(3)
|
|
|
447,957 |
|
|
|
(19,978 |
) |
|
|
8,874 |
|
|
|
- |
|
|
|
- |
|
|
|
436,853 |
|
Rural
Utilities(1)
|
|
|
447,174 |
|
|
|
(6,085 |
) |
|
|
13,034 |
|
|
|
- |
|
|
|
- |
|
|
|
454,123 |
|
Total
trading
|
|
|
895,131 |
|
|
|
(26,063 |
) |
|
|
21,908 |
|
|
|
- |
|
|
|
- |
|
|
|
890,976 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
3,019,412 |
|
|
|
442,753 |
|
|
|
21,908 |
|
|
|
16,088 |
|
|
|
- |
|
|
|
3,500,161 |
|
Total
Assets at fair value
|
|
$ |
3,327,752 |
|
|
$ |
442,237 |
|
|
$ |
25,047 |
|
|
$ |
34,140 |
|
|
$ |
- |
|
|
$ |
3,829,176 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives(4)
|
|
$ |
(3,350 |
) |
|
$ |
- |
|
|
$ |
(585 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,935 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,350 |
) |
|
$ |
- |
|
|
$ |
(585 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,935 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(315 |
) |
|
$ |
- |
|
|
$ |
28,644 |
|
|
$ |
28,329 |
|
REO
|
|
|
43,260 |
|
|
|
(31,609 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,474 |
) |
|
|
10,177 |
|
Total
Nonrecurring Assets at fair value
|
|
$ |
43,260 |
|
|
$ |
(31,609 |
) |
|
$ |
(315 |
) |
|
$ |
- |
|
|
$ |
27,170 |
|
|
$ |
38,506 |
|
(1)
|
Unrealized
gains are attributable to assets still held as of September 30, 2009 and
are recorded in (losses)/gains on trading
assets.
|
(2)
|
Includes
unrealized gains of approximately $3.5 million attributable to assets
still held as of September 30, 2009 that are recorded in (losses)/gains on
trading assets.
|
(3)
|
Includes
unrealized gains of approximately $9.5 million attributable to assets
still held as of September 30, 2009 that are recorded in (losses)/gains on
trading assets.
|
(4)
|
Unrealized
losses are attributable to liabilities still held as of September 30, 2009
and are recorded in (losses)/gains on financial
derivatives.
|
Level
3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended
September 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 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(7,198 |
) |
|
$ |
- |
|
|
$ |
65,686 |
|
Floating
rate GSE subordinated debt
|
|
|
47,562 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47,562 |
) |
|
|
- |
|
Fixed
rate GSE preferred stock
|
|
|
89,211 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(89,211 |
) |
|
|
- |
|
Total
available-for-sale
|
|
|
209,657 |
|
|
|
- |
|
|
|
- |
|
|
|
(7,198 |
) |
|
|
(136,773 |
) |
|
|
65,686 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
1,824 |
|
|
|
(587 |
) |
|
|
132 |
|
|
|
- |
|
|
|
- |
|
|
|
1,369 |
|
Fixed
rate GSE preferred stock
|
|
|
88,148 |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
(88,148 |
) |
|
|
- |
|
Total
trading
|
|
|
89,972 |
|
|
|
(587 |
) |
|
|
132 |
|
|
|
- |
|
|
|
(88,148 |
) |
|
|
1,369 |
|
Total
Investment Securities
|
|
|
299,629 |
|
|
|
(587 |
) |
|
|
132 |
|
|
|
(7,198 |
) |
|
|
(224,921 |
) |
|
|
67,055 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
56,864 |
|
|
|
542,677 |
|
|
|
- |
|
|
|
14,638 |
|
|
|
(5,385 |
) |
|
|
608,794 |
|
Farmer
Mac II
|
|
|
764,792 |
|
|
|
1,411 |
|
|
|
- |
|
|
|
(1,039 |
) |
|
|
(723,184 |
) |
|
|
41,980 |
|
Rural
Utilities
|
|
|
1,703,211 |
|
|
|
62,201 |
|
|
|
- |
|
|
|
18,281 |
|
|
|
- |
|
|
|
1,783,693 |
|
Total
available-for-sale
|
|
|
2,524,867 |
|
|
|
606,289 |
|
|
|
- |
|
|
|
31,880 |
|
|
|
(728,569 |
) |
|
|
2,434,467 |
|
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 |
|
|
|
606,289 |
|
|
|
- |
|
|
|
31,880 |
|
|
|
(1,602,698 |
) |
|
|
2,434,467 |
|
USDA
Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
- |
|
|
|
225,696 |
|
|
|
- |
|
|
|
22,021 |
|
|
|
723,184 |
|
|
|
970,901 |
|
Trading(2)
|
|
|
- |
|
|
|
(76,679 |
) |
|
|
8,537 |
|
|
|
- |
|
|
|
422,681 |
|
|
|
354,539 |
|
Total
USDA Guaranteed Securities
|
|
|
- |
|
|
|
149,017 |
|
|
|
8,537 |
|
|
|
22,021 |
|
|
|
1,145,865 |
|
|
|
1,325,440 |
|
Total
Assets at fair value
|
|
$ |
3,698,625 |
|
|
$ |
754,719 |
|
|
$ |
8,669 |
|
|
$ |
46,703 |
|
|
$ |
(681,754 |
) |
|
$ |
3,826,962 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
derivatives(3)
|
|
$ |
(3,653 |
) |
|
$ |
- |
|
|
$ |
32 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,621 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,653 |
) |
|
$ |
- |
|
|
$ |
32 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,621 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale, at lower of cost or fair value
|
|
$ |
28,505 |
|
|
$ |
- |
|
|
$ |
(3,090 |
) |
|
$ |
- |
|
|
$ |
170,277 |
|
|
$ |
195,692 |
|
Loans
held for investment, at fair value
|
|
|
- |
|
|
|
- |
|
|
|
(1,042 |
) |
|
|
- |
|
|
|
4,518 |
|
|
|
3,476 |
|
REO
|
|
|
- |
|
|
|
- |
|
|
|
(1,483 |
) |
|
|
- |
|
|
|
5,202 |
|
|
|
3,719 |
|
Total
Nonrecurring Assets at fair value
|
|
$ |
28,505 |
|
|
$ |
- |
|
|
$ |
(5,615 |
) |
|
$ |
- |
|
|
$ |
179,997 |
|
|
$ |
202,887 |
|
(1)
|
Unrealized
gains are attributable to assets still held as of September 30, 2010 and
are recorded in (losses)/gains on trading
assets.
|
(2)
|
Includes
unrealized gains of $4.0 million attributable to assets still held as of
September 30, 2010 that are recorded in (losses)/gains on trading
assets.
|
(3)
|
Unrealized
gains are attributable to liabilities still held as of September 30, 2010
and are recorded in (losses)/gains on financial
derivatives.
|
Level 3 Assets and Liabilities Measured at Fair Value for the Nine Months Ended September 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 |
) |
|
$ |
- |
|
|
$ |
14,008 |
|
|
$ |
- |
|
|
$ |
72,735 |
|
Floating
rate GSE subordinated debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,184 |
|
|
|
49,132 |
|
|
|
60,316 |
|
Fixed
rate GSE preferred stock
|
|
|
- |
|
|
|
(35 |
) |
|
|
- |
|
|
|
7,904 |
|
|
|
90,657 |
|
|
|
98,526 |
|
Total
available-for-sale
|
|
|
178,577 |
|
|
|
(119,885 |
) |
|
|
- |
|
|
|
33,096 |
|
|
|
139,789 |
|
|
|
231,577 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate asset-backed securities(1)
|
|
|
2,211 |
|
|
|
(645 |
) |
|
|
282 |
|
|
|
- |
|
|
|
- |
|
|
|
1,848 |
|
Fixed
rate GSE preferred stock(2)
|
|
|
161,552 |
|
|
|
(990 |
) |
|
|
25,685 |
|
|
|
- |
|
|
|
(90,657 |
) |
|
|
95,590 |
|
Total
trading
|
|
|
163,763 |
|
|
|
(1,635 |
) |
|
|
25,967 |
|
|
|
- |
|
|
|
(90,657 |
) |
|
|
97,438 |
|
Total
Investment Securities
|
|
|
342,340 |
|
|
|
(121,520 |
) |
|
|
25,967 |
|
|
|
33,096 |
|
|
|
49,132 |
|
|
|
329,015 |
|
Farmer
Mac Guaranteed Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I
|
|
|
349,292 |
|
|
|
(2,188 |
) |
|
|
- |
|
|
|
(1,281 |
) |
|
|
(288,012 |
) |
|
|
57,811 |
|
Farmer
Mac II
|
|
|
522,565 |
|
|
|
160,574 |
|
|
|
- |
|
|
|
12,890 |
|
|
|
- |
|
|
|
696,029 |
|
Rural
Utilities
|
|
|
639,837 |
|
|
|
1,195,000 |
|
|
|
- |
|
|
|
20,508 |
|
|
|
- |
|
|
|
1,855,345 |
|
Total
available-for-sale
|
|
|
1,511,694 |
|
|
|
1,353,386 |
|
|
|
- |
|
|
|
32,117 |
|
|
|
(288,012 |
) |
|
|
2,609,185 |
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac II(3)
|
|
|
496,863 |
|
|
|
(67,320 |
) |
|
|
7,310 |
|
|
|
- |
|
|
|
- |
|
|
|
436,853 |
|
Rural
Utilities(1)
|
|
|
442,687 |
|
|
|
(11,994 |
) |
|
|
23,430 |
|
|
|
- |
|
|
|
- |
|
|
|
454,123 |
|
Total
trading
|
|
|
939,550 |
|
|
|
(79,314 |
) |
|
|
30,740 |
|
|
|
- |
|
|
|
- |
|
|
|
890,976 |
|
Total
Farmer Mac Guaranteed Securities
|
|
|
2,451,244 |
|
|
|
1,274,072 |
|
|
|
30,740 |
|
|
|
32,117 |
|
|
|
(288,012 |
) |
|
|
3,500,161 |
|
Total
Assets at fair value
|
|
$ |
2,793,584 |
|
|
$ |
1,152,552 |
|
|
$ |
56,707 |
|
|
$ |
65,213 |
|
|
$ |
(238,880 |
) |
|
$ |
3,829,176 |
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives(4)
|
|
$ |
(3,719 |
) |
|
$ |
- |
|
|
$ |
(216 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,935 |
) |
Total
Liabilities at fair value
|
|
$ |
(3,719 |
) |
|
$ |
- |
|
|
$ |
(216 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(3,935 |
) |
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(315 |
) |
|
$ |
- |
|
|
$ |
28,644 |
|
|
$ |
28,329 |
|
REO
|
|
|
- |
|
|
|
(31,609 |
) |
|
|
- |
|
|
|
- |
|
|
|
41,786 |
|
|
|
10,177 |
|
Total
Nonrecurring Assets at fair value
|
|
$ |
- |
|
|
$ |
(31,609 |
) |
|
$ |
(315 |
) |
|
$ |
- |
|
|
$ |
70,430 |
|
|
$ |
38,506 |
|
(1)
|
Unrealized
gains are attributable to assets still held as of September 30, 2009 and
are recorded in (losses)/gains on trading
assets.
