Form 10Q 060809
As
filed with the Securities and Exchange Commission on
August
9, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2006
Commission
File Number 0-17440
|
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 [ ]
Large accelerated
filer [
]
Accelerated filer
[X]
Non-accelerated filer [ ]
Indicate
by check mark whether the registrant is a shell company (as
defined in Rule 12b‑2 of the Exchange Act).
Yes
[
]
No [X]
As
of August 1, 2006, the registrant had 1,030,780 shares of
Class A Voting Common Stock, 500,301 shares of Class B Voting
Common Stock and 9,205,695 shares of Class C Non‑Voting Common Stock
outstanding.
PART I - FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements
The
following interim
unauditedcondensed
consolidated financial statements of the
Federal Agricultural Mortgage Corporation (“Farmer Mac” or the “Corporation”)
have been prepared pursuant to the rules and regulations of the
Securities
and Exchange Commission (the
“SEC”). These interim unaudited condensed consolidated financial
statements reflect all normal and recurring adjustments that are, in the
opinion
of management, necessary to present a fair statement of the financial condition
and the results of operations and cash flows of Farmer Mac for the interim
periods presented. Certain information and footnote disclosures normally
included in annual consolidated financial statements have been condensed
or
omitted as permitted by SEC rules and regulations. The December 31,
2005 consolidated balance sheet presented in this report has been derived
from
the Corporation’s audited 2005 consolidated financial statements.
Management believes that the disclosures are adequate to present fairly the
condensed consolidated financial position, condensed consolidated results
of
operations and condensed consolidated cash flows as of the dates and for
the
periods presented. These interim unaudited condensed consolidated
financial statements should be read in conjunction with the audited 2005
consolidated financial statements of Farmer Mac included in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2005. Results
for interim periods are not necessarily indicative of those that may be expected
for the fiscal year.
The
following
information concerning Farmer Mac’s interim unaudited condensed consolidated
financial statements is included in this report beginning on the pages listed
below:
Condensed
Consolidated Balance Sheets as of June 30, 2006 and
December 31, 2005..................................................................................................3
Condensed
Consolidated Statements of Operations for the three
and
six months ended
June 30, 2006 and 2005.........................................................
4
Condensed
Consolidated Statements of Cash Flows for the six
months
ended June 30,
2006 and
2005.....................................................................
5
Notes
to Condensed
Consolidated Financial Statements...............................................
6
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in
thousands, except share data)
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
Assets:
|
|
|
|
|
Cash
and cash equivalents
|
$
348,951
|
|
$
458,852
|
|
Investment
securities
|
2,007,895
|
|
1,621,941
|
|
Farmer
Mac Guaranteed Securities
|
1,303,921
|
|
1,330,976
|
|
Loans
held for sale
|
54,801
|
|
41,956
|
|
Loans
held for investment
|
732,334
|
|
762,436
|
|
|
Allowance
for loan losses
|
(2,734)
|
|
(4,876)
|
|
|
|
Loans
held for investment, net
|
729,600
|
|
757,560
|
Real
estate owned
|
1,039
|
|
3,532
|
|
Financial
derivatives
|
23,040
|
|
8,751
|
|
Interest
receivable
|
63,652
|
|
67,509
|
|
Guarantee
and commitment fees receivable
|
25,784
|
|
22,170
|
|
Deferred
tax asset, net
|
950
|
|
2,397
|
|
Prepaid
expenses and other assets
|
6,321
|
|
24,975
|
|
|
|
Total
Assets
|
$
4,565,954
|
|
$
4,340,619
|
|
|
|
|
|
|
c
|
Liabilities
and Stockholders' Equity:
|
|
|
|
Liabilities:
|
|
|
|
|
Notes
payable:
|
|
|
|
|
|
Due
within one year
|
$
3,040,620
|
|
$
2,587,704
|
|
|
Due
after one year
|
1,181,875
|
|
1,403,598
|
|
|
|
Total
notes payable
|
4,222,495
|
|
3,991,302
|
|
|
|
|
|
|
|
|
Financial
derivatives
|
21,039
|
|
29,162
|
|
Accrued
interest payable
|
29,034
|
|
29,250
|
|
Guarantee
and commitment obligation
|
21,685
|
|
17,625
|
|
Accounts
payable and accrued expenses
|
13,277
|
|
21,371
|
|
Reserve
for losses
|
3,518
|
|
3,777
|
|
|
|
Total
Liabilities
|
4,311,048
|
|
4,092,487
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
|
Series
A, stated at redemption/liquidation value, $50 per share,
|
|
|
|
|
|
|
700,000
shares authorized, issued and outstanding
|
35,000
|
|
35,000
|
|
Common
stock:
|
|
|
|
|
|
Class
A Voting, $1 par value, no maximum authorization,
|
|
|
|
|
|
|
1,030,780
shares issued and outstanding
|
1,031
|
|
1,031
|
|
|
Class
B Voting, $1 par value, no maximum authorization,
|
|
|
|
|
|
|
500,301
shares issued and outstanding
|
500
|
|
500
|
|
|
Class
C Non-Voting, $1 par value, no maximum authorization,
|
|
|
|
|
|
|
9,361,305
and 9,559,554 shares issued and outstanding
|
|
|
|
|
|
|
as
of June 30, 2006 and December 31, 2005, respectively
|
9,361
|
|
9,560
|
|
Additional
paid-in capital
|
83,740
|
|
83,058
|
|
Accumulated
other comprehensive income
|
5,075
|
|
3,339
|
|
Retained
earnings
|
120,199
|
|
115,644
|
|
|
|
Total
Stockholders' Equity
|
254,906
|
|
248,132
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$
4,565,954
|
|
$
4,340,619
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
$
|
30,298
|
|
$
|
14,765
|
|
$
|
56,996
|
|
$
|
27,352
|
|
Farmer
Mac Guaranteed Securities
|
|
|
19,417
|
|
|
17,773
|
|
|
37,512
|
|
|
34,854
|
|
Loans
|
|
|
11,847
|
|
|
11,470
|
|
|
23,230
|
|
|
23,591
|
|
Total
interest income
|
|
|
61,562
|
|
|
44,008
|
|
|
117,738
|
|
|
85,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
52,461
|
|
|
35,886
|
|
|
99,737
|
|
|
69,869
|
|
Net
interest income
|
|
|
9,101
|
|
|
8,122
|
|
|
18,001
|
|
|
15,928
|
|
Recovery/(provision)
for loan losses
|
|
|
594
|
|
|
203
|
|
|
1,606
|
|
|
787
|
|
Net
interest income after recovery/(provision)
|
|
|
9,695
|
|
|
8,325
|
|
|
19,607
|
|
|
16,715
|
|
for
loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
and commitment fees
|
|
|
5,288
|
|
|
4,889
|
|
|
10,337
|
|
|
9,845
|
|
Gains
on financial derivatives and trading assets
|
|
|
2,026
|
|
|
3,755
|
|
|
25
|
|
|
2,045
|
|
Gains/(losses)
on the sale of real estate owned
|
|
|
304
|
|
|
(67
|
)
|
|
514
|
|
|
(80
|
)
|
Representation
and warranty claims income
|
|
|
718
|
|
|
-
|
|
|
718
|
|
|
79
|
|
Other
income
|
|
|
58
|
|
|
367
|
|
|
227
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
18,089
|
|
|
17,269
|
|
|
31,428
|
|
|
29,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and employee benefits
|
|
|
2,673
|
|
|
1,899
|
|
|
5,577
|
|
|
3,675
|
|
General
and administrative
|
|
|
2,577
|
|
|
2,275
|
|
|
5,335
|
|
|
4,264
|
|
Regulatory
fees
|
|
|
588
|
|
|
576
|
|
|
1,175
|
|
|
1,152
|
|
Real
estate owned operating costs, net
|
|
|
22
|
|
|
59
|
|
|
137
|
|
|
37
|
|
Provision/(recovery)
for losses
|
|
|
592
|
|
|
(91
|
)
|
|
(104
|
)
|
|
(192
|
)
|
Total
operating expenses
|
|
|
6,452
|
|
|
4,718
|
|
|
12,120
|
|
|
8,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
11,637
|
|
|
12,551
|
|
|
19,308
|
|
|
20,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
3,458
|
|
|
3,780
|
|
|
5,532
|
|
|
6,112
|
|
Net
income
|
|
|
8,179
|
|
|
8,771
|
|
|
13,776
|
|
|
14,243
|
|
Preferred
stock dividends
|
|
|
(560
|
)
|
|
(560
|
)
|
|
(1,120
|
)
|
|
(1,120
|
)
|
Net
income available to common stockholders
|
|
$
|
7,619
|
|
$
|
8,211
|
|
$
|
12,656
|
|
$
|
13,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.69
|
|
$
|
0.72
|
|
$
|
1.14
|
|
$
|
1.14
|
|
Diluted
earnings per common share
|
|
$
|
0.67
|
|
$
|
0.72
|
|
$
|
1.11
|
|
$
|
1.13
|
|
Common
stock dividends per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.20
|
|
$
|
0.20
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands)
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
13,776
|
|
$
|
14,243
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Net
(accretion)/amortization of investment premiums and
discounts
|
|
|
(1,237
|
)
|
|
1,267
|
|
Net
amortization of debt premiums, discounts and issuance
costs
|
|
|
58,220
|
|
|
26,960
|
|
Proceeds
from repayment of trading investment securities
|
|
|
1,001
|
|
|
1,525
|
|
Purchases
of loans held for sale
|
|
|
(31,316
|
)
|
|
(27,781
|
)
|
Proceeds
from repayment of loans held for sale
|
|
|
5,344
|
|
|
6,643
|
|
Net
change in fair value of trading securities and financial
derivatives
|
|
|
2,150
|
|
|
(1,454
|
)
|
Amortization
of settled financial derivatives contracts
|
|
|
138
|
|
|
932
|
|
(Gains)/losses
on the sale of real estate owned
|
|
|
(514
|
)
|
|
80
|
|
Total
(recovery)/provision for losses
|
|
|
(1,711
|
)
|
|
(979
|
)
|
Deferred
income taxes
|
|
|
501
|
|
|
316
|
|
Stock-based
compensation expense
|
|
|
955
|
|
|
-
|
|
Decrease
in interest receivable
|
|
|
3,857
|
|
|
8,323
|
|
Decrease/(increase)
in guarantee and commitment fees receivable
|
|
|
(3,614
|
)
|
|
759
|
|
Decrease/(increase)
in other assets
|
|
|
21,210
|
|
|
(2,016
|
)
|
Increase
in accrued interest payable
|
|
|
(216
|
)
|
|
(2,747
|
)
|
Decrease
in other liabilities
|
|
|
(9,086
|
)
|
|
(3,436
|
)
|
Net
cash provided by operating activities
|
|
|
59,458
|
|
|
22,635
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of available-for-sale investment securities
|
|
|
(1,913,573
|
)
|