|
(2)
|
Includes
unrealized gains of $15.6 million for assets still held as of September
30, 2009 that are recorded in (losses)/gains on trading
assets.
|
(3)
|
Includes
unrealized gains of approximately $8.6 million attributable to assets
still held as of September 30, 2009 that are recorded in (losses)/gains on
trading assets.
|
(4)
|
Unrealized
losses are attributable to liabilities still held as of September 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 nine months ended
September 30, 2010 and 2009. For the three and nine months ended
September 30, 2010, Farmer Mac recorded net losses on trading assets of $1.9
million and net gains of $6.6 million, respectively, for changes in fair values
of assets selected for the fair value option, compared to net gains of $25.0
million and $56.4 million for the same periods ended September 30, 2009.
These changes in fair value are presented as “(Losses)/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 September
30, 2010 and December 31, 2009 in accordance with FASB guidance on
disclosures about fair value of financial instruments.
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
|
(in
thousands)
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
453,273 |
|
|
$ |
453,273 |
|
|
$ |
654,794 |
|
|
$ |
654,794 |
|
Investment
securities
|
|
|
1,457,431 |
|
|
|
1,457,431 |
|
|
|
1,131,895 |
|
|
|
1,131,895 |
|
Farmer
Mac Guaranteed Securities
|
|
|
2,434,467 |
|
|
|
2,434,467 |
|
|
|
3,398,996 |
|
|
|
3,398,996 |
|
USDA
Guaranteed Securities
|
|
|
1,325,440 |
|
|
|
1,325,440 |
|
|
|
- |
|
|
|
- |
|
Loans
|
|
|
2,463,376 |
|
|
|
2,353,757 |
|
|
|
779,185 |
|
|
|
753,720 |
|
Financial
derivatives
|
|
|
52,471 |
|
|
|
52,471 |
|
|
|
15,040 |
|
|
|
15,040 |
|
Interest
receivable
|
|
|
67,424 |
|
|
|
67,424 |
|
|
|
67,178 |
|
|
|
67,178 |
|
Guarantee
and commitment fees receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
11,093 |
|
|
|
12,558 |
|
|
|
14,591 |
|
|
|
15,896 |
|
Farmer
Mac Guaranteed Securities
|
|
|
20,101 |
|
|
|
21,500 |
|
|
|
36,135 |
|
|
|
39,120 |
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within one year
|
|
|
3,643,972 |
|
|
|
3,645,811 |
|
|
|
3,665,282 |
|
|
|
3,662,898 |
|
Due
after one year
|
|
|
3,134,578 |
|
|
|
2,979,147 |
|
|
|
1,964,526 |
|
|
|
1,908,713 |
|
Debt
securities of consolidated trusts held by third parties
|
|
|
913,697 |
|
|
|
849,430 |
|
|
|
- |
|
|
|
- |
|
Financial
derivatives
|
|
|
144,715 |
|
|
|
144,715 |
|
|
|
107,367 |
|
|
|
107,367 |
|
Accrued
interest payable
|
|
|
45,094 |
|
|
|
45,094 |
|
|
|
39,562 |
|
|
|
39,562 |
|
Guarantee
and commitment obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
|
10,153 |
|
|
|
11,617 |
|
|
|
13,370 |
|
|
|
14,676 |
|
Farmer
Mac Guaranteed Securities
|
|
|
17,906 |
|
|
|
19,305 |
|
|
|
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 September 30, 2010, Farmer Mac II LLC held
assets with a fair value of $1.4 billion, had debt outstanding of $108.0
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 and 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
to investors other than Farmer Mac or Farmer Mac II LLC.
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, CFC, a related party.
The
following tables present core earnings for Farmer Mac’s reportable operating
segments and a reconciliation to GAAP net income for the three and nine months
ended September 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 September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
24,748 |
|
|
$ |
14,430 |
|
|
$ |
14,074 |
|
|
$ |
6,430 |
|
|
$ |
59,682 |
|
|
$ |
(1,107 |
) |
|
$ |
58,575 |
|
Interest
income related to consolidated trusts owned by third parties reclassified
to guarantee fee income
|
|
|
(952 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(952 |
) |
|
|
952 |
|
|
|
- |
|
Interest
expense (2)
|
|
|
(16,130 |
) |
|
|
(11,773 |
) |
|
|
(10,959 |
) |
|
|
(3,625 |
) |
|
|
(42,487 |
) |
|
|
8,961 |
|
|
|
(33,526 |
) |
Net
effective spread
|
|
|
7,666 |
|
|
|
2,657 |
|
|
|
3,115 |
|
|
|
2,805 |
|
|
|
16,243 |
|
|
|
8,806 |
|
|
|
25,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,492 |
|
|
|
52 |
|
|
|
1,385 |
|
|
|
- |
|
|
|
6,929 |
|
|
|
(952 |
) |
|
|
5,977 |
|
Other
income/(expense) (3)
|
|
|
1,548 |
|
|
|
295 |
|
|
|
1 |
|
|
|
(385 |
) |
|
|
1,459 |
|
|
|
(10,787 |
) |
|
|
(9,328 |
) |
Non-interest
income/(loss)
|
|
|
7,040 |
|
|
|
347 |
|
|
|
1,386 |
|
|
|
(385 |
) |
|
|
8,388 |
|
|
|
(11,739 |
) |
|
|
(3,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(412 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(412 |
) |
|
|
- |
|
|
|
(412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(105 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(105 |
) |
|
|
- |
|
|
|
(105 |
) |
Other
non-interest expense
|
|
|
(4,632 |
) |
|
|
(579 |
) |
|
|
(1,170 |
) |
|
|
(1,652 |
) |
|
|
(8,033 |
) |
|
|
- |
|
|
|
(8,033 |
) |
Non-interest
expense (4)
|
|
|
(4,737 |
) |
|
|
(579 |
) |
|
|
(1,170 |
) |
|
|
(1,652 |
) |
|
|
(8,138 |
) |
|
|
- |
|
|
|
(8,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
9,557 |
|
|
|
2,425 |
|
|
|
3,331 |
|
|
|
768 |
|
|
|
16,081 |
|
|
|
(2,933 |
) |
|
|
13,148 |
|
Income
tax (expense)/benefit
|
|
|
(3,345 |
) |
|
|
(849 |
) |
|
|
(1,166 |
) |
|
|
3,448 |
|
|
|
(1,912 |
) |
|
|
1,027 |
|
|
|
(885 |
) |
Net
income before dividends
|
|
|
6,212 |
|
|
|
1,576 |
|
|
|
2,165 |
|
|
|
4,216 |
|
|
|
14,169 |
|
|
|
(1,906 |
) |
|
|
12,263 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(720 |
) |
|
|
(720 |
) |
|
|
- |
|
|
|
(720 |
) |
Net
income
|
|
|
6,212 |
|
|
|
1,576 |
|
|
|
2,165 |
|
|
|
3,496 |
|
|
|
13,449 |
|
|
|
(1,906 |
) |
|
|
11,543 |
|
Non-controlling
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,546 |
) |
|
|
(5,546 |
) |
|
|
- |
|
|
|
(5,546 |
) |
Segment
core earnings
|
|
$ |
6,212 |
|
|
$ |
1,576 |
|
|
$ |
2,165 |
|
|
$ |
(2,050 |
) |
|
$ |
7,903 |
|
|
$ |
(1,906 |
) |
|
$ |
5,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
2,393,213 |
|
|
$ |
1,388,054 |
|
|
$ |
2,431,811 |
|
|
$ |
2,009,664 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,222,742 |
|
Total
on- and off-balance sheet program assets at principal
balance
|
|
|
7,761,847 |
|
|
|
1,365,993 |
|
|
|
2,353,453 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,481,293 |
|
Core
Earnings by Business Segment
For
the Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
9,381 |
|
|
$ |
12,010 |
|
|
$ |
15,042 |
|
|
$ |
6,345 |
|
|
$ |
42,778 |
|
|
$ |
50 |
|
|
$ |
42,828 |
|
Interest
expense (2)
|
|
|
(4,617 |
) |
|
|
(10,512 |
) |
|
|
(12,445 |
) |
|
|
(3,291 |
) |
|
|
(30,865 |
) |
|
|
7,834 |
|
|
|
(23,031 |
) |
Net
effective spread
|
|
|
4,764 |
|
|
|
1,498 |
|
|
|
2,597 |
|
|
|
3,054 |
|
|
|
11,913 |
|
|
|
7,884 |
|
|
|
19,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,679 |
|
|
|
701 |
|
|
|
1,788 |
|
|
|
- |
|
|
|
8,168 |
|
|
|
- |
|
|
|
8,168 |
|
Other
(expense)/income (3)
|
|
|
873 |
|
|
|
28 |
|
|
|
2 |
|
|
|
(1,973 |
) |
|
|
(1,070 |
) |
|
|
17,700 |
|
|
|
16,630 |
|
Non-interest
income/(loss)
|
|
|
6,552 |
|
|
|
729 |
|
|
|
1,790 |
|
|
|
(1,973 |
) |
|
|
7,098 |
|
|
|
17,700 |
|
|
|
24,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(3,098 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,098 |
) |
|
|
- |
|
|
|
(3,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(89 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(89 |
) |
|
|
- |
|
|
|
(89 |
) |
Other
non-interest expense
|
|
|
(2,890 |
) |
|
|
(876 |
) |
|
|
(642 |
) |
|
|
(1,635 |
) |
|
|
(6,043 |
) |
|
|
- |
|
|
|
(6,043 |
) |
Non-interest
expense (4)
|
|
|
(2,979 |
) |
|
|
(876 |
) |
|
|
(642 |
) |
|
|
(1,635 |
) |
|
|
(6,132 |
) |
|
|
- |
|
|
|
(6,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
5,239 |
|
|
|
1,351 |
|
|
|
3,745 |
|
|
|
(554 |
) |
|
|
9,781 |
|
|
|
25,584 |
|
|
|
35,365 |
|
Income
tax expense
|
|
|
(1,833 |
) |
|
|
(474 |
) |
|
|
(1,311 |
) |
|
|
(525 |
) |
|
|
(4,143 |
) |
|
|
(8,954 |
) |
|
|
(13,097 |
) |
Net
income before dividends
|
|
|
3,406 |
|
|
|
877 |
|
|
|
2,434 |
|
|
|
(1,079 |
) |
|
|
5,638 |
|
|
|
16,630 |
|
|
|
22,268 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,368 |
) |
|
|
(4,368 |
) |
|
|
- |
|
|
|
(4,368 |
) |
Segment
core earnings
|
|
$ |
3,406 |
|
|
$ |
877 |
|
|
$ |
2,434 |
|
|
$ |
(5,447 |
) |
|
$ |
1,270 |
|
|
$ |
16,630 |
|
|
$ |
17,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
828,779 |
|
|
$ |
1,152,334 |
|
|
$ |
2,348,213 |
|
|
$ |
1,404,405 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,733,731 |
|
Total
on- and off-balance sheet program assets at principal
balance
|
|
|
7,374,021 |
|
|
|
1,141,570 |
|
|
|
2,266,592 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,782,183 |
|
(1)
|
Includes
reconciling adjustments for yield maintenance income and discount
amortization on certain prepaid loans, 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
(Losses)/gains on financial derivatives on the GAAP financial
statements.
|
(3)
|
Includes
reconciling adjustments for the reclassification of yield maintenance,
discount amortization of certain prepaid loans 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 Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
80,512 |
|
|
$ |
40,863 |
|
|
$ |
42,011 |
|
|
$ |
19,303 |
|
|
$ |
182,689 |
|
|
$ |
(6,055 |
) |
|
$ |
176,634 |
|
Interest
income related to consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trusts
owned by third parties reclassified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
guarantee fee income
|
|
|
(3,701 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,701 |
) |
|
|
3,701 |
|
|
|
- |
|
Interest
expense (2)
|
|
|
(54,461 |
) |
|
|
(33,495 |
) |
|
|
(33,557 |
) |
|
|
(10,876 |
) |
|
|
(132,389 |
) |
|
|
26,029 |
|
|
|
(106,360 |
) |
Net
effective spread
|
|
|
22,350 |
|
|
|
7,368 |
|
|
|
8,454 |
|
|
|
8,427 |
|
|
|
46,599 |
|
|
|
23,675 |
|
|
|
70,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
16,527 |
|
|
|
403 |
|
|
|
4,377 |
|
|
|
- |
|
|
|
21,307 |
|
|
|
(3,701 |
) |
|
|
17,606 |
|
Other
income/(expense) (3)
|
|
|
2,823 |
|
|
|
298 |
|
|
|
1 |
|
|
|
(1,599 |
) |
|
|
1,523 |
|
|
|
(24,974 |
) |
|
|
(23,451 |
) |
Non-interest
income/(loss)
|
|
|
19,350 |
|
|
|
701 |
|
|
|
4,378 |
|
|
|
(1,599 |
) |
|
|
22,830 |
|
|
|
(28,675 |
) |
|
|
(5,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(1,392 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,392 |
) |
|
|
- |
|
|
|
(1,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(1,680 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,680 |
) |
|
|
- |
|
|
|
(1,680 |
) |
Other
non-interest expense
|
|
|
(11,267 |
) |
|
|
(2,159 |
) |
|
|
(3,322 |
) |
|
|
(4,690 |
) |
|
|
(21,438 |
) |
|
|
- |
|
|
|
(21,438 |
) |
Non-interest
expense (4)
|
|
|
(12,947 |
) |
|
|
(2,159 |
) |
|
|
(3,322 |
) |
|
|
(4,690 |
) |
|
|
(23,118 |
) |
|
|
- |
|
|
|
(23,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
27,361 |
|
|
|
5,910 |
|
|
|
9,510 |
|
|
|
2,138 |
|
|
|
44,919 |
|
|
|
(5,000 |
) |
|
|
39,919 |
|
Income
tax (expense)/benefit
|
|
|
(9,577 |
) |
|
|
(2,068 |
) |
|
|
(3,329 |
) |
|
|
7,247 |
|
|
|
(7,727 |
) |
|
|
1,750 |
|
|
|
(5,977 |
) |
Net
income before dividends
|
|
|
17,784 |
|
|
|
3,842 |
|
|
|
6,181 |
|
|
|
9,385 |
|
|
|
37,192 |
|
|
|
(3,250 |
) |
|
|
33,942 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,410 |
) |
|
|
(3,410 |
) |
|
|
(5,784 |
) |
|
|
(9,194 |
) |
Net
income
|
|
|
17,784 |
|
|
|
3,842 |
|
|
|
6,181 |
|
|
|
5,975 |
|
|
|
33,782 |
|
|
|
(9,034 |
) |
|
|
24,748 |
|
Non-controlling
interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,160 |
) |
|
|
(15,160 |
) |
|
|
- |
|
|
|
(15,160 |
) |
Segment
core earnings
|
|
$ |
17,784 |
|
|
$ |
3,842 |
|
|
$ |
6,181 |
|
|
$ |
(9,185 |
) |
|
$ |
18,622 |
|
|
$ |
(9,034 |
) |
|
$ |
9,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
2,393,213 |
|
|
$ |
1,388,054 |
|
|
$ |
2,431,811 |
|
|
$ |
2,009,664 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,222,742 |
|
Total
on- and off-balance sheet program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
at principal balance
|
|
|
7,761,847 |
|
|
|
1,365,993 |
|
|
|
2,353,453 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,481,293 |
|
Core
Earnings by Business Segment
For
the Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Reconciling
|
|
|
GAAP
|
|
|
|
Farmer Mac I
|
|
|
Farmer Mac II
|
|
|
Rural Utilities
|
|
|
Corporate
|
|
|
Earnings
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
|
(in
thousands)
|
|
Interest
income (1)
|
|
$ |
33,971 |
|
|
$ |
35,109 |
|
|
$ |
39,925 |
|
|
$ |
22,303 |
|
|
$ |
131,308 |
|
|
$ |
423 |
|
|
$ |
131,731 |
|
Interest
expense (2)
|
|
|
(18,493 |
) |
|
|
(30,752 |
) |
|
|
(35,276 |
) |
|
|
(12,430 |
) |
|
|
(96,951 |
) |
|
|
28,358 |
|
|
|
(68,593 |
) |
Net
effective spread
|
|
|
15,478 |
|
|
|
4,357 |
|
|
|
4,649 |
|
|
|
9,873 |
|
|
|
34,357 |
|
|
|
28,781 |
|
|
|
63,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
17,439 |
|
|
|
2,044 |
|
|
|
4,003 |
|
|
|
- |
|
|
|
23,486 |
|
|
|
- |
|
|
|
23,486 |
|
Other
income/(expense) (3)
|
|
|
3,050 |
|
|
|
33 |
|
|
|
8 |
|
|
|
(1,967 |
) |
|
|
1,124 |
|
|
|
72,798 |
|
|
|
73,922 |
|
Non-interest
income/(loss)
|
|
|
20,489 |
|
|
|
2,077 |
|
|
|
4,011 |
|
|
|
(1,967 |
) |
|
|
24,610 |
|
|
|
72,798 |
|
|
|
97,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(939 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(939 |
) |
|
|
- |
|
|
|
(939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for losses
|
|
|
(2,079 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,079 |
) |
|
|
- |
|
|
|
(2,079 |
) |
Other
non-interest expense
|
|
|
(9,576 |
) |
|
|
(3,054 |
) |
|
|
(2,240 |
) |
|
|
(5,700 |
) |
|
|
(20,570 |
) |
|
|
- |
|
|
|
(20,570 |
) |
Non-interest
expense (4)
|
|
|
(11,655 |
) |
|
|
(3,054 |
) |
|
|
(2,240 |
) |
|
|
(5,700 |
) |
|
|
(22,649 |
) |
|
|
- |
|
|
|
(22,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
23,373 |
|
|
|
3,380 |
|
|
|
6,420 |
|
|
|
2,206 |
|
|
|
35,379 |
|
|
|
101,579 |
|
|
|
136,958 |
|
Income
tax expense
|
|
|
(8,180 |
) |
|
|
(1,183 |
) |
|
|
(2,247 |
) |
|
|
(558 |
) |
|
|
(12,168 |
) |
|
|
(35,553 |
) |
|
|
(47,721 |
) |
Net
income before dividends
|
|
|
15,193 |
|
|
|
2,197 |
|
|
|
4,173 |
|
|
|
1,648 |
|
|
|
23,211 |
|
|
|
66,026 |
|
|
|
89,237 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,434 |
) |
|
|
(12,434 |
) |
|
|
- |
|
|
|
(12,434 |
) |
Segment
core earnings
|
|
$ |
15,193 |
|
|
$ |
2,197 |
|
|
$ |
4,173 |
|
|
$ |
(10,786 |
) |
|
$ |
10,777 |
|
|
$ |
66,026 |
|
|
$ |
76,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at carrying value
|
|
$ |
828,779 |
|
|
$ |
1,152,334 |
|
|
$ |
2,348,213 |
|
|
$ |
1,404,405 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,733,731 |
|
Total
on- and off-balance sheet program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
at principal balance
|
|
|
7,374,021 |
|
|
|
1,141,570 |
|
|
|
2,266,592 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,782,183 |
|
(1)
|
Includes
reconciling adjustments for yield maintenance income and discount
amortization on certain prepaid loans, 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
(Losses)/gains on financial derivatives on the GAAP financial
statements.
|
(3)
|
Includes
reconciling adjustments for the reclassification of yield maintenance,
discount amortization of certain prepaid loans 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 to investors other
than Farmer Mac or Farmer Mac II LLC.