|
(1,026,241
|
)
|
Purchases
of Farmer Mac II Guaranteed Securities and
|
|
|
|
|
|
|
|
AgVantage
Farmer Mac Guaranteed Securities
|
|
|
(108,600
|
)
|
|
(92,834
|
)
|
Purchases
of loans held for investment
|
|
|
(25,058
|
)
|
|
(11,141
|
)
|
Purchases
of defaulted loans
|
|
|
(4,565
|
)
|
|
(3,804
|
)
|
Proceeds
from repayment of investment securities
|
|
|
1,524,967
|
|
|
899,988
|
|
Proceeds
from repayment of Farmer Mac Guaranteed Securities
|
|
|
117,990
|
|
|
127,460
|
|
Proceeds
from repayment of loans
|
|
|
68,426
|
|
|
69,781
|
|
Proceeds
from sale of loans and Farmer Mac Guaranteed Securities
|
|
|
3,033
|
|
|
22,012
|
|
Proceeds
from sale of real estate owned
|
|
|
2,819
|
|
|
572
|
|
Net
cash used in investing activities
|
|
|
(334,561
|
)
|
|
(14,207
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of discount notes
|
|
|
37,272,236
|
|
|
22,405,440
|
|
Proceeds
from issuance of medium-term notes
|
|
|
117,200
|
|
|
204,183
|
|
Payments
to redeem discount notes
|
|
|
(37,100,394
|
)
|
|
(22,304,773
|
)
|
Payments
to redeem medium-term notes
|
|
|
(114,000
|
)
|
|
(339,840
|
)
|
Settlement
of financial derivatives
|
|
|
13
|
|
|
(136
|
)
|
Tax
benefit from tax deductions in excess of compensation cost
recognized
|
|
|
348
|
|
|
-
|
|
Proceeds
from common stock issuance
|
|
|
2,112
|
|
|
650
|
|
Purchases
of common stock
|
|
|
(8,974
|
)
|
|
(10,965
|
)
|
Dividends
paid
|
|
|
(3,339
|
)
|
|
(3,416
|
)
|
Net
cash provided by/(used in) financing activities
|
|
|
165,202
|
|
|
(48,857
|
)
|
Net
decrease in cash and cash equivalents
|
|
|
(109,901
|
)
|
|
(40,429
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
458,852
|
|
|
430,504
|
|
Cash
and cash equivalents at end of period
|
|
$
|
348,951
|
|
$
|
390,075
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to condensed consolidated financial
statements.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note
1. Accounting Policies
(a) |
Cash
and Cash Equivalents
|
Farmer
Mac considers highly liquid investment securities with maturities of three
months or less at the time of purchase to be cash equivalents. Changes
in the
balance of cash and cash equivalents are reported in the condensed consolidated
statements of cash flows. The following table sets forth information regarding
certain cash and non-cash transactions for the six months ended June 30,
2006
and 2005.
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(in
thousands)
|
|
Cash
paid for:
|
|
|
|
|
|
Interest
|
|
$
|
40,360
|
|
$
|
33,295
|
|
Income
taxes
|
|
|
4,500
|
|
|
6,700
|
|
Non-cash
activity:
|
|
|
|
|
|
|
|
Real
estate owned acquired through foreclosure
|
|
|
-
|
|
|
460
|
|
Loans
acquired and securitized as Farmer Mac
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
3,033
|
|
|
22,012
|
|
Loans
previously under LTSPCs exchanged
|
|
|
|
|
|
|
|
for
Farmer Mac Guaranteed Securities
|
|
|
550,114
|
|
|
-
|
|
(b) Allowance
for Losses
As
of
June 30, 2006, Farmer Mac maintained an allowance for losses to cover estimated
probable losses on loans held for investment, real estate owned, and loans
underlying long-term standby purchase commitments (“LTSPCs”) and Farmer Mac I
Guaranteed Securities issued after the Farm Credit System Reform Act of 1996
(the “1996 Act”) in accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies (“SFAS 5”) and Statement
of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan, as amended (“SFAS 114”).
The
allowance for losses is increased through periodic provisions for loan losses
that are charged against net interest income and provisions for losses that
are
charged to operating expense and is reduced by charge-offs for actual losses,
net of recoveries. Negative provisions for loan losses or negative provisions
for losses are recorded in the event that the estimate of probable losses
as of
the end of a period is lower than the estimate at the beginning of the
period.
Historically,
Farmer Mac estimated probable losses using a systematic process that began
with
management’s evaluation of the results of a proprietary loan pool simulation and
guarantee fee model. That model drew upon historical information from a data
set
of agricultural mortgage loans screened to include only those loans with
credit
characteristics similar to those eligible for Farmer Mac’s programs. The results
generated by that model were then modified, as necessary, by the application
of
management’s judgment.
During
2005, Farmer Mac completed the planned migration of its methodology for
determining its allowance for losses away from one based on its loan pool
simulation and guarantee fee model to one based on its own historical portfolio
loss experience and credit trends. Farmer Mac recorded the effects of that
change as a change in accounting estimate as of September 30,
2005.
Farmer
Mac’s current methodology for determining its allowance for losses incorporates
the Corporation’s proprietary automated loan classification system. That system
scores loans based on criteria such as historical repayment performance,
loan
seasoning, loan size and loan-to-value ratio. For the purposes of the loss
allowance methodology, the loans in Farmer Mac’s portfolio of loans and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs have
been
scored and classified for each calendar quarter since first quarter 2000.
The
allowance methodology captures the migration of loan scores across concurrent
and overlapping 3-year time horizons and calculates loss rates separately
within
each loan classification for (1) loans underlying LTSPCs and (2) loans held
and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities.
The calculated loss rates are applied to the current classification distribution
of Farmer Mac’s portfolio to estimate inherent probable 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 several factors, including:
·
economic conditions;
·
geographic and agricultural
commodity/product concentrations in the portfolio;
·
the credit profile of the
portfolio;
·
delinquency trends of the portfolio;
and
·
historical charge-off and recovery
activities of the portfolio.
If,
based on that evaluation, management
concludes that the assumption is not valid due to other more compelling
indicators, the loss allowance calculation is modified by the addition
of
further assumptions to capture current portfolio trends and characteristics
that
differ from historical experience.
As of June 30, 2006, Farmer Mac concluded that the credit profile of its
portfolio was consistent with Farmer Mac’s historical credit profile and
trends. Management believes that its use of this methodology produces a
reliable estimate of inherent probable losses, as of the balance sheet
date, for
all loans held, real estate owned and loans underlying post-1996 Act Farmer
Mac
I Guaranteed Securities and LTSPCs in accordance with SFAS 5 and
SFAS 114.
The
following table summarizes the changes in the components of Farmer Mac’s
allowance for losses for the three and six months ended June 30, 2006 and
2005:
|
|
|
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
REO
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
Valuation
|
|
Reserve
|
|
Allowance
|
|
|
|
Losses
|
|
Allowance
|
|
for
Losses
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
3,883
|
|
$
|
-
|
|
$
|
2,931
|
|
$
|
6,814
|
|
Provision/(recovery)
for losses
|
|
|
(594
|
)
|
|
5
|
|
|
587
|
|
|
(2
|
)
|
Net
charge-offs
|
|
|
(555
|
)
|
|
(5
|
)
|
|
-
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
2,734
|
|
$
|
-
|
|
$
|
3,518
|
|
$
|
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,876
|
|
$
|
-
|
|
$
|
3,777
|
|
$
|
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,606
|
)
|
|
155
|
|
|
(259
|
)
|
|
(1,710
|
)
|
Net
charge-offs
|
|
|
(536
|
)
|
|
(155
|
)
|
|
-
|
|
|
(691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
2,734
|
|
$
|
-
|
|
$
|
3,518
|
|
$
|
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
REO
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
Valuation
|
|
Reserve
|
|
Allowance
|
|
|
|
Losses
|
|
Allowance
|
|
for
Losses
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
3,846
|
|
$
|
-
|
|
$
|
12,485
|
|
$
|
16,331
|
|
Provision
for losses
|
|
|
(203
|
)
|
|
-
|
|
|
(91
|
)
|
|
(294
|
)
|
Net
recoveries
|
|
|
27
|
|
|
-
|
|
|
-
|
|
|
27
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
3,670
|
|
$
|
-
|
|
$
|
12,394
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,395
|
|
$
|
-
|
|
$
|
12,706
|
|
$
|
17,101
|
|
Provision/(recovery)
for losses
|
|
|
(787
|
)
|
|
120
|
|
|
(312
|
)
|
|
(979
|
)
|
Net
(charge-offs)/recoveries
|
|
|
62
|
|
|
(120
|
)
|
|
-
|
|
|
(58
|
)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
3,670
|
|
$
|
-
|
|
$
|
12,394
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table
below summarizes the components of Farmer Mac’s allowance for losses as of
June 30, 2006 and December 31, 2005:
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Allowance
for loan losses
|
|
$
|
2,734
|
|
$
|
4,876
|
|
Real
estate owned valuation allowance
|
|
|
-
|
|
|
-
|
|
Reserve
for losses:
|
|
|
|
|
|
|
|
On-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
1,505
|
|
|
2,068
|
|
Off-balance
sheet Farmer Mac I Guaranteed Securities
|
|
|
1,324
|
|
|
1,078
|
|
LTSPCs
|
|
|
689
|
|
|
631
|
|
Total
|
|
$
|
6,252
|
|
$
|
8,653
|
|
|
|
|
|
|
|
|
|
No
allowance for losses has been made for loans underlying Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act, AgVantage securities or securities
issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”).
Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are
supported by unguaranteed first loss subordinated interests, which are expected
to exceed the estimated credit losses on those loans. Each AgVantage security
is
a general obligation of an issuing institution approved by Farmer Mac and
is
collateralized by eligible mortgage loans. As of June 30, 2006, there were
no
probable losses inherent in Farmer Mac’s AgVantage securities. The guaranteed
portions collateralizing Farmer Mac II Guaranteed Securities are guaranteed
by
the United States Department of Agriculture (“USDA”). Each USDA guarantee is an
obligation backed by the full faith and credit of the United States. As of
June
30, 2006, Farmer Mac had not experienced any credit losses on any Farmer
Mac I
Guaranteed Securities issued prior to the 1996 Act, AgVantage securities
or
Farmer Mac II Guaranteed Securities and does not expect to incur any such
losses
in the future.
As
of
June 30, 2006, Farmer Mac individually analyzed $30.8 million of its
$68.8 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted values.
Farmer Mac evaluated the remaining $38.0 million of impaired assets for
which updated valuations were not available in the aggregate in consideration
of
their similar risk characteristics and historical statistics. Of the $30.8
million of assets analyzed individually, $29.4 million were adequately
collateralized. For the $1.4 million of assets that were not adequately
collateralized, individual collateral shortfalls totaled $15,000. Accordingly,
Farmer Mac recorded specific allowances of $15,000 for those
under-collateralized assets as of June 30, 2006. In addition to the specific
allowances provided, Farmer Mac’s non-specific or general allowances were
$6.2 million as of June 30, 2006.
The
balance of impaired assets, both on- and off-balance sheet, and the related
allowance specifically allocated to those impaired assets as of June 30,
2006
and December 31, 2005 are summarized in the following table:
|
|
June
30, 2006
|
|
December
31, 2005
|
|
|
|
Balance
|
|
Specific
Allowance
|
|
Net
Balance
|
|
Balance
|
|
Specific
Allowance
|
|
Net
Balance
|
|
|
|
(in
thousands)
|
|
Impaired
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific
allowance for losses
|
|
$
|
1,360
|
|
$
|
(15
|
)
|
$
|
1,345
|
|
$
|
2,445
|
|
$
|
(161
|
)
|
$
|
2,284
|
|
No
specific allowance for losses
|
|
|
67,412
|
|
|
-
|
|
|
67,412
|
|
|
71,177
|
|
|
-
|
|
|
71,177
|
|
Total
|
|
$
|
68,772
|
|
$
|
(15
|
)
|
$
|
68,757
|
|
$
|
73,622
|
|
$
|
(161
|
)
|
$
|
73,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Financial
Derivatives
Farmer
Mac enters into financial derivative transactions principally to protect
against
risk from the effects of market price or interest rate movements on the value
of
certain assets and future cash flows or debt issuance, not for trading or
speculative purposes. Farmer Mac enters into interest rate swap contracts
principally to adjust the characteristics of its short-term debt to match
more
closely the cash flow and duration characteristics of its longer-term mortgage
and other assets, and also to adjust the characteristics of its long-term
debt
to match more closely the cash flow and duration characteristics of its
short-term assets, thereby reducing interest rate risk. These transactions
also
may provide an overall lower effective cost of borrowing than would otherwise
be
available in the conventional debt market.
All
financial derivatives are recorded on the balance sheet at fair value as
a
free-standing asset or liability. Financial derivatives in hedging relationships
that mitigate exposure to changes in the fair value of assets are considered
fair value hedges. Financial derivatives in hedging relationships that mitigate
the exposure to the variability in expected future cash flows or other
forecasted transactions are considered cash flow hedges. Financial derivatives
that do not satisfy the hedging criteria of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended (“SFAS 133”) are not
accounted for as hedges, and changes in the fair values of those financial
derivatives are reported as gains or losses on financial derivatives and
trading
assets in the condensed consolidated statements of
operations.
The
following table summarizes information related to Farmer Mac’s financial
derivatives as of June 30, 2006 and December 31, 2005:
|
|
June
30, 2006
|
|
|
|
Cash
Flow Hedges
|
|
Fair
Value Hedges
|
|
No
Hedge Designation
|
|
Total
|
|
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
(in
thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$
|
655,612
|
|
$
|
3,624
|
|
$
|
-
|
|
$
|
-
|
|
$
|
119,057
|
|
$
|
2,713
|
|
$
|
774,669
|
|
$
|
6,337
|
|
Receive-fixed
|
|
|
-
|
|
|
-
|
|
|
45,000
|
|
|
(4,998
|
)
|
|
234,000
|
|
|
(7,804
|
)
|
|
279,000
|
|
|
(12,802
|
)
|
Basis
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
372,899
|
|
|
8,525
|
|
|
372,899
|
|
|
8,525
|
|
Treasury
futures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11
|
|
|
(4
|
)
|
|
11
|
|
|
(4
|
)
|
Agency
forwards
|
|
|
84,666
|
|
|
(289
|
)
|
|
-
|
|
|
-
|
|
|
25,360
|
|
|
234
|
|
|
110,026
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
740,278
|
|
$
|
3,335
|
|
$
|
45,000
|
|
$
|
(4,998
|
)
|
$
|
751,327
|
|
$
|
3,664
|
|
$
|
1,536,605
|
|
$
|
2,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
|
Cash
Flow Hedges
|
|
Fair
Value Hedges
|
|
No
Hedge Designation
|
|
Total
|
|
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
(in
thousands)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
$
|
633,939
|
|
$
|
(17,999
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
76,739
|
|
$
|
771
|
|
$
|
710,678
|
|
$
|
(17,228
|
)
|
Receive-fixed
|
|
|
-
|
|
|
-
|
|
|
45,000
|
|
|
(2,930
|
)
|
|
160,000
|
|
|
(2,823
|
)
|
|
205,000
|
|
|
(5,753
|
)
|
Basis
|
|
|
225,629
|
|
|
3,721
|
|
|
-
|
|
|
-
|
|
|
163,867
|
|
|
(920
|
)
|
|
389,496
|
|
|
2,801
|
|
Treasury
futures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
99
|
|
|
32
|
|
|
99
|
|
|
32
|
|
Agency
forwards
|
|
|
41,514
|
|
|
(201
|
)
|
|
-
|
|
|
-
|
|
|
49,664
|
|
|
(62
|
)
|
|
91,178
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
901,082
|
|
$
|
(14,479
|
)
|
$
|
45,000
|
|
$
|
(2,930
|
)
|
$
|
450,369
|
|
$
|
(3,002
|
)
|
$
|
1,396,451
|
|
$
|
(20,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June
30, 2006, Farmer Mac had approximately $2.8 million of net after-tax
unrealized gains on cash flow hedges included in accumulated other comprehensive
income. 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
twelve
months, Farmer Mac estimates that $0.3 million of the amount currently
reported in accumulated other comprehensive income will be reclassified
into
earnings. For the quarter ended June 30, 2006, Farmer Mac recorded a
loss of
less than $0.1 million for ineffectiveness related to Farmer Mac’s designated
hedges.
As
of June
30, 2006, Farmer Mac had outstanding basis swaps with a related party
with a
notional mount of $210.0 million and a fair value of $9.1 million. See
Note 3 “Related Party Transactions” in the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2005, as filed with the SEC on
March 16,
2006 for additional information on these related party transactions. As of
December 31, 2005, these swaps were designated cash flow hedges and
had an
outstanding notional amount of $225.6 million and a fair value of $3.7
million. During second quarter 2006, Farmer Mac discontinued hedge
accounting treatment for these swaps.
Accordingly,
the Corporation recognized a $2.6 million gain on financial derivatives and
trading assets in the condensed consolidated financial statements related
to the
change in fair value of these swaps. As of June 30, 2006, Farmer Mac had
$4.1 million of net after-tax unrealized gains remaining in accumulated other
comprehensive income related to these swaps. In accordance with SFAS 133,
this amount will be reclassified into earnings during the periods which the
hedged forecasted transactions affect earnings.
(d) Earnings
Per Common Share
Basic
earnings per common share are based on the weighted-average number of shares
of
common stock outstanding. Diluted earnings per common share are based on
the
weighted-average number of shares of common stock outstanding adjusted
to
include all potentially dilutive common stock options. The following schedule
reconciles basic and diluted earnings per common share (“EPS”) for the three and
six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
Dilutive
stock options
|
|
Diluted
EPS
|
|
Basic
EPS
|
|
Dilutive
stock options
|
|
Diluted
EPS
|
|
|
|
(in
thousands, except per share amounts)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to
|
|
$
|
7,619
|
|
|
|
|
$
|
7,619
|
|
$
|
8,211
|
|
|
|
|
$
|
8,211
|
|
common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares
|
|
|
11,083
|
|
|
256
|
|
|
11,339
|
|
|
11,409
|
|
|
42
|
|
|
11,451
|
|
Earnings
per common share
|
|
$
|
0.69
|
|
|
|
|
$
|
0.67
|
|
$
|
0.72
|
|
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to
|
|
$
|
12,656
|
|
|
|
|
$
|
12,656
|
|
$
|
13,123
|
|
|
|
|
$
|
13,123
|
|
common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
11,095
|
|
|
287
|
|
|
11,382
|
|
|
11,548
|
|
|
56
|
|
|
11,604
|
|
Earnings
per common share
|
|
$
|
1.14
|
|
|
|
|
$
|
1.11
|
|
$
|
1.14
|
|
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
second quarter 2006, Farmer Mac repurchased 282,500 shares of its Class
C
Non-Voting Common Stock at an average price of $26.55 per share pursuant
to the
Corporation’s previously announced stock repurchase program. These repurchases
reduced the Corporation’s capital by approximately
$7.5 million.