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 Annual Report on 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
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 in early 2010, Farmer Mac is well-positioned to continue to
fulfill its congressional mission to provide capital and liquidity to rural
America. During third quarter 2010, Farmer Mac’s new business volume totaled
$1.1 billion, bringing the year-to-date total to $1.7 billion and the total
outstanding to $11.5 billion.
GAAP net
income available to common stockholders for third quarter 2010 was
$6.0 million, while core earnings were $7.9 million. Third quarter 2010
results benefited from the increased new business volume and an increased
effective net interest spread of $16.2 million (104 basis points), compared to
$11.9 million (93 basis points) in third quarter 2009. As of September 30,
2010, Farmer Mac’s excess core capital above its statutory minimum capital
requirement was $183.2 million.
During
third quarter 2010, Farmer Mac purchased an aggregate of $550.0 million of
Farmer Mac I AgVantage securities in three transactions. Those purchases were
the first Farmer Mac I program portfolio transactions of comparable size
completed since third quarter 2008. During the first nine months of 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 record levels for both third quarter 2010 and for the
first nine months of 2010.
The
growth in Farmer Mac’s Rural Utilities program continued during 2010 with the
purchase of $422.0 million of loans and AgVantage securities under that
program during the nine months ended September 30, 2010. That growth occurred at
a lower rate than in 2008 and 2009 when Farmer Mac purchased general obligation
notes from National Rural Utilities Cooperative Finance Corporation (“CFC”)
secured by eligible rural utilities loans in AgVantage structures in several
larger transactions. Beginning in August 2009 and continuing through second
quarter 2010, the majority of Farmer Mac’s rural utilities business was direct
purchases of distribution cooperative rural utilities loans as opposed to
AgVantage transactions. During third quarter 2010, Farmer Mac purchased
$250.0 million of AgVantage securities representing a two-month general
obligation of CFC secured by eligible rural utilities loans. In late 2009,
Farmer Mac developed underwriting standards for the purchase of loans to
generation and transmission cooperatives and during third quarter 2010, Farmer
Mac purchased its first of these types of rural utilities loans.
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 third quarter 2010 was
$6.0 million or $0.56 per diluted common share, compared to net income of
$17.9 million or $1.74 per diluted common share for third quarter
2009. For the nine months ended September 30, 2010, Farmer Mac’s net
income available to common stockholders was $9.6 million or $0.91 per
diluted common share, compared to $76.8 million or $7.54 per diluted common
share for the nine months ended September 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.
Farmer
Mac’s core earnings for third quarter 2010 was $7.9 million or $0.74 per
diluted common share, compared to $1.3 million or $0.12 per diluted
common share for third quarter 2009. For the nine months ended
September 30, 2010, Farmer Mac’s core earnings was $18.6 million
or $1.76 per diluted common share, compared to $10.8 million or $1.06 million
per diluted common share for the nine months ended September 30, 2009. 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
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
GAAP
net income available
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
$ |
5,997 |
|
|
$ |
0.56 |
|
|
$ |
17,900 |
|
|
$ |
1.74 |
|
Less
the net of tax effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on financial derivatives
|
|
|
2,106 |
|
|
|
0.20 |
|
|
|
830 |
|
|
|
0.08 |
|
Unrealized
(losses)/gains on trading assets
|
|
|
(1,119 |
) |
|
|
(0.10 |
) |
|
|
16,279 |
|
|
|
1.59 |
|
Amortization
of premiums on assets consolidated at fair value
|
|
|
(1,863 |
) |
|
|
(0.17 |
) |
|
|
- |
|
|
|
- |
|
Net
effects of settlements on agency forward contracts
|
|
|
(441 |
) |
|
|
(0.05 |
) |
|
|
(479 |
) |
|
|
(0.05 |
) |
Lower
of cost or fair value adjustment on loans held for sale
|
|
|
(589 |
) |
|
|
(0.06 |
) |
|
|
- |
|
|
|
- |
|
Core
earnings
|
|
$ |
7,903 |
|
|
$ |
0.74 |
|
|
$ |
1,270 |
|
|
$ |
0.12 |
|
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
Per Diluted
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Share
|
|
|
|
(in
thousands, except per share amounts)
|
|
GAAP
net income available
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
$ |
9,588 |
|
|
$ |
0.91 |
|
|
$ |
76,803 |
|
|
$ |
7.54 |
|
Less
the net of tax effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(losses)/gains on financial derivatives
|
|
|
(23 |
) |
|
|
- |
|
|
|
30,839 |
|
|
|
3.03 |
|
Unrealized
gains on trading assets
|
|
|
4,357 |
|
|
|
0.41 |
|
|
|
36,859 |
|
|
|
3.61 |
|
Amortization
of premiums on assets consolidated at fair value
|
|
|
(5,246 |
) |
|
|
(0.50 |
) |
|
|
- |
|
|
|
- |
|
Issuance
costs on the retirement of preferred stock
|
|
|
(5,784 |
) |
|
|
(0.55 |
) |
|
|
- |
|
|
|
- |
|
Net
effects of settlements on agency forward contracts
|
|
|
(329 |
) |
|
|
(0.02 |
) |
|
|
(1,672 |
) |
|
|
(0.16 |
) |
Lower
of cost or fair value adjustment on loans held for sale
|
|
|
(2,009 |
) |
|
|
(0.19 |
) |
|
|
- |
|
|
|
- |
|
Core
earnings
|
|
$ |
18,622 |
|
|
$ |
1.76 |
|
|
$ |
10,777 |
|
|
$ |
1.06 |
|
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 third quarter 2010 unrealized gains on financial
derivatives were $3.2 million, compared to $1.3 million during third
quarter 2009. For the nine months ended September 30, 2010, the unrealized
losses on financial derivatives were $35,000, compared to unrealized gains of
$47.4 million for the nine months ended September 30, 2009. Fair value losses on
trading assets totaled $1.7 million for third quarter 2010, compared to
gains of $25.0 million for third quarter 2009. For the nine months ended
September 30, 2010, the gains on trading assets totaled $6.7 million, compared
to gains of $56.7 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 nine 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 September 30, 2010, the cumulative fair value
of after-tax losses recorded on financial derivatives was $60.0 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
determined itself to be the primary beneficiary of certain variable interest
entities (“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.
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 nine months ended
September 30, 2010 was $25.0 million and $70.3 million, respectively,
compared to $19.8 million and $63.1 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 nine months ended September
30, 2010, these reclassifications resulted in an increase in net interest income
of $1.0 million and $3.7 million, respectively and a decrease in the net
interest yield of 13 basis points and 17 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 nine months ended September
30, 2010 and 2009, the net interest yield was 133 basis points and 169 basis
points, respectively. Excluding the impacts of the guarantee fee
reclassifications, the net interest yield was 150 basis points for the nine
months ended September 30, 2010, compared to 169 basis points for the nine
months ended September 30, 2009.
The
following table provides information regarding interest-earning assets and
funding for the nine months ended September 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 nine months ended September 30, 2010
compared to the nine months ended September 30, 2009. The lower average
rate on loans and Farmer Mac and USDA Guaranteed Securities during the nine
months ended September 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 three quarters of
2010.
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(dollars in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
1,576,100 |
|
|
$ |
19,303 |
|
|
1.63%
|
|
|
$ |
1,457,216 |
|
|
$ |
22,303 |
|
|
2.04%
|
|
Loans
and Farmer Mac and USDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities (1)
|
|
|
4,328,706 |
|
|
|
112,070 |
|
|
3.45%
|
|
|
|
3,527,656 |
|
|
|
109,428 |
|
|
4.14%
|
|
Total
interest-earning assets
|
|
|
5,904,806 |
|
|
|
131,373 |
|
|
2.97%
|
|
|
|
4,984,872 |
|
|
|
131,731 |
|
|
3.52%
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
2,981,082 |
|
|
|
7,353 |
|
|
0.33%
|
|
|
|
3,109,850 |
|
|
|
20,306 |
|
|
0.87%
|
|
Notes
payable due after one year (2)
|
|
|
2,502,849 |
|
|
|
57,447 |
|
|
3.06%
|
|
|
|
1,662,863 |
|
|
|
48,287 |
|
|
3.87%
|
|
Total
interest-bearing liabilities (3)
|
|
|
5,483,931 |
|
|
|
64,800 |
|
|
1.58%
|
|
|
|
4,772,713 |
|
|
|
68,593 |
|
|
1.92%
|
|
Net
non-interest-bearing funding
|
|
|
420,875 |
|
|
|
- |
|
|
|
|
|
|
212,159 |
|
|
|
- |
|
|
|
|
Total
funding
|
|
|
5,904,806 |
|
|
|
64,800 |
|
|
1.46%
|
|
|
|
4,984,872 |
|
|
|
68,593 |
|
|
1.83%
|
|
Net
interest income/yield prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidation
of certain trusts
|
|
|
5,904,806 |
|
|
|
66,573 |
|
|
1.50%
|
|
|
|
4,984,872 |
|
|
|
63,138 |
|
|
1.69%
|
|
Net
effect of consolidated trusts (4)
|
|
|
1,158,766 |
|
|
|
3,701 |
|
|
0.43%
|
|
|
|
- |
|
|
|
- |
|
|
0.00%
|
|
Adjusted
net interest income/yield
|
|
$ |
7,063,572 |
|
|
$ |
70,274 |
|
|
1.33%
|
|
|
$ |
4,984,872 |
|
|
$ |
63,138 |
|
|
1.69%
|
|
(1)
|
Excludes
interest income of $45.3 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 $41.6 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 Nine Months Ended September
30, 2010
|
|
|
|
Compared to the Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
|
Increase/(Decrease) Due to
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
Cash
and investments
|
|
$ |
(4,714 |
) |
|
$ |
1,714 |
|
|
$ |
(3,000 |
) |
Loans
and Farmer Mac and USDA
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
(19,829 |
) |
|
|
22,471 |
|
|
|
2,642 |
|
Total
|
|
|
(24,543 |
) |
|
|
24,185 |
|
|
|
(358 |
) |
Expense
from interest-bearing liabilities
|
|
|
(13,186 |
) |
|
|
9,393 |
|
|
|
(3,793 |
) |
Change
in net interest income prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidation
of certain trusts (1)
|
|
$ |
(11,357 |
) |
|
$ |
14,792 |
|
|
$ |
3,435 |
|
(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 September 30, 2010, this increased the net interest yield by
$9.0 million (57 basis points), compared to $7.8 million (61 basis points)
for the three months ended September 30, 2009. For the nine months ended
September 30, 2010, this increased the net interest yield by $26.0 million
(59 basis points), compared to $28.4 million (76 basis points) for the nine
months ended September 30, 2009.
Farmer
Mac’s net interest income and net interest yields for the three months ended
September 30, 2010 and 2009 included the benefits of yield maintenance payments
of $0.3 million (2 basis points) and $0.1 million (less than
1 basis point), respectively. The net interest yields for the nine months
ended September 30, 2010 and 2009 included the benefits of yield maintenance
payments of $0.6 million (1 basis point) and $0.4 million (1 basis point),
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
determined itself 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 reclassified these assets from “Farmer Mac Guaranteed
Securities” to “Loans held for investment in consolidated trusts” on the
condensed consolidated balance sheet. The reclassified 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 nine months
ended September 30, 2010 include expenses of $2.9 million (18 basis points) and
$8.1 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, the amortization of premiums on assets consolidated
at fair value and the amortization of discounts on certain prepaid loans.
The increase in net effective spread was in part due to the retirement of
callable debt and the simultaneous refinancing at lower rates.
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
Dollars
|
|
|
Yield
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/yield
|
|
$ |
24,097 |
|
|
1.54%
|
|
|
$ |
19,797 |
|
|
1.54%
|
|
|
$ |
66,573 |
|
|
1.50%
|
|
|
$ |
63,138 |
|
|
|
1.69%
|
|
Expense
related to financial derivatives
|
|
|
(8,961 |
) |
|
-0.57%
|
|
|
|
(7,834 |
) |
|
-0.61%
|
|
|
|
(26,029 |
) |
|
-0.59%
|
|
|
|
(28,358 |
) |
|
|
-0.76%
|
|
Yield
maintenance payments
|
|
|
(339 |
) |
|
-0.02%
|
|
|
|
(50 |
) |
|
0.00%
|
|
|
|
(595 |
) |
|
-0.01%
|
|
|
|
(423 |
) |
|
|
-0.01%
|
|
Amortization
of premiums on assets consolidated at fair value
|
|
|
2,867 |
|
|
0.18%
|
|
|
|
- |
|
|
-
|
|
|
|
8,071 |
|
|
0.18%
|
|
|
|
- |
|
|
|
-
|
|
Amortization
of discounts on certain prepaid loans (1)
|
|
|
(1,421 |
) |
|
-0.09%
|
|
|
|
- |
|
|
-
|
|
|
|
(1,421 |
) |
|
-0.03%
|
|
|
|
- |
|
|
|
-
|
|
Net
effective spread
|
|
$ |
16,243 |
|
|
1.04%
|
|
|
$ |
11,913 |
|
|
0.93%
|
|
|
$ |
46,599 |
|
|
1.05%
|
|
|
$ |
34,357 |
|
|
|
0.92%
|
|
(1)
Includes income recognition as a result of an early payoff of a loan secured by
an ethanol plant.
Provision
for Loan Losses. During the three months ended September 30, 2010, Farmer
Mac recorded provisions to its allowance for loan losses of $0.4 million and
charge-offs of $0.5 million. During the nine months ended September 30,
2010, Farmer Mac recorded provisions to its allowance for loan losses of $1.4
million, charge-offs of $0.5 million and recoveries of $2.2 million. The
provisions to the allowance for loan losses during the first nine months of 2010
include:
|
·
|
the
reclassification of $2.0 million from the reserve for losses to the
allowance for loan losses upon adoption of new consolidation guidance in
first quarter 2010;
|
|
·
|
increased
provisions of $1.6 million; offset
by
|
|
·
|
recoveries
of $2.2 million on a loan secured by an ethanol
plant.
|
During
the three and nine months ended September 30, 2009, Farmer Mac recorded
provisions to its allowance for loan losses of $3.1 million and $0.9 million,
respectively. Farmer Mac also recorded $16,000 and $7.7 million of charge-offs,
respectively, for the three and nine months ended September 30, 2009.
Farmer Mac recorded no recoveries during the three months ended
September 30, 2009 and $0.8 million of recoveries for the nine months
ended September 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 at the time of purchase,
pursuant to the terms of an LTSPC agreement. As of September 30, 2010, Farmer
Mac’s total allowance for loan losses was $9.4 million, compared to
$6.3 million as of December 31, 2009 and $4.9 million as of September 30,
2009. See “—Risk Management—Credit Risk – Loans.”
Provision
for Losses. During the three and nine months ended September 30, 2010,
Farmer Mac recorded provisions to its reserve for losses of $0.1 million
and $1.7 million, respectively. The provisions recorded during 2010 primarily
relate to Farmer Mac’s exposure to the ethanol industry pursuant to loans
underlying LTSPCs. These provisions 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 nine months ended September 30, 2009, Farmer Mac
recorded provisions of $0.1 million and $2.1 million, respectively, for
losses related to its guarantee activities and LTSPCs. As of September 30, 2010,
Farmer Mac’s reserve for losses was $9.6 million, compared to
$7.9 million as of December 31, 2009 and $7.6 million as of September 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 $6.0 million for third quarter 2010 and
$17.6 million for the nine months ended September 30, 2010, compared to $8.2
million for third quarter 2009 and $23.5 million for the nine months ended
September 30, 2009. Guarantee and commitment fees for the three and nine months
ended September 30, 2010 includes the reclassification of $1.0 million and
$3.7 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 nine months ended
September 30, 2010 was a net loss of $6.9 million and $28.5 million,
respectively, compared to a net loss of $7.7 million and a net gain of $15.5
million, respectively, for the same periods in 2009. The components of gains and
losses on financial derivatives for the three and nine months ended September
30, 2010 and 2009 are summarized in the following table:
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Realized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
related to financial derivatives
|
|
$ |
(8,961 |
) |
|
$ |
(7,834 |
) |
|
$ |
(26,029 |
) |
|
$ |
(28,358 |
) |
Losses
due to terminations or net settlements
|
|
|
(1,172 |
) |
|
|
(1,172 |
) |
|
|
(2,441 |
) |
|
|
(3,550 |
) |
Unrealized
gains/(losses) due to fair value changes
|
|
|
3,309 |
|
|
|
1,327 |
|
|
|
82 |
|
|
|
47,606 |
|
Amortization
of financial derivatives transition adjustment
|
|
|
(40 |
) |
|
|
(54 |
) |
|
|
(120 |
) |
|
|
(192 |
) |
(Losses)/gains
on financial derivatives
|
|
$ |
(6,864 |
) |
|
$ |
(7,733 |
) |
|
$ |
(28,508 |
) |
|
$ |
15,506 |
|
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 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 nine months ended September 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 $0.6 million and $2.2 million for three and nine
months ended September 30, 2010, respectively compared to $0.8 million
and $2.4 million for the three and nine months ended September 30, 2009,
respectively. Farmer Mac recognized unrealized gains of $0.1 million and
$32,000 for the three and nine months ended September 30, 2010, respectively,
compared to unrealized losses of $0.6 million and $0.2 million, respectively,
for the same periods in 2009.
Gains
and Losses on Trading Assets. During the three and nine months ended
September 30, 2010, Farmer Mac recognized losses on trading assets of
$1.7 million and gains of $6.7 million, respectively, compared to gains of
$25.0 million and $56.7 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 continuing through September 30, 2010
were the fair values provided by an independent third party pricing service. For
the three and nine months ended September 30, 2010, Farmer Mac recorded $0.2
million of trading gains and $2.0 million of trading losses, respectively,
related to the change in the fair value of its investment in AgFirst Farm Credit
Bank preferred stock. During the three months and nine months ended
September 30, 2010, Farmer Mac also recorded trading losses of $2.1 million
and trading gains of $8.5 million, respectively, related to the change 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 nine months ended
September 30, 2010 and 2009.
Gains
and Losses on Sale of Available-for-Sale Investment Securities. During
the three and nine months ended September 30, 2010, Farmer Mac realized net
gains of $24,000 and $0.3 million, respectively on sales of securities from
its available-for-sale- portfolio, compared to realized net gains of $63,000 and
$2.9 million, respectively for the three and nine months ended
September 30, 2009.
General
and Administrative Expenses. General and administrative expenses,
including legal, independent audit, and consulting fees, were $1.8 million
for third quarter 2010 and $6.3 million for the nine months ended September
30, 2010, compared to $2.4 million and $8.3 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 nine months ended September 30, 2010 were $0.6 million and
$1.7 million, respectively, compared to $0.5 million and $1.5 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 $0.9 million and $6.0
million for the three and nine months ended September 30, 2010, respectively,
compared to $13.1 million and $47.7 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 nine months ended September 30, 2010 were 6.7 percent and 15.0 percent,
respectively, compared to 37.0 percent and 34.8 percent, respectively, for the
same periods in 2009. The reduction in the effective tax rates in 2010 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
third quarter 2010, Farmer Mac added $1.1 billion of new program volume in the
form of:
|
·
|
purchases
of $82.3 million of Farmer Mac I
loans;
|
|
·
|
purchases
of $550.0 million of Farmer Mac I AgVantage
securities;
|
|
·
|
the
placement of $25.4 million of Farmer Mac I loans under
LTSPCs;
|
|
·
|
purchases
of $139.7 million of USDA-guaranteed portions of
loans;
|
|
·
|
purchases
of $35.2 million of Rural Utilities loans;
and
|
|
·
|
the
purchase of $250.0 million of Rural Utilities AgVantage
securities.
|
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 $11.5 billion as of September 30, 2010, a net
increase of $755.1 million over December 31, 2009.