(e) Stock-Based
Compensation
In
1997,
Farmer Mac adopted a stock option plan for directors, officers and other
employees to acquire shares of Class C Non-Voting Common Stock. Under the
plan, stock option awards vest annually in thirds, with the first third
vesting
one year after the date of grant. If not exercised, any options granted
under
the 1997 plan expire ten years from the date of grant, except options issued
to
directors since June 1, 1998, if not exercised, expire five years from
the date
of grant. Of the 3,750,000 shares authorized to be issued under the plan,
490,923 remain available for future issuance. For all stock options granted,
the
exercise price is equal to the closing price of the Class C Non-Voting
Common
Stock on or immediately preceding the date of grant.
Effective
January 1, 2006, Farmer Mac adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payments (“SFAS 123(R)”) using
the modified prospective method of transition, which requires (1) the
recordation of compensation expense for the non-vested portion of previously
issued awards that remain outstanding as of the initial date of adoption
and (2)
the recordation of compensation expense for any awards issued or modified
after
December 31, 2005. Accordingly, prior period amounts have not been
retrospectively adjusted for this change. The adoption resulted in the
recognition of $0.4 million and $0.9 million of compensation expense during
the
three-month and six-month periods ended June 30, 2006, respectively, related
to
the non-vested portion of previously issued stock option awards that were
outstanding as of the initial date of adoption. Additionally, Farmer Mac
recognized $0.1 million of compensation expense related to stock options
awarded
during second quarter 2006. The effect of the recognition of compensation
expense resulting from stock options on diluted EPS for the three-month and
six-month periods ended June 30, 2006 was a reduction of $0.03 and $0.05,
respectively, per diluted share. Prior to the adoption of SFAS 123(R), Farmer
Mac accounted for its stock-based employee compensation plans under the
intrinsic value method of accounting for employee stock options pursuant
to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”), and had adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, as amended (“SFAS 123”).
Accordingly, no compensation expense was recognized in 2005 for employee
stock
option plans. Had Farmer Mac elected to use the fair value method of accounting
for employee stock options, net income available to common stockholders and
earnings per share for the three and six months ended June 30, 2005 would
have
been reduced to the pro forma amounts indicated in the following table:
|
|
Three
Months
|
|
Six
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30, 2005
|
|
June
30, 2005
|
|
|
|
(in
thousands, except per share amounts)
|
|
Net
income available to common
|
|
|
|
|
|
|
|
stockholders,
as reported
|
|
$
|
8,211
|
|
$
|
13,123
|
|
Deduct:
Total stock-based employee
|
|
|
|
|
|
|
|
compensation
expense determined
|
|
|
|
|
|
|
|
under
fair value-based method
|
|
|
|
|
|
|
|
for
all awards, net of tax
|
|
|
(1,663
|
)
|
|
(1,663
|
)
|
Pro
forma net income available to
|
|
|
|
|
|
|
|
common
stockholders
|
|
$
|
6,548
|
|
$
|
11,460
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
0.72
|
|
$
|
1.14
|
|
Basic
- pro forma
|
|
$
|
0.57
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
Diluted
- as reported
|
|
$
|
0.72
|
|
$
|
1.13
|
|
Diluted
- pro forma
|
|
$
|
0.57
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
As
of
June 30, 2006, there was $2.8 million of total unrecognized compensation
cost
related to stock options outstanding and unvested as of December 31,
2005. Of
that cost, $0.9 million and $1.4 million is expected to be recognized in
the remainder of 2006 and 2007, respectively.
The
following table summarizes stock option activity for the three and six
months
ended June 30, 2006 and 2005:
|
|
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,091,208
|
|
$
|
22.68
|
|
|
1,803,484
|
|
$
|
22.72
|
|
Granted
|
|
|
358,928
|
|
|
26.35
|
|
|
432,561
|
|
|
20.59
|
|
Exercised
|
|
|
(75,111
|
)
|
|
17.26
|
|
|
(38,066
|
)
|
|
14.01
|
|
Canceled
|
|
|
(75,091
|
)
|
|
28.82
|
|
|
(56,679
|
)
|
|
26.59
|
|
Outstanding,
end of period
|
|
|
2,299,934
|
|
|
23.23
|
|
|
2,141,300
|
|
|
22.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,431,465
|
|
|
|
|
|
1,397,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,153,008
|
|
$
|
22.41
|
|
|
1,812,222
|
|
$
|
22.67
|
|
Granted
|
|
|
358,928
|
|
|
26.35
|
|
|
432,561
|
|
|
20.59
|
|
Exercised
|
|
|
(136,911
|
)
|
|
15.40
|
|
|
(39,803
|
)
|
|
14.11
|
|
Canceled
|
|
|
(75,091
|
)
|
|
28.82
|
|
|
(63,680
|
)
|
|
26.34
|
|
Outstanding,
end of period
|
|
|
2,299,934
|
|
|
23.23
|
|
|
2,141,300
|
|
|
22.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,431,465
|
|
|
|
|
|
1,397,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options cancellations during the six months ended June 30, 2006 and June
30,
2005 were due either to unvested options terminating in accordance with
the
provisions of the applicable stock option plans upon directors’ or employees’
departures from Farmer Mac or vested options terminating unexercised
on their
expiration date. For the three-month and the six-month periods ended
June 30,
2006, the additional paid-in capital received from stock option exercises
was
$1.2 million and $2.0 million, respectively, compared to $0.5 million
and
$0.5 million for the comparable periods in the prior year. For the
three-month and the six-month periods ended June 30, 2006, the reduction
of
income taxes to be paid as a result of the deduction for stock option
exercises
was $0.3 million and $0.7 million, respectively, compared to $0.1 million
and $0.1 million for the comparable periods in the prior year.
The
following table summarizes information regarding options outstanding
as of June
30, 2006:
|
|
|
|
|
|
Options
|
|
|
Options
Outstanding
|
|
Exercisable
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
Range
of
|
|
|
|
Remaining
|
|
|
Exercise
|
|
Number
of
|
|
Contractual
|
|
Number
of
|
Prices
|
|
Shares
|
|
Life
|
|
Shares
|
|
|
|
|
|
|
|
$10.00
- $19.99
|
|
401,609
|
|
6.2
years
|
|
254,270
|
20.00
- 24.99
|
|
1,100,058
|
|
5.9
years
|
|
743,856
|
25.00
- 29.99
|
|
607,349
|
|
7.3
years
|
|
242,421
|
30.00
- 34.99
|
|
190,418
|
|
4.9
years
|
|
190,418
|
35.00
- 39.99
|
|
-
|
|
-
|
|
-
|
40.00
- 44.99
|
|
-
|
|
-
|
|
-
|
45.00
- 50.00
|
|
500
|
|
5.8
years
|
|
500
|
|
|
2,299,934
|
|
|
|
1,431,465
|
|
|
|
|
|
|
|
The
weighted-average grant date fair values of options granted in 2006, 2005
and
2004 were $10.05, $7.53 and $7.34 per share, respectively. The fair values
were
estimated using the Black-Scholes option pricing model based on the following
assumptions:
|
2006
|
|
2005
|
|
2004
|
Risk-free
interest rate
|
5.0%
|
|
3.9%
|
|
4.3%
|
Expected
years until exercise
|
6
years
|
|
7
years
|
|
5
years
|
Expected
stock volatility
|
36.9%
|
|
46.3%
|
|
47.8%
|
Dividend
yield
|
1.6%
|
|
0.0%
|
|
0.0%
|
|
|
|
|
|
|
(f) Reclassifications
Certain
reclassifications of prior period information were made to conform to
the
current period presentation.
(g) New
Accounting Standards
In
March
2004, the Emerging Issues Task Force (“EITF”) amended EITF 03-1, The Meaning
of Other-Than-Temporary Impairment. This amendment, which was originally
effective for financial periods beginning after June 15, 2004, introduced
qualitative and quantitative guidance for determining whether securities
are
other-than-temporarily impaired. In November 2005, the Financial Accounting
Standards Board (“FASB”) issued Staff Position No. 115-1 and No. 124-1
(“FSP”), which supersedes the guidance in paragraphs 10-18 of EITF 03-1 and
references existing other-than-temporary impairment guidance. The FSP
clarifies
that an investor should recognize an impairment loss no later than when
the
impairment is deemed
other-than-temporary,
even if a decision to sell the security has not been made, and also provides
guidance on the subsequent accounting for impaired debt securities. The
FSP is
effective for reporting periods beginning after December 15, 2005. Farmer
Mac’s
adoption of the FSP effective January 1, 2006 did not have a material
effect on Farmer Mac’s results of operations or financial
position.
In
May
2005, FASB issued Statement of Financial Accounting Standards No. 154,
Accounting Changes and Error Corrections (“SFAS 154”), which
replaced Accounting Principles Board Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS 154 requires retrospective
application to prior periods’ financial statements for changes in accounting
principles, unless determination of either the period specific effects
or the
cumulative effect of the change is impracticable or otherwise promulgated.
SFAS
154 is effective for fiscal years beginning after December 15, 2005.
Farmer
Mac’s adoption of SFAS 154 effective January 1, 2006 did not have a
material effect on Farmer Mac’s results of operations or financial
position.