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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
82,270 |
|
|
$ |
40,732 |
|
|
$ |
258,453 |
|
|
$ |
108,446 |
|
LTSPCs
|
|
|
25,416 |
|
|
|
37,083 |
|
|
|
134,989 |
|
|
|
125,520 |
|
AgVantage
|
|
|
550,000 |
|
|
|
- |
|
|
|
550,000 |
|
|
|
- |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
132,991 |
|
|
|
- |
|
|
|
334,663 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
6,676 |
|
|
|
76,119 |
|
|
|
20,354 |
|
|
|
251,496 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
35,242 |
|
|
|
28,644 |
|
|
|
171,986 |
|
|
|
28,644 |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
250,000 |
|
|
|
525,000 |
|
|
|
250,000 |
|
|
|
1,695,000 |
|
Total
purchases, guarantees and commitments
|
|
$ |
1,082,595 |
|
|
$ |
707,578 |
|
|
$ |
1,720,445 |
|
|
$ |
2,209,106 |
|
The
outstanding principal balance of loans held and loans underlying LTSPCs and on-
and off-balance sheet Farmer Mac and USDA Guaranteed Securities was
$11.5 billion as of September 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
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
On-balance
sheet:
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
Loans
|
|
$ |
875,709 |
|
|
$ |
733,422 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
3,781 |
|
|
|
5,307 |
|
Beneficial
interests owned by third party investors
|
|
|
847,794 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
591,500 |
|
|
|
48,800 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
USDA
Guaranteed Securities
|
|
|
1,278,814 |
|
|
|
- |
|
Farmer
Mac Guaranteed Securities
|
|
|
42,921 |
|
|
|
1,164,996 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
198,921 |
|
|
|
28,644 |
|
Loans
held in trusts:
|
|
|
|
|
|
|
|
|
Beneficial
interests owned by Farmer Mac
|
|
|
400,228 |
|
|
|
412,948 |
|
Farmer
Mac Guaranteed Securities - AgVantage
|
|
|
1,737,200 |
|
|
|
1,675,000 |
|
Total
on-balance sheet
|
|
$ |
5,976,868 |
|
|
$ |
4,069,117 |
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet:
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
$ |
2,945,000 |
|
|
$ |
2,945,000 |
|
LTSPCs
|
|
|
1,697,578 |
|
|
|
2,165,706 |
|
Farmer
Mac Guaranteed Securities
|
|
|
795,400 |
|
|
|
1,492,239 |
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
|
Farmer
Mac Guaranteed Securities
|
|
|
44,258 |
|
|
|
34,802 |
|
Rural
Utilities:
|
|
|
|
|
|
|
|
|
AgVantage
|
|
|
17,104 |
|
|
|
14,240 |
|
Total
off-balance sheet
|
|
$ |
5,499,340 |
|
|
$ |
6,651,987 |
|
Total
|
|
$ |
11,476,208 |
|
|
$ |
10,721,104 |
|
Of the
$11.5 billion outstanding principal balance of volume included in Farmer Mac’s
three programs as of September 30, 2010, $5.3 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 September 30, 2010.
AgVantage Balances by Year of Maturity
|
|
|
|
As of
|
|
|
|
September 30, 2010
|
|
|
|
(in thousands)
|
|
|
|
|
|
2010
|
|
$ |
250,000 |
|
2011
|
|
|
2,053,400 |
|
2012
|
|
|
497,000 |
|
2013
|
|
|
157,750 |
|
2014
|
|
|
760,400 |
|
Thereafter
|
|
|
1,572,254 |
|
Total
|
|
$ |
5,290,804 |
|
As shown
in the table above, $2.3 billion of the outstanding $5.3 billion of
AgVantage securities mature prior to 2012. 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 third quarter 2010 and third quarter 2009 was
less than one month. Of the Farmer Mac I newly originated and current
seasoned loans purchased during third quarter 2010 and third quarter 2009, 88
percent and 59 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 16.7 years and 12.2 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. The
weighted-average age of delinquent loans purchased out of securitized pools and
LTSPCs during third quarter 2010 and third quarter 2009 was 4.6 years and
2.6 years, respectively. 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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Farmer
Mac I newly originated
|
|
|
|
|
|
|
|
|
|
|
|
|
and
current seasoned loan purchases
|
|
$ |
82,270 |
|
|
$ |
40,732 |
|
|
$ |
258,453 |
|
|
$ |
108,446 |
|
Defaulted
loans purchased underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
owned
by third party investors
|
|
|
1,133 |
|
|
|
841 |
|
|
|
3,456 |
|
|
|
841 |
|
Defaulted
loans purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
underlying
LTSPCs
|
|
|
781 |
|
|
|
13,188 |
|
|
|
1,861 |
|
|
|
16,608 |
|
Defaulted
loans underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on-balance
sheet Farmer Mac I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities transferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,216 |
|
Total
loan purchases
|
|
$ |
84,184 |
|
|
$ |
54,761 |
|
|
$ |
263,770 |
|
|
$ |
128,111 |
|
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. 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 September 30, 2010, Farmer Mac II LLC held assets
with a fair value of $1.4 billion, had debt outstanding of $108.0 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. These industries are also
affected by commodity inventories, largely as a result of weather patterns and
harvest conditions. During 2010, for example, volatility increased for corn and
soybean prices as the harvest occurred, which reflected a reduced crop from what
the USDA and other sources had forecasted shortly before the harvest. The price
increase of feed grains is positive for producers of these commodities, but also
will put pressure on profit margins in the protein sector (including dairy). The
historic operating losses in the dairy sector have been reduced, but prevailing
feed grain prices will take a toll on the recovery, which could lead to higher
delinquencies and additional provisions for losses in the Farmer Mac
portfolio
Farmer
Mac’s support of the renewable energy sector is centered in ethanol production,
an industry that has not yet become consistently profitable. Ethanol margins
tightened during the first three quarters 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 in the form of blender’s tax credits or tax
policies would be detrimental to the industry.
Conditions
in the agricultural sector during 2009 and the first three quarters 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. 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 the solid profits being experienced by the growers of corn and
soybeans, who are most typically located in the Midwest, with values increasing.
Land values outside the Midwest have generally held constant, though land that
has traditionally had a value component tied to long term development uses other
than agriculture has shown decline. While this is true of agricultural land
values generally, the development value impact in Farmer Mac’s agricultural loan
portfolio is not significant. Although decreased profitability has slowed the
farm real estate 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.
Farmer
Mac foresees opportunities for continued business growth in both the
agricultural and rural utilities segments, though the pace of growth will be
dictated by the capital demands of the industries and the stability of the
financial markets. With lenders in both the agricultural and rural utilities
sectors continuing to face capital markets and economic challenges, Farmer Mac
represents a potential source of liquidity, capital, and risk management to help
lenders meet the borrowing needs of their customers.
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 determined itself 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 September 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 $8.2 billion as of September 30, 2010 compared to
$6.1 billion as of December 31, 2009. Of that $2.1 billion increase,
$1.1 billion resulted from new program volume in third quarter 2010. The
remaining increase was attributable to the consolidation of off-balance sheet
Farmer Mac Guaranteed Securities resulting from the adoption of new
consolidation guidance effective January 1, 2010. With respect to the
implementation of the consolidation accounting guidance, 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
September 30, 2010, Farmer Mac had $453.3 million of cash and cash equivalents,
compared to $654.8 million as of December 31, 2009. As of September 30,
2010, Farmer Mac had $1.5 billion of investment securities, compared to
$1.1 billion as of December 31, 2009.
Liabilities
and Total Equity. During the nine months ended September 30, 2010, total
liabilities increased $1.9 billion as a result of the consolidation of trusts as
well as debt issued to support the growth in assets. Total equity, including
mezzanine equity, increased $155.0 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 September
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 September 30, 2010, Farmer Mac’s core capital totaled
$448.0 million and exceeded its statutory minimum capital requirement of
$264.8 million by $183.2 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 September 30, 2010,
Farmer Mac’s risk-based capital stress test generated a risk-based capital
requirement of $36.7 million. Farmer Mac’s regulatory capital of $467.0 million
exceeded that amount by approximately $430.3 million. Accumulated other
comprehensive income 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. 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 September 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 September 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
September 30, 2010 was $599.1 million, of which $592.7 million were loans to
electric distribution cooperatives and $6.4 million was one loan to a generation
and transmission cooperative. 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 September
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 September 30, 2010 and December 31, 2009:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Allowance
for loan losses
|
|
$ |
9,442 |
|
|
$ |
6,292 |
|
Reserve
for losses:
|
|
|
|
|
|
|
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
984 |
|
|
|
2,033 |
|
LTSPCs
|
|
|
8,591 |
|
|
|
5,862 |
|
Total
allowance for losses
|
|
$ |
19,017 |
|
|
$ |
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 nine months ended September 30, 2010 and
2009:
|
|
September 30, 2010
|
|
|
September 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
|
|
$ |
9,495 |
|
|
$ |
9,470 |
|
|
$ |
18,965 |
|
|
$ |
1,810 |
|
|
$ |
7,496 |
|
|
$ |
9,306 |
|
Provision
for losses
|
|
|
412 |
|
|
|
105 |
|
|
|
517 |
|
|
|
3,098 |
|
|
|
89 |
|
|
|
3,187 |
|
Charge-offs
|
|
|
(465 |
) |
|
|
- |
|
|
|
(465 |
) |
|
|
(16 |
) |
|
|
- |
|
|
|
(16 |
) |
Recoveries
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ending
balance
|
|
$ |
9,442 |
|
|
$ |
9,575 |
|
|
$ |
19,017 |
|
|
$ |
4,892 |
|
|
$ |
7,585 |
|
|
$ |
12,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
6,292 |
|
|
$ |
7,895 |
|
|
$ |
14,187 |
|
|
$ |
10,929 |
|
|
$ |
5,506 |
|
|
$ |
16,435 |
|
Provision
for losses
|
|
|
1,392 |
|
|
|
1,680 |
|
|
|
3,072 |
|
|
|
939 |
|
|
|
2,079 |
|
|
|
3,018 |
|
Charge-offs
|
|
|
(465 |
) |
|
|
- |
|
|
|
(465 |
) |
|
|
(7,741 |
) |
|
|
- |
|
|
|
(7,741 |
) |
Recoveries
|
|
|
2,223 |
|
|
|
- |
|
|
|
2,223 |
|
|
|
765 |
|
|
|
- |
|
|
|
765 |
|
Ending
balance
|
|
$ |
9,442 |
|
|
$ |
9,575 |
|
|
$ |
19,017 |
|
|
$ |
4,892 |
|
|
$ |
7,585 |
|
|
$ |
12,477 |
|
During
the three and nine months ended September 30, 2010, Farmer Mac recorded a
provision to its allowance for losses of $0.5 million and $3.1 million,
respectively, compared to provisions of $3.2 million and $3.0 million,
respectively, for the same periods in 2009. Farmer Mac recorded charge-offs of
$0.5 million during the three and nine months ended September 30, 2010, compared
to charge-offs of $16,000 and $7.7 million during the same periods in 2009.
Farmer Mac recorded no recoveries and recoveries of $2.2 million for the three
and nine months ended September 30, 2010, respectively, compared to no
recoveries in the three months ended September 30, 2009 and $0.8 million in
recoveries for the nine months ended September 30, 2009. There was no previously
accrued or advanced interest on loans or Farmer Mac I Guaranteed Securities
charged off in third quarter 2010 or third quarter 2009. As of
September 30, 2010, Farmer Mac’s allowance for losses totaled
$19.0 million, or 45 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
September 30, 2010, Farmer Mac’s 90-day delinquencies were $64.8 million
(1.53 percent), compared to $59.4 million (1.36 percent) as of
September 30, 2009. Ethanol loans comprised $10.9 million of the 90-day
delinquencies as of September 30, 2010, compared to $18.5 million as of
September 30, 2009. As of September 30, 2010, Farmer Mac’s non-performing assets
totaled $78.4 million (1.86 percent), compared to $84.8 million
(1.94 percent) as of September 30, 2009. Ethanol loans comprised $10.9 million of non-performing assets
as of September 30, 2010, compared to $28.4 million as of September 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
September 30, 2010, Farmer Mac’s ethanol exposure, which includes loans held and
loans subject to LTSPCs, was $244.5 million on 29 different plants, with an
additional $34.4 million of undisbursed commitments. Other than the
undisbursed commitments, Farmer Mac does not intend 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$ |
4,225,346 |
|
|
$ |
78,448 |
|
|
1.86%
|
|
|
$ |
13,649 |
|
|
$ |
64,800 |
|
|
1.53%
|
|
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%
|
|
(1)
Excludes loans underlying AgVantage securities.
As of
September 30, 2010, Farmer Mac individually analyzed $57.7 million of its
$103.4 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted values.
Farmer Mac evaluated the remaining $45.7 million of impaired assets for
which updated valuations were not available in the aggregate in consideration of
their similar risk characteristics and historical statistics. As of
September 30, 2010, Farmer Mac had recorded specific allowances of
$2.9 million for under-collateralized assets. Farmer Mac’s non-specific or
general allowances were $16.1 million as of September 30, 2010.
As of
September 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 51.0 percent, and the
weighted-average original LTV for all non-performing assets was
50.1 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 September 30, 2010 by year of origination,
geographic region and commodity/collateral type.
Farmer Mac I Non-performing Assets as of September 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%
|
|
|
$ |
281,194 |
|
|
$ |
6,843 |
|
|
2.43%
|
|
1997
|
|
3%
|
|
|
|
107,840 |
|
|
|
2,527 |
|
|
2.34%
|
|
1998
|
|
4%
|
|
|
|
163,053 |
|
|
|
3,973 |
|
|
2.44%
|
|
1999
|
|
5%
|
|
|
|
217,511 |
|
|
|
4,490 |
|
|
2.06%
|
|
2000
|
|
3%
|
|
|
|
113,100 |
|
|
|
1,098 |
|
|
0.97%
|
|
2001
|
|
5%
|
|
|
|
213,435 |
|
|
|
7,336 |
|
|
3.44%
|
|
2002
|
|
7%
|
|
|
|
279,167 |
|
|
|
4,862 |
|
|
1.74%
|
|
2003
|
|
8%
|
|
|
|
327,707 |
|
|
|
3,484 |
|
|
1.06%
|
|
2004
|
|
7%
|
|
|
|
277,868 |
|
|
|
1,710 |
|
|
0.62%
|
|
2005
|
|
9%
|
|
|
|
394,679 |
|
|
|
2,361 |
|
|
0.60%
|
|
2006
|
|
10%
|
|
|
|
435,781 |
|
|
|
2,144 |
|
|
0.49%
|
|
2007
|
|
9%
|
|
|
|
417,312 |
|
|
|
28,595 |
|
|
6.85%
|
|
2008
|
|
10%
|
|
|
|
449,609 |
|
|
|
9,025 |
|
|
2.01%
|
|
2009
|
|
6%
|
|
|
|
269,841 |
|
|
|
- |
|
|
0.00%
|
|
2010
|
|
7%
|
|
|
|
277,249 |
|
|
|
- |
|
|
0.00%
|
|
Total
|
|
100%
|
|
|
$ |
4,225,346 |
|
|
$ |
78,448 |
|
|
1.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
15%
|
|
|
$ |
651,712 |
|
|
$ |
18,504 |
|
|
2.84%
|
|
Southwest
|
|
39%
|
|
|
|
1,637,667 |
|
|
|
13,184 |
|
|
0.81%
|
|
Mid-North
|
|
22%
|
|
|
|
921,208 |
|
|
|
19,939 |
|
|
2.16%
|
|
Mid-South
|
|
12%
|
|
|
|
526,943 |
|
|
|
8,619 |
|
|
1.64%
|
|
Northeast
|
|
8%
|
|
|
|
335,475 |
|
|
|
4,332 |
|
|
1.29%
|
|
Southeast
|
|
4%
|
|
|
|
152,341 |
|
|
|
13,870 |
|
|
9.10%
|
|
Total
|
|
100%
|
|
|
$ |
4,225,346 |
|
|
$ |
78,448 |
|
|
1.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
40%
|
|
|
$ |
1,679,480 |
|
|
$ |
27,195 |
|
|
1.62%
|
|
Permanent
plantings
|
|
19%
|
|
|
|
812,254 |
|
|
|
21,807 |
|
|
2.68%
|
|
Livestock
|
|
27%
|
|
|
|
1,143,473 |
|
|
|
12,853 |
|
|
1.12%
|
|
Part-time
farm/rural housing
|
|
7%
|
|
|
|
307,728 |
|
|
|
5,701 |
|
|
1.85%
|
|
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities)
|
|
6%
|
|
|
|
257,092 |
|
|
|
10,892 |
|
|
4.24%
|
|
Other
|
|
1%
|
|
|
|
25,319 |
|
|
|
- |
|
|
0.00%
|
|
Total
|
|
100%
|
|
|
$ |
4,225,346 |
|
|
$ |
78,448 |
|
|
1.86%
|
|
(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 September 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.
|
Cumulative Original Loans, Guarantees and LTSPCs
|
As of September 30, 2010
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
Original Loans,
|
|
|
Cumulative
|
|
|
Cumulative
|
|
|
|
Guarantees and
|
|
|
Net Credit
|
|
|
Loss
|
|
|
|
LTSPCs
|
|
|
Losses
|
|
|
Rate
|
|
|
|
(dollars in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
Before
1997
|
|
$ |
3,451,840 |
|
|
$ |
1,593 |
|
|
|
0.05%
|
|
1997
|
|
|
767,854 |
|
|
|
2,256 |
|
|
|
0.29%
|
|
1998
|
|
|
1,145,154 |
|
|
|
3,885 |
|
|
|
0.34%
|
|
1999
|
|
|
1,167,499 |
|
|
|
1,291 |
|
|
|
0.11%
|
|
2000
|
|
|
763,650 |
|
|
|
2,550 |
|
|
|
0.33%
|
|
2001
|
|
|
1,126,530 |
|
|
|
170 |
|
|
|
0.02%
|
|
2002
|
|
|
1,135,026 |
|
|
|
- |
|
|
|
0.00%
|
|
2003
|
|
|
937,640 |
|
|
|
58 |
|
|
|
0.01%
|
|
2004
|
|
|
652,723 |
|
|
|
32 |
|
|
|
0.00%
|
|
2005
|
|
|
778,910 |
|
|
|
131 |
|
|
|
0.02%
|
|
2006
|
|
|
812,141 |
|
|
|
7,689 |
|
|
|
0.95%
|
|
2007
|
|
|
584,491 |
|
|
|
1,215 |
|
|
|
0.21%
|
|
2008
|
|
|
580,409 |
|
|
|
2,824 |
|
|
|
0.49%
|
|
2009
|
|
|
328,958 |
|
|
|
1,193 |
|
|
|
0.36%
|
|
2010
|
|
|
297,291 |
|
|
|
- |
|
|
|
0.00%
|
|
Total
|
|
$ |
14,530,116 |
|
|
$ |
24,887 |
|
|
|
0.17%
|
|
By
geographic region (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$ |
2,656,010 |
|
|
$ |
10,694 |
|
|
|
0.40%
|
|
Southwest
|
|
|
5,669,882 |
|
|
|
7,013 |
|
|
|
0.12%
|
|
Mid-North
|
|
|
2,483,782 |
|
|
|
6,659 |
|
|
|
0.27%
|
|
Mid-South
|
|
|
1,353,014 |
|
|
|
(314 |
) |
|
|
-0.02%
|
|
Northeast
|
|
|
1,339,228 |
|
|
|
83 |
|
|
|
0.01%
|
|
Southeast
|
|
|
1,028,200 |
|
|
|
752 |
|
|
|
0.07%
|
|
Total
|
|
$ |
14,530,116 |
|
|
$ |
24,887 |
|
|
|
0.17%
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$ |
5,837,782 |
|
|
$ |
2,312 |
|
|
|
0.04%
|
|
Permanent
plantings
|
|
|
3,217,294 |
|
|
|
9,378 |
|
|
|
0.29%
|
|
Livestock
|
|
|
3,764,237 |
|
|
|
3,266 |
|
|
|
0.09%
|
|
Part-time
farm/rural housing
|
|
|
1,023,635 |
|
|
|
429 |
|
|
|
0.04%
|
|
Ag
storage and processing
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
ethanol facilities) (2)
|
|
|
545,556 |
|
|
|
9,502 |
|
|
|
1.74%
|
|
Other
|
|
|
141,612 |
|
|
|
- |
|
|
|
0.00%
|
|
Total
|
|
$ |
14,530,116 |
|
|
$ |
24,887 |
|
|
|
0.17%
|
|
(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 September 30, 2010, approximately
$34.4 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
$591.5 million and $48.8 million as of September 30, 2010 and December 31,
2009, respectively. Farmer Mac Guaranteed Securities – Rural
Utilities structured as AgVantage transactions issued by CFC totaled $1.7
billion as of September 30, 2010 and December 31, 2009,
respectively. In addition, outstanding off-balance sheet AgVantage
transactions totaled $3.0 billion as of September 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 September 30, 2010 and
December 31, 2009.