In
February 2006, FASB issued Statement of Financial Accounting Standards
No. 155, Accounting for Certain Hybrid Financial Instruments - an
Amendment of FASB Statements No. 133 and 140 (“SFAS 155”), which
resolves issues addressed in Statement 133 Implementation Issue No. D1,
Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets. SFAS 155, among other things, permits the fair value
re-measurement of any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation; clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133; and establishes a requirement to evaluate interests
in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an
embedded
derivative requiring bifurcation. SFAS 155 is effective for all financial
instruments acquired or issued in a fiscal year beginning after
September 15, 2006. SFAS 155 is not expected to have a material effect on
Farmer Mac’s results of operations and financial position.
In
March
2006, FASB issued Statement of Financial Accounting Standards No. 156,
Accounting for Servicing of Financial Assets (“SFAS 156”), which
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable and permits
the
entities to elect either fair value measurement with changes in fair
value
reflected in earnings or the amortization and impairment requirements
of
Statement of Financial Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, for subsequent measurement. SFAS 156 is effective on January
1, 2007. The adoption of SFAS 156 is not expected to have a material
effect on
Farmer Mac’s results of operations or financial position.
Note
2. Farmer Mac Guaranteed Securities
The
following table sets forth information about Farmer Mac Guaranteed Securities
retained by Farmer Mac as of June 30, 2006 and December 31,
2005.
|
|
June
30, 2006
|
|
December
31, 2005
|
|
|
|
Available-
|
|
Held-to-
|
|
|
|
Available-
|
|
Held-to-
|
|
|
|
|
|
for-Sale
|
|
Maturity
|
|
Total
|
|
for-Sale
|
|
Maturity
|
|
Total
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I
|
|
$
|
433,493
|
|
$
|
40,351
|
|
$
|
473,844
|
|
$
|
492,158
|
|
$
|
41,573
|
|
$
|
533,731
|
|
Farmer
Mac II
|
|
|
-
|
|
|
830,077
|
|
|
830,077
|
|
|
-
|
|
|
797,245
|
|
|
797,245
|
|
Total
|
|
$
|
433,493
|
|
$
|
870,428
|
|
$
|
1,303,921
|
|
$
|
492,158
|
|
$
|
838,818
|
|
$
|
1,330,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
$
|
428,325
|
|
$
|
870,428
|
|
$
|
1,298,753
|
|
$
|
477,561
|
|
$
|
838,818
|
|
$
|
1,316,379
|
|
Unrealized
gains
|
|
|
8,921
|
|
|
268
|
|
|
9,189
|
|
|
18,395
|
|
|
448
|
|
|
18,843
|
|
Unrealized
losses
|
|
|
(3,753
|
)
|
|
(13,594
|
)
|
|
(17,347
|
)
|
|
(3,798
|
)
|
|
(8,339
|
)
|
|
(12,137
|
)
|
Fair
value
|
|
$
|
433,493
|
|
$
|
857,102
|
|
$
|
1,290,595
|
|
$
|
492,158
|
|
$
|
830,927
|
|
$
|
1,323,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table
below presents a sensitivity analysis for Farmer Mac’s retained Farmer Mac
Guaranteed Securities as of June 30, 2006.
|
|
June
30,2006
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
Fair
value of beneficial interests retained
|
|
|
|
|
in
Farmer Mac Guaranteed Securities
|
|
$
|
1,290,595
|
|
|
|
|
|
|
Weighted-average
remaining life (in years)
|
|
|
4.8
|
|
|
|
|
|
|
Weighted-average
prepayment speed (annual rate)
|
|
|
10.1
|
%
|
Effect
on fair value of a 10% adverse change
|
|
$
|
(53
|
)
|
Effect
on fair value of a 20% adverse change
|
|
$
|
(80
|
)
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
5.7
|
%
|
Effect
on fair value of a 10% adverse change
|
|
$
|
(17,912
|
)
|
Effect
on fair value of a 20% adverse change
|
|
$
|
(35,802
|
)
|
|
|
|
|
|
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, in this table the effect of a variation in
a
particular assumption on the fair value of the retained interest is calculated
without changing any other assumption. In fact, changes in one factor may
result
in changes in another (for example, increases in market interest rates may
result in lower prepayments), which might amplify or counteract the
sensitivities.
The
table
below presents the outstanding principal balances as of the periods indicated
for Farmer Mac Guaranteed Securities, loans, and LTSPCs.
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
Loans
|
|
$
|
778,304
|
|
$
|
784,422
|
|
Guaranteed
Securities
|
|
|
467,944
|
|
|
518,250
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
828,939
|
|
|
796,224
|
|
Total
on-balance sheet
|
|
$
|
2,075,187
|
|
$
|
2,098,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
LTSPCs
|
|
$
|
2,149,677
|
|
$
|
2,329,798
|
|
Guaranteed
Securities
|
|
|
1,778,288
|
|
|
804,785
|
|
Farmer
Mac II:
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
34,839
|
|
|
39,508
|
|
Total
off-balance sheet
|
|
$
|
3,962,804
|
|
$
|
3,174,091
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,037,991
|
|
$
|
5,272,987
|
|
|
|
|
|
|
|
|
|
Net
credit losses and 90-day delinquencies as of and for the periods indicated
for
Farmer Mac Guaranteed Securities, loans and LTSPCs are presented in the table
below. Information is not presented for loans underlying Farmer Mac I Guaranteed
Securities issued prior to the 1996 Act or Farmer Mac II Guaranteed
Securities. Farmer Mac I Guaranteed Securities issued prior to the 1996 Act
are supported by unguaranteed first loss subordinated interests, which are
expected to exceed the estimated credit losses on those loans. The guaranteed
portions collateralizing Farmer Mac II Guaranteed Securities are guaranteed
by
the USDA. Each USDA guarantee is an obligation backed by the full faith and
credit of the United States. As of June 30, 2006, Farmer Mac had not experienced
any credit losses on any Farmer Mac I Guaranteed Securities issued prior
to the
1996 Act or on any Farmer Mac II Guaranteed Securities and does not expect
to
incur any such losses in the future.
|
|
90-Day
|
|
Net
Credit
|
|
|
|
Delinquencies
(1)
|
|
Losses/(Recoveries)
|
|
|
|
As
of
|
|
As
of
|
|
For
the Six Months Ended
|
|
|
|
June
30,
|
|
December
31,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
On-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
18,599
|
|
$
|
23,308
|
|
$
|
536
|
|
$
|
(62
|
)
|
Guaranteed
Securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
on-balance sheet
|
|
$
|
18,599
|
|
$
|
23,308
|
|
$
|
536
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance
sheet assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTSPCs
|
|
$
|
2,409
|
|
$
|
2,153
|
|
$
|
-
|
|
$
|
-
|
|
Guaranteed
Securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
off-balance sheet
|
|
$
|
2,409
|
|
$
|
2,153
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,008
|
|
$
|
25,461
|
|
$
|
536
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
loans and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and
|
|
|
LTSPCs
that are 90 days or more past due, in foreclosure, restructured after
delinquency,
|
|
|
and
in bankruptcy, excluding loans performing under either their original
loan
terms or a
|
|
|
court-approved
bankruptcy plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
3. Off-Balance Sheet Guarantees and Long-Term Standby
Purchase Commitments
Overview
Farmer
Mac offers approved agricultural and rural residential mortgage lenders two
off-balance sheet alternatives to increase their liquidity or lending capacity
while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed
Securities, which are available through either the Farmer Mac I program or
the
Farmer Mac II program; and (2) LTSPCs, which are available only through the
Farmer Mac I program. Both of these alternatives result in the creation of
off-balance sheet obligations for Farmer Mac in the ordinary course of its
business.
Off-Balance
Sheet Farmer Mac Guaranteed Securities
Periodically
Farmer Mac transfers agricultural mortgage loans into trusts that are used
as
vehicles for the securitization of the transferred assets and the beneficial
interests in the trusts are sold to third party investors. The following
table
summarizes certain cash flows received from and paid to these
trusts:
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(in
thousands)
|
|
Proceeds
from new securitizations
|
|
$
|
3,033
|
|
$
|
22,012
|
|
Guarantee
fees received
|
|
|
761
|
|
|
776
|
|
Purchases
of assets from the trusts
|
|
|
506
|
|
|
1,595
|
|
Servicing
advances
|
|
|
10
|
|
|
5
|
|
Repayment
of servicing advances
|
|
|
8
|
|
|
21
|
|
|
|
|
|
|
|
|
|
The
following
table presents the outstanding balance of off-balance sheet Farmer Mac
Guaranteed Securities, which represents the maximum principal amount of
potential undiscounted future payments that Farmer Mac could be required
to make
with respect to those securities as of June 30, 2006 and December 31, 2005,
not
including offsets provided by any recourse provisions, recoveries from third
parties or collateral for the underlying loans.
Outstanding
Balance of Off-Balance Sheet
|
|
Farmer
Mac Guaranteed Securities
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities
|
|
$
|
1,778,288
|
|
$
|
804,785
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
34,839
|
|
|
39,508
|
|
|
|
|
|
|
|
|
|
Total
Farmer Mac I and II
|
|
$
|
1,813,127
|
|
$
|
844,293
|
|
|
|
|
|
|
|
|
|
As
of
June 30, 2006, the weighted-average remaining maturity of all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage
securities, was 17.1 years. 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 $4.8 million as of June 30, 2006 and $5.2 million as of
December 31, 2005.
Long-Term
Standby Purchase Commitments (LTSPCs)
An
LTSPC
is a commitment by Farmer Mac to purchase eligible loans from a segregated
pool
of loans, either for cash or in exchange for Farmer Mac I Guaranteed Securities,
on one or more undetermined future dates.
As
of June 30, 2006 and December 31, 2005, the maximum principal amount of
potential undiscounted future payments that Farmer Mac could be requested
to
make under LTSPCs, not including offsets provided by any recourse provisions,
recoveries from third parties or collateral for the underlying loans, was
$2.1 billion and $2.3 billion, respectively.
As of
June
30, 2006, the weighted-average remaining maturity of all loans underlying
LTSPCs
was 14.1 years. For those LTSPCs issued or modified on or after
January 1, 2003, Farmer Mac has recorded a liability for its obligation to
stand ready under the commitment in the guarantee and commitment obligation
on
the condensed consolidated balance sheet. This liability approximated
$16.9 million as of June 30, 2006 and $12.4 million as of December 31,
2005.
Note
4. Comprehensive Income
Comprehensive
income is comprised of net income plus other changes in stockholders’ equity not
resulting from investments by or distributions to stockholders. The
following table sets forth Farmer Mac’s other comprehensive income for the three
and six months ended June 30, 2006 and 2005:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
$
|
7,619
|
|
$
|
8,211
|
|
$
|
12,656
|
|
$
|
13,123
|
|
Unrealized
gains/(losses) on securities
|
|
|
(10,275
|
)
|
|
14,702
|
|
|
(24,184
|
)
|
|
(1,655
|
)
|
Cash
flow hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains/(losses)
|
|
|
9,617
|
|
|
(15,574
|
)
|
|
26,238
|
|
|
2,762
|
|
Amortization
of losses on forward sale contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
interest expense
|
|
|
327
|
|
|
452
|
|
|
617
|
|
|
905
|
|
Cash
flow hedging instruments
|
|
|
9,944
|
|
|
(15,122
|
)
|
|
26,855
|
|
|
3,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
compehensive income, before tax
|
|
|
(331
|
)
|
|
(420
|
)
|
|
2,671
|
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax related to items of other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
(116
|
)
|
|
(146
|
)
|
|
935
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss), net of tax
|
|
|
(215
|
)
|
|
(274
|
)
|
|
1,736
|
|
|
1,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income available to common stockholders
|
|
$
|
7,404
|
|
$
|
7,937
|
|
$
|
14,392
|
|
$
|
14,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
5. Investments
As
of the
dates indicated below, Farmer Mac’s investment portfolio was comprised of the
following investment securities:
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
$
|
10,602
|
|
$
|
10,602
|
|
Available-for-sale
|
|
|
1,991,398
|
|
|
1,604,419
|
|
Trading
|
|
|
5,895
|
|
|
6,920
|
|
|
|
$
|
2,007,895
|
|
$
|
1,621,941
|
|
|
|
|
|
|
|
|
|
The
amortized
cost and estimated fair values of investments as of June 30, 2006 and
December 31, 2005 were as follows:
|
|
|
As
of June 30, 2006
|
|
As
of December 31, 2005
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
(in
thousands)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
investment in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fixed
rate guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
contract
|
|
$
|
10,602
|
|
$
|
262
|
|
$
|
-
|
|
$
|
10,864
|
|
$
|
10,602
|
|
$
|
18
|
|
$
|
-
|
|
$
|
10,620
|
|
Total
held-to-maturity
|
|
$
|
10,602
|
|
$
|
262
|
|
$
|
-
|
|
$
|
10,864
|
|
$
|
10,602
|
|
$
|
18
|
|
$
|
-
|
|
$
|
10,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset-backed
securities
|
|
$
|
448,098
|
|
$
|
720
|
|
$
|
-
|
|
$
|
448,818
|
|
$
|
336,647
|
|
$
|
941
|
|
$
|
-
|
|
$
|
337,588
|
|
Floating
rate corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
securities
|
|
|
407,496
|
|
|
507
|
|
|
(91
|
)
|
|
407,912
|
|
|
231,168
|
|
|
515
|
|
|
(10
|
)
|
|
231,673
|
|
Fixed
rate corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
securities
|
|
|
544,484
|
|
|
-
|
|
|
(9,254
|
)
|
|
535,230
|
|
|
520,000
|
|
|
-
|
|
|
(1,950
|
)
|
|
518,050
|
|
Fixed
rate preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
237,918
|
|
|
4,947
|
|
|
(446
|
)
|
|
242,419
|
|
|
239,033
|
|
|
11,687
|
|
|
(304
|
)
|
|
250,416
|
|
Fixed
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commercial
paper
|
|
|
184,153
|
|
|
-
|
|
|
-
|
|
|
184,153
|
|
|
90,848
|
|
|
-
|
|
|
-
|
|
|
90,848
|
|
Floating
rate mortgage-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed
securities
|
|
|
162,710
|
|
|
576
|
|
|
(11
|
)
|
|
163,275
|
|
|
175,441
|
|
|
481
|
|
|
(78
|
)
|
|
175,844
|
|
Fixed
rate mortgage-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed
securities
|
|
|
10,014
|
|
|
-
|
|
|
(423
|
)
|
|
9,591
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
available-for-sale
|
|
$
|
1,994,873
|
|
$
|
6,750
|
|
$
|
(10,225
|
)
|
$
|
1,991,398
|
|
$
|
1,593,137
|
|
$
|
13,624
|
|
$
|
(2,342
|
)
|
$
|
1,604,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
rate mortgage-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
backed
securities
|
|
$
|
5,866
|
|
$
|
29
|
|
$
|
-
|
|
$
|
5,895
|
|
$
|
6,867
|
|
$
|
53
|
|
$
|
-
|
|
$
|
6,920
|
|
Total
trading
|
|
$
|
5,866
|
|
$
|
29
|
|
$
|
-
|
|
$
|
5,895
|
|
$
|
6,867
|
|
$
|
53
|
|
$
|
-
|
|
$
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
temporary unrealized losses presented above are principally due to changes
in
interest rates from the date of acquisition to June 30, 2006 and December 31,
2005, as applicable. Farmer
Mac
has
the intent and ability to hold its investment securities until either the
market
value recovers or the securities mature.
As
of
June 30, 2006, Farmer Mac owned one held-to-maturity investment that matures
in
2006 with an amortized cost of $10.6 million, a fair value of
$10.9 million, and a yield of 6.5 percent. As of June 30, 2006,
Farmer Mac owned trading investment securities that mature after 10 years
with
an amortized cost of $5.9 million, a fair value of $5.9 million, and a
weighted average yield of 5.38 percent. The amortized cost, fair
value and yield of investments by remaining contractual maturity for
available-for-sale investment securities as of June 30, 2006 are set forth
below. Asset- and mortgage-backed securities are included based on their
final maturities, although the actual maturities may differ due to prepayments
of the underlying assets or mortgages.
|
|
Investment
Securities
|
|
|
|
Available-for-Sale
|
|
|
|
as
of June 30, 2006
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
Due
within one year
|
|
$
|
253,008
|
|
$
|
252,955
|
|
|
4.95
|
%
|
Due
after one year
|
|
|
|
|
|
|
|
|
|
|
through
five years
|
|
|
946,390
|
|
|
937,159
|
|
|
5.14
|
%
|
Due
after five years
|
|
|
|
|
|
|
|
|
|
|
through
ten years
|
|
|
112,886
|
|
|
116,576
|
|
|
7.41
|
%
|
Due
after ten years
|
|
|
682,589
|
|
|
684,708
|
|
|
5.81
|
%
|
Total
|
|
$
|
1,994,873
|
|
$
|
1,991,398
|
|
|
5.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Please
read the following Management’s Discussion and Analysis of Financial Condition
and Results of Operations in conjunction with: (1) the interim
unaudited condensed consolidated financial statements and the related notes
that
appear elsewhere in this report; and (2) Farmer Mac’s Annual Report on Form
10‑K for the fiscal year ended December 31, 2005.
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 of financial condition and results of
operations 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 provisions for losses;
·
trends in expenses;
·
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 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,
2005, as filed with the Securities and Exchange Commission (“SEC”) on
March 16, 2006 and uncertainties regarding:
·
the possible establishment of additional statutory or regulatory restrictions
or
constraints on Farmer Mac that could hamper its growth or diminish its
profitability;
·
the general rate of growth in agricultural mortgage indebtedness;
·
the rate and direction of development of the secondary market for agricultural
mortgage loans, particularly lender interest in the Farmer Mac secondary market
and Farmer Mac credit products;
·
borrower preferences for fixed-rate agricultural mortgage
indebtedness;
·
the willingness of investors to invest in Farmer Mac Guaranteed Securities;
and
·
possible reaction in the financial markets to events involving
government-sponsored enterprises other than Farmer Mac.
In
light of these potential risks and uncertainties, no undue reliance should
be
placed on any forward-looking statements expressed in this report.
Furthermore, Farmer Mac undertakes no obligation to release publicly the results
of revisions to any forward-looking statements that may be made to reflect
new
information or any future events or circumstances, except as otherwise mandated
by law.
Critical Accounting
Policy and Estimates
The
critical accounting policy that is both important to the portrayal of Farmer
Mac’s financial condition and results of operations and requires complex,
subjective judgments is the accounting policy for the allowance for
losses. For a discussion of Farmer Mac’s critical accounting policy,
changes implemented in its methodology for determining its allowance for
losses
as of September 30, 2005, as well as Farmer Mac’s use of estimates and
assumptions that affect the amounts reported in the condensed consolidated
financial statements and related notes for the periods presented, see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policy and Estimates” in the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2005, as filed with the
SEC
on March 16, 2006.
Results
of Operations
Overview.
Net income available to common stockholders for second quarter 2006 was
$7.6 million or $0.67 per diluted common share, compared to $8.2 million or
$0.72 per diluted common share for second quarter 2005. The decrease was
due principally to the after-tax effects of increased compensation costs
resulting from the expense related to the vesting of stock options pursuant
to
Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payments (“SFAS 123(R)”), which was adopted January 1,
2006. Net income available to common stockholders for the six months ended
June 30, 2006 was $12.7 million or $1.11 per diluted common share, compared
to $13.1 million or $1.13 per diluted common share for the six months ended
June 30, 2005.
As
part
of Farmer Mac’s continuing evaluation of the overall credit quality of its
portfolio, the state of the U.S. agricultural economy, the recent upward
trends
in agricultural land values, and the level of Farmer Mac’s outstanding
guarantees and commitments, Farmer Mac determined that the appropriate allowance
for losses as of June 30, 2006 was $6.3 million. This resulted in the
release of $2,000 from the allowance for losses in second quarter 2006. As
of June 30, 2006, the allowance for losses was $6.3 million and
13 basis points relative to the outstanding post-1996 Act Farmer Mac I
portfolio, compared to $8.7 million and 20 basis points as of December
31, 2005.
As
of
June 30, 2006, Farmer Mac’s 90‑day delinquencies (Farmer Mac I loans purchased
or placed under Farmer Mac I Guaranteed Securities or long-term standby purchase
commitments (“LTSPCs”) after changes to Farmer Mac’s statutory charter in 1996
that were 90 days or more past due, in foreclosure, restructured after
delinquency, or in bankruptcy, excluding loans performing under either their
original loan terms or a court-approved bankruptcy plan) were
$21.0 million, representing 0.46 percent of the principal balance of
all loans held and loans
underlying
post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs, down from
$36.8
million (0.85 percent) as of June 30, 2005.
During
second quarter 2006, Farmer Mac:
·
added $570.6 million of Farmer Mac I loans under LTSPCs;
·
purchased $26.1 million of newly originated and current seasoned Farmer
Mac I
loans;
·
purchased $61.2 million of Farmer Mac II USDA-guaranteed portions of
loans;
and
·
converted $550.1 million of pre-existing LTSPCs into Farmer Mac I Guaranteed
Securities.
As
of
June 30, 2006, Farmer Mac’s outstanding program volume was $6.0 billion,
which represented approximately 12.5 percent of management’s estimate of a $48.0
billion market of eligible agricultural mortgage loans. In addition,
Farmer Mac guaranteed $1.0 billion of AgVantage securities on July 20,
2006,
bringing Farmer Mac’s outstanding program volume to approximately
$7.0 billion at that time.
Farmer
Mac’s ongoing guarantee and commitment fee income is earned on the cumulative
outstanding principal balance of Farmer Mac Guaranteed Securities and
loans
underlying LTSPCs. Accordingly, guarantee and commitment fees increase or
decrease through changes in periodic business volume in proportion to
the change
in that cumulative outstanding principal balance, not in proportion to
the
change in periodic volume.
Set
forth
below is a more detailed discussion of Farmer Mac’s results of operations.
Net
Interest Income. Net interest income was $9.1 million for
second quarter 2006, compared to $8.1 million for second quarter
2005. The net interest yield was 83 basis points for the six months ended
June 30, 2006, compared to 87 basis points for the six months ended
June 30, 2005. Net interest income includes guarantee fees for loans
purchased after April 1, 2001 (the effective date of Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (“SFAS 140”)), but
not for loans purchased prior to that date. The effect of SFAS 140
was the classification of approximately $1.7 million (8 basis points) of
guarantee fee income as interest income for the six months ended June
30, 2006,
compared to $1.9 million (10 basis points) for the six months ended
June 30, 2005.
Farmer
Mac
classifies the net interest income and expense realized on financial
derivatives
that are not in fair value or cash flow hedge relationships as gains
and losses
on financial derivatives and trading assets. For the six months ended June
30, 2006 and 2005, this classification resulted in no effect on the net
interest
yield and a decrease of the net interest yield of 3 basis points,
respectively.
The
net
interest yields for the six months ended June 30, 2006 and 2005 included
the
benefits of yield maintenance payments of 11 basis points and 17 basis
points,
respectively. Yield maintenance payments represent the present value of
expected future interest income streams and accelerate the recognition
of
interest income from the related loans. Because the timing and size of
these payments vary greatly, variations do not necessarily indicate positive
or
negative trends to gauge future financial results. For the six months
ended June 30, 2006 and 2005, the after‑tax
effects of yield maintenance
payments on net income and diluted earnings per share were $1.5 million or
$0.13 per diluted share and $2.0 million or $0.17 per diluted share,
respectively.
The
following table provides information regarding interest-earning assets
and
funding for the six months ended June 30, 2006 and 2005. The balance of
non-accruing loans is included in the average balance of interest-earning
loans
presented, though no related income is included in the income figures
presented. Therefore, as the balance of non-accruing loans increases or
decreases, the net interest yield will decrease or increase accordingly.
Net interest income and the yield will also fluctuate due to the uncertainty
of
the timing and size of yield maintenance payments. The average rate earned
on cash and cash equivalents reflects the increase in short-term market
rates
during the latter part of 2005 and the first six months of 2006. The
increase in the average rate for investments reflects the general increase
in
short-term rates and the short-term or floating rate nature of most investments
acquired or reset during 2005 and the first six months of 2006 and outstanding
during 2006. The higher average rate on loans and Farmer Mac Guaranteed
Securities during the first six months of 2006 reflects the increase
in market
rates during the latter part of 2005 and first part of 2006, which affected
the
rates on loans acquired or reset during that period and outstanding during
the
first six months of 2006. The higher 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 upward 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 higher market rates during
the latter
part of 2005 and first six months of 2006 and outstanding during 2006.
|
|
|
|
Six
Months Ended
|
|
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Average
Rate
|
|
Average
Balance
|
|
Income/
Expense
|
|
Average
Rate
|
|
|
|
|
|
(dollars
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
614,978
|
|
$
|
14,413
|
|
|
4.69
|
%
|
$
|
467,504
|
|
$
|
6,330
|
|
|
2.71
|
%
|
Investments
|
|
|
|
|
|
1,681,448
|
|
|
42,581
|
|
|
5.06
|
%
|
|
1,062,979
|
|
|
21,022
|
|
|
3.96
|
%
|
Loans
and Farmer Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
|
|
|
2,056,083
|
|
|
60,744
|
|
|
5.91
|
%
|
|
2,138,226
|
|
|
58,445
|
|
|
5.47
|
%
|
Total
interest-earning assets
|
|
|
|
|
|
4,352,509
|
|
|
117,738
|
|
|
5.41
|
%
|
|
3,668,709
|
|
|
85,797
|
|
|
4.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable due within one year
|
|
|
|
|
|
2,471,175
|
|
|
59,658
|
|
|
4.83
|
%
|
|
1,860,505
|
|
|
34,027
|
|
|
3.66
|
%
|
Notes
payable due after one year
|
|
|
|
|
|
1,669,947
|
|
|
40,079
|
|
|
4.80
|
%
|
|
1,608,066
|
|
|
35,842
|
|
|
4.46
|
%
|
Total
interest-bearing liabilities
|
|
|
|
|
|
4,141,122
|
|
|
99,737
|
|
|
4.82
|
%
|
|
3,468,571
|
|
|
69,869
|
|
|
4.03
|
%
|
Net
non-interest-bearing funding
|
|
|
|
|
|
211,387
|
|
|
|
|
|
|
|
|
200,138
|
|
|
|
|
|
|
|
Total
funding
|
|
|
|
|
$
|
4,352,509
|
|
|
99,737
|
|
|
4.58
|
%
|
$
|
3,668,709
|
|
|
69,869
|
|
|
3.81
|
%
|
Net
interest income/yield
|
|
|
|
$
|
18,001
|
|
|
0.83
|
%
|
|
|
|
$
|
15,928
|
|
|
0.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 increases in income due to changes in rate reflect the
short-term or adjustable-rate nature of the assets or liabilities and the
general increases in short-term market rates.
|
|
Six
Months Ended June 30, 2006
|
|
|
|
Compared
to Six Months Ended
|
|
|
|
June
30, 2005
|
|
|
|
Increase/(Decrease)
Due to
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
|
|
(in
thousands)
|
|
Income
from interest-earning assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,646
|
|
$
|
2,437
|
|
$
|
8,083
|
|
Investments
|
|
|
7,014
|
|
|
14,545
|
|
|
21,559
|
|
Loans
and Farmer Mac Guaranteed Securities
|
|
|
13,734
|
|
|
(11,435
|
)
|
|
2,299
|
|
Total
|
|
|
26,394
|
|
|
5,547
|
|
|
31,941
|
|
Expense
from interest-bearing liabilities
|
|
|
15,001
|
|
|
14,867
|
|
|
29,868
|
|
Change
in net interest income
|
|
$
|
11,393
|
|
$
|
(9,320
|
)
|
$
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee and
Commitment Fees. Guarantee and commitment fees, which compensate
Farmer Mac for assuming the credit risk on loans underlying Farmer Mac
Guaranteed Securities and LTSPCs, were $5.3 million for second quarter 2006
and $10.3 million for the six months ended June 30, 2006, compared to $4.9
million and $9.8 million, respectively, for the same periods in 2005. The
effect of SFAS 140 was the classification as interest income of guarantee
fees of $0.9 million for second quarter 2006 and $1.7 million for the six
months
ended June 30, 2006, compared to $0.9 million and $1.9 million, respectively,
for the same periods in 2005, although management considers the amounts to
have
been earned in consideration for the assumption of credit risk. That
portion of the difference or “spread” between the cost of Farmer Mac’s debt
funding for loans and the yield on post-1996 Act Farmer Mac I Guaranteed
Securities held on its books compensates for credit risk. When a post-1996
Act Farmer Mac I Guaranteed Security is sold to a third party, Farmer Mac
continues to receive the guarantee fee component of that spread, which continues
to compensate Farmer Mac for its assumption of credit risk. The portion of
the spread that compensates for interest rate risk would not typically continue
to be received by Farmer Mac if the asset were sold, except to the extent
attributable to any retained interest-only strip.
Expenses.
General and administrative expenses were $2.6 million for second quarter
2006 and $5.3 million for the six months ended June 30, 2006, compared to
$2.3
million and $4.3 million, respectively, for the same periods in 2005.
The increase was largely attributable to increased legal fees related to
mortgage securitizations and compliance matters. Compensation and employee
benefits were $2.7 million for second quarter 2006 and $5.6 million for the
six months ended June 30, 2006, compared to $1.9 million and $3.7 million,
respectively, for the same periods in 2005. For second quarter 2006 and
the six months ended June 30, 2006, compensation costs were higher due to
expense related to stock options of $0.4 million and $1.0 million,
respectively. The comparable periods in the prior year did not include
expense related to stock options. For more information on stock option
expense and the adoption of SFAS 123(R) on January 1, 2006, see
Note 1(e). The remainder of the increase was due to a general
increase in staffing during 2005.
Regulatory
fee expense for each of the six-month periods ended June 30, 2006 and 2005
was
$1.2 million. The Farm Credit Administration (“FCA”) has advised the
Corporation that its estimated fees for the federal fiscal year ended
September 30, 2006 will be $2.4 million. After the end of a
federal government fiscal year, FCA may revise its prior year estimated
assessments to reflect actual costs incurred, and has issued both additional
assessments and refunds in the past. Farmer Mac expects all of the
above-mentioned expenses and regulatory fees to continue at approximately
the
same levels through 2006.
During
second quarter 2006, Farmer Mac released $2,000 from the allowance for losses,
compared to a release of $0.3 million for second quarter 2005. During the
six months ended June 30, 2006, Farmer Mac released $1.7 million from the
allowance for losses, compared to a release of $1.0 million for the six months
ended June 30, 2005. See “—Quantitative and Qualitative Disclosures About
Market Risk Management—Credit Risk” for additional information regarding Farmer
Mac’s provision for losses, provision for loan losses and Farmer Mac’s
methodology for determining its allowance for losses. As of June 30, 2006,
Farmer Mac’s total allowance for losses was $6.3 million, or 13 basis points of
outstanding loans held or loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities (excluding AgVantage securities) and LTSPCs, compared to
$8.7 million and 20 basis points as of December 31, 2005.
Gains
and Losses on Financial Derivatives and Trading Assets.
The gain on financial derivatives and trading
assets was
$2.0 million for second quarter 2006 and $25,000 for the six months ended
June 30, 2006, compared to gains of $3.8 million and $2.0 million,
respectively, for the same periods in 2005. The gains and losses resulted
primarily from fluctuations in the fair values of financial derivatives that
were not designated as either fair value hedges or cash flow hedges in
accordance with Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended
(“SFAS 133”), which fluctuations resulted from movements in interest
rates. During second quarter 2006, Farmer Mac discontinued hedge
accounting treatment for basis swaps with a notional mount of $210.0 million
and
a fair value of $9.1 million. Accordingly, the Corporation recognized a
$2.6 million gain on financial derivatives and trading assets in the condensed
consolidated financial statements during second quarter 2006 related to the
change in fair value of these swaps. As of June 30, 2006, Farmer Mac had
$4.1 million of net after-tax unrealized gains remaining in accumulated other
comprehensive income related to these swaps. In accordance with SFAS 133,
this amount will be reclassified into earnings during the periods which the
hedged forecasted transactions affect earnings.
Non-GAAP
Performance Measures. Farmer Mac reports its financial results in
accordance with accounting principles generally accepted in the United States
of
America (“GAAP”). In addition to GAAP measures, Farmer Mac presents
certain non-GAAP performance measures. Farmer Mac uses these non-GAAP
performance measures to develop financial plans, to measure corporate economic
performance, and to set incentive compensation because, in management’s view,
the non-GAAP measures more accurately represent Farmer Mac’s economic
performance, transaction economics and business trends. Investors and the
investment analyst community have previously relied upon similar measures
to
evaluate Farmer Mac’s historical and future performance. Farmer Mac’s
disclosure of non-GAAP measures is not intended to replace GAAP information
but,
rather, it is intended to supplement it.
Farmer
Mac
developed non-GAAP core earnings to present net income less the after-tax
effects of SFAS 133. Core earnings for the three and six months ended June
30, 2006 were $6.3 million and $12.5 million, respectively, compared to
$6.0 million and $12.2 million for the three and six months ended June 30,
2005. The reconciliation of GAAP net income available to common
stockholders to core earnings is presented in the following table:
Reconciliation
of GAAP Net Income Available to Common Stockholders to Core
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
net income available
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
$
|
7,619
|
|
$
|
8,211
|
|
$
|
12,656
|
|
$
|
13,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
the effects of SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains/(losses) on financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
and trading assets, net of tax
|
|
|
1,290
|
|
|
2,251
|
|
|
157
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
earnings
|
|
$
|
6,329
|
|
$
|
5,960
|
|
$
|
12,499
|
|
$
|
12,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Volume. New business volume for second quarter 2006 was
$657.9 million, up from $648.5 million in first quarter 2006. That new
business volume included an LTSPC issued to a Farm Credit System (“FCS”)
institution on $486.7 million of agricultural real estate mortgage
loans. During second quarter 2006, the loans underlying that LTSPC were
converted into a Farmer Mac Guaranteed Security. In addition to the new
business volume in first and second quarters of 2006, in July 2006, Farmer
Mac
guaranteed $1.0 billion of AgVantage securities supported by a five-year
mortgage-backed obligation of Metropolitan Life Insurance Company (“MetLife”)
backed by agricultural real estate mortgage loans. This transaction was in
addition to the similar first quarter transaction in which Farmer Mac guaranteed
$500.0 million of AgVantage securities supported by a MetLife agricultural
mortgage-backed obligation.
All of
the
above-referenced transactions were products of Farmer Mac’s ongoing efforts to
diversify its marketing focus to include large program transactions that
emphasize high asset quality, with greater protection against adverse credit
performance and commensurately lower compensation for the assumption of credit
risk and administrative costs. While Farmer Mac’s new business volume has
improved as a result of those efforts, its future business with agricultural
mortgage lenders may still be constrained by:
·
high levels of available capital and liquidity of agricultural lenders;
·
alternative sources of funding and credit enhancement for agricultural
lenders;
·
increased competition in the secondary market for agricultural mortgage loans;
and
·
reduced growth rates in the agricultural mortgage market.
Management believes
that legislative or regulatory developments or interpretations of Farmer Mac’s
statutory charter could adversely affect Farmer Mac, its ability to offer new
products, the ability or motivation of certain lenders to participate in its
programs or the terms of any such participation, or increase the cost of
regulation and related corporate activities. See
“Risk Factors” in Part I, Item 1A of Farmer Mac’s Annual Report on Form
10-K for the year ended December 31, 2005, as filed with the SEC on March
16,
2006.
For a
more
detailed discussion of the above factors and the related effects on Farmer
Mac’s
business volume, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Outlook for 2006” in the Corporation’s
Annual Report on Form 10‑K for the year ended December 31, 2005, as filed
with the SEC on March 16, 2006.
Looking ahead, Farmer
Mac
is developing innovative ways to serve the financing needs of rural America,
and
remains confident of opportunities for increased business volume and income
growth as a result of the Corporation’s product development and customer service
efforts. Farmer Mac’s marketing initiatives are generating business
opportunities for 2006 and, it believes, beyond. Current initiatives
include:
·
an alliance with the American Bankers Association, entered into in October
2005,
under which Farmer Mac agreed to facilitate access and improve
pricing
to ABA
member institutions and the ABA agreed to promote member participation in
the
Farmer Mac I program;
·
new and expanded business relationships that will serve a cross-section of
agricultural lenders in many areas of the nation;
·
expanded use of AgVantage transactions, targeting highly-rated financial
institutions with large agricultural mortgage portfolios;
·
product enhancements, such as open prepayment loan structures;
·
agribusiness and rural development loans associated with agriculture, in
fulfillment of Farmer Mac’s Congressional mission;
·
federal and state agricultural finance programs;
·
new loan securitization structures; and
·
increased efforts to adjust the pricing of products to reflect with greater
precision the risks assumed by Farmer Mac and the creditworthiness of the
obligors
on
obligations guaranteed by Farmer Mac.
Some of the agribusiness and rural development
initiatives will require Farmer Mac to consider credit risks that expand
upon or
differ from those the Corporation has accepted previously. Farmer Mac will
use underwriting standards appropriate to those credit risks, and likely
will
draw upon outside expertise to analyze and evaluate the credit and funding
aspects of loans submitted pursuant to those initiatives. While Farmer Mac
is seeking to expand its mix of loan types within the scope of its Congressional
charter, it is too early to assess the probability of success of these
efforts. Farmer Mac believes that prospects for large portfolio
transactions similar to those that have accounted for a significant portion
of
Farmer Mac’s previous growth, including the previously mentioned January and
July 2006 AgVantage transactions and the April 2006 LTSPC transaction, continue
to exist. No assurance can be given at this time as to the certainty or
timing of similar transactions in the future.
The
following tables set forth the amount of all Farmer Mac I and Farmer
Mac II loan
purchase and guarantee activities for newly originated and current seasoned
loans during the periods indicated:
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
(in
thousands)
|
|
Loan
purchase and guarantee and
|
|
|
|
|
|
|
|
|
|
commitment
activity: |
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I: |
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
$
|
26,114
|
|
$
|
20,382
|
|
$
|
56,374
|
|
$
|
38,922
|
|
LTSPCs
|
|
|
|
|
|
570,595
|
|
|
96,419
|
|
|
643,750
|
|
|
129,701
|
|
AgVantage
|
|
|
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
|
-
|
|
Farmer
Mac II Guaranteed Securities
|
|
|
|
|
|
61,204
|
|
|
45,123
|
|
|
106,331
|
|
|
88,757
|
|
Total
purchases, guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
commitments
|
|
|
|
|
$
|
657,913
|
|
$
|
161,924
|
|
$
|
1,306,455
|
|
$
|
257,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmer
Mac I Guaranteed Securities issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Sold
|
|
|
|
|
|
1,548
|
|
|
20,098
|
|
|
3,033
|
|
|
22,012
|
|
Loans
previously under LTSPCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchanged
for Farmer Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
|
|
|
550,114
|
|
|
-
|
|
|
550,114
|
|
|
-
|
|
Total
|
|
|
|
|
$
|
551,662
|
|
$
|
20,098
|
|
$
|
553,147
|
|
$
|
22,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To fulfill
its guarantee and commitment obligations, Farmer Mac purchases defaulted