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Credit
|
|
|
Required
|
|
|
|
|
|
Credit
|
|
|
Required
|
|
Counterparty
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
Balance
|
|
|
Rating
|
|
|
Collateralization
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
MetLife
(1)
|
|
$ |
2,750,000 |
|
|
AA-
|
|
|
103%
|
|
|
$ |
2,500,000 |
|
|
AA-
|
|
|
103%
|
|
CFC
|
|
|
1,754,304 |
|
|
A
|
|
|
100%
|
|
|
|
1,689,240 |
|
|
A
|
|
|
100%
|
|
M&I
Bank (2)
|
|
|
475,000 |
|
|
BBB
|
|
|
106%
|
|
|
|
475,000 |
|
|
BBB
|
|
|
106%
|
|
Rabo
Agrifinance, Inc.
|
|
|
300,000 |
|
|
N/A
|
|
|
106%
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
Other
(3)
|
|
|
11,500 |
|
|
N/A
|
|
|
111% to 120%
|
|
|
|
18,800 |
|
|
N/A
|
|
|
111% to 120%
|
|
Total
outstanding
|
|
$ |
5,290,804 |
|
|
|
|
|
|
|
|
$ |
4,683,040 |
|
|
|
|
|
|
|
(1)
|
Includes
securities issued by Metropolitan Life Insurance Company and MetLife
Insurance Company of Connecticut.
|
(2)
|
M&I
Bank was downgraded to BBB- on October 21,
2010.
|
(3)
|
Consists
of AgVantage securities issued by 4 different issuers as of September 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 September 30, 2010, Farmer Mac
had $453.3 million of cash and cash equivalents and $1.5 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 September 30, 2010, 25 percent of
Farmer Mac’s regulatory capital was $116.8 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 policy applicable to new
investments 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. In June 2010, Farmer Mac revised its policy to limit the
Corporation’s total exposure to any single issuer of securities (other than GSEs
and Government agencies) and uncollateralized financial derivatives to 5 percent
of the Corporation’s regulatory capital.
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
September 30, 2010, 16 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 9 percent had other
forms of prepayment protection (together covering 45 percent of all loans with
fixed interest rates). Of the Farmer Mac I current loans
purchased in third quarter 2010, none had yield maintenance or other forms of
prepayment protection. As of September 30, 2010, none of the
USDA-guaranteed portions held or underlying Farmer Mac II Guaranteed Securities
had yield maintenance provisions; however, 11 percent contained prepayment
penalties. Of the USDA-guaranteed portions purchased in the first
nine months of 2010, 8 percent contained various forms of prepayment
penalties. As of September 30, 2010, 29 percent of the rural
utilities loans owned by Farmer Mac had yield maintenance
provisions. Of the rural utilities loans purchased in third quarter
2010, 24 percent had yield maintenance provisions. As of
September 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 $453.3 million of cash and cash equivalents mature within three months and
are funded with discount notes having similar maturities. As of
September 30, 2010, $1.3 billion of the $1.5 billion of investment
securities (86.4 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 September 30, 2010, Farmer Mac had
outstanding discount notes of $2.8 billion, medium-term notes that mature within
one year of $0.8 billion and medium-term notes that mature after one year of
$3.0 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 three quarters of 2010. This reduction
in sensitivity resulted primarily 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 September
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
|
|
September 30,
|
|
|
December 31,
|
|
Scenario
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
+
300 bp
|
|
|
7.4%
|
|
|
|
-23.1%
|
|
+
200 bp
|
|
|
7.4%
|
|
|
|
-13.8%
|
|
+
100 bp
|
|
|
5.0%
|
|
|
|
-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
September 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 2.1 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 September 30, 2010, a parallel increase of
100 basis points would have decreased Farmer Mac’s NII by 4.0 percent,
while a parallel decrease of 25 basis points would have decreased NII by
4.1 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 September 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
September 30, 2010, Farmer Mac had $4.0 billion combined notional amount of
interest rate and credit default swaps, with terms ranging from one to
fifteen years, of which $1.2 billion were pay-fixed interest rate swaps,
$2.4 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 third
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
176 days of liquidity during third quarter 2010 and had 169 days of
liquidity as of September 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 $10.0 billion
of discount notes and medium-term notes (of which $6.6 billion was outstanding
as of September 30, 2010), subject to periodic review of the adequacy of
that level relative to Farmer Mac’s borrowing requirements. That
authorization was increased from $7.0 billion to $10.0 billion in October
2010. 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. Going forward, Farmer Mac plans to balance the use of
pay-fixed interest rate swaps and receive-fixed interest rate swaps to mitigate
the effects of fair value changes on Farmer Mac’s regulatory capital
surplus.
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.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Cash
and cash equivalents
|
|
$ |
453,273 |
|
|
$ |
654,794 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Guaranteed
by U.S. Government agencies
|
|
|
766,343 |
|
|
|
341,874 |
|
Guaranteed
by GSEs
|
|
|
291,403 |
|
|
|
234,206 |
|
Preferred
stock issued by GSEs
|
|
|
166,502 |
|
|
|
177,359 |
|
Corporate
debt securities
|
|
|
154,411 |
|
|
|
245,605 |
|
Asset-backed
securities principally backed by Government guaranteed student loans
(1)
|
|
|
78,772 |
|
|
|
132,851 |
|
Total
|
|
$ |
1,910,704 |
|
|
$ |
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 $65.7 million of ARCs as of September 30, 2010, compared to
$72.9 million as of December 31, 2009. As of September 30, 2010,
Farmer Mac’s carrying value of its ARCs was 89 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
September 30, 2010, Farmer Mac had no remaining investment in The Reserve
Primary Fund compared to a $5.3 million investment as of December 31,
2009. 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 nine months ended September 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 nine months of 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 three 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 Class A, Class B and Class C
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
three 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 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,
second and third quarters of 2010, Farmer Mac II LLC’s board of directors
declared a quarterly dividend of $16.02 per share, $22.1875 per share, and
$22.1875 per share, respectively, on the company’s preferred
stock. Farmer Mac’s net income attributable to non-controlling
interest totaled $5.5 million and $15.2 million for the three and nine
months ended September 30, 2010, respectively. These amounts
represent the dividends paid on the Farmer Mac II LLC preferred stock held by
third parties. Farmer Mac’s income tax expense is determined based on
income before income taxes less the amount of these dividends.
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 September 30, 2010, Farmer Mac’s minimum capital
requirement was $264.8 million, and Farmer Mac’s core capital level was
$448.0 million, $183.2 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 September 30, 2010 was
$36.7 million, and Farmer Mac’s regulatory capital of $467.0 million
exceeded that requirement by approximately $430.3 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
|
|
|
Total
|
|
|
|
(in thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$ |
632,270 |
|
|
$ |
25,416 |
|
|
$ |
139,667 |
|
|
$ |
285,242 |
|
|
$ |
1,082,595 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2010, approximately $34.4 million of the loans underlying
$545.6 million of AgStorage and processing LTSPCs (including ethanol
facilities) were not yet disbursed by the
lender.
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$ |
6,059,184 |
|
|
$ |
1,697,578 |
|
|
$ |
1,365,993 |
|
|
$ |
2,353,453 |
|
|
$ |
11,476,208 |
|
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 |
|
(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 second quarter 2010 at the request of a program
participant.
|
(2)
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$ |
3,099,200 |
|
|
$ |
1,102,560 |
|
|
$ |
1,911,904 |
|
|
$ |
6,113,664 |
|
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 |
|
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 September 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 September 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
September 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
third quarter 2010, one type of transaction occurred related to Farmer Mac
common stock that was not registered under the Securities Act of 1933 and not
otherwise reported on a Current Report on Form 8-K. On July 15, 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 854 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 $14.03 per share, which was the
closing price of the Class C Non-Voting Common Stock on June 30, 2010 as
reported by the New York Stock Exchange.
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
|
*
|
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.
|
**#
|
10.11.2
|
-
|
Amendment
No. 2. To Amended and Restated Master Central Servicing Agreement between
Zions First National Bank and the Registrant, dated as of August 25,
2010.
|
|
|
|
|
*#
|
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).
|
*
|
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.
|
†*
|
10.19
|
-
|
Description
of compensation agreement between the Registrant and its directors (Form
10-Q filed August 9, 2007).
|
|
|
|
|
†*
|
10.20
|
-
|
Agreement
and General Release dated as of January 30, 2009 between Henry D. Edelman
and the Registrant (Form 10-Q filed May 12, 2009).
|
|
|
|
|
†*
|
10.21
|
-
|
Agreement
and General Release dated as of February 6, 2009 between Nancy E.
Corsiglia and the Registrant (Form 10-Q filed May 12,
2009).
|
|
|
|
|
*
|
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 (Form 10-Q
filed August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed
August 9, 2010).
|
|
|
|
|
*
|
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
(Form 10-Q filed August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
*
|
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.
|
*
|
10.27
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
*
|
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 (Form 10-Q filed
August 9, 2010).
|
|
|
|
*
|
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
(Form 10-Q filed August 9, 2010).
|
|
|
|
*
|
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 (Form 10-Q filed August 9, 2010).
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
*
|
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
(Form 10-Q filed August 9, 2010).
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
*
|
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.
|
*
|
10.33
|
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed
August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9,
2010).
|
|
|
|
|
*
|
10.37
|
|
Master
Sale and Servicing Agreement dated as of July 24, 2009 between National
Rural Utilities Cooperative Finance Corporation and the Registrant (Form
10-Q filed August 9, 2010).
|
|
|
|
|
*
|
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 (Form 10-Q filed August 9, 2010).
|
|
|
|
|
*#
|
10.38
|
|
Credit
Support Agreement dated as of September 1, 2009 between National Rural
Utilities Cooperative Finance Corporation and the Registrant (Form 10-Q
filed August 9, 2010).
|
|
|
|
|
*
|
10.39
|
|
Indenture
dated as of September 1, 2009 between National Rural Utilities Cooperative
Finance Corporation, U.S. Bank National Association and the Registrant
(Form 10-Q filed August 9, 2010).
|
|
|
|
|
*
|
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 September 30, 2010, pursuant to Rule
13a-14(a), as adopted pursuant to Section 302 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.
|
**
|
31.2
|
-
|
Certification
of Chief Financial Officer relating to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended September 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 September
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
November
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)
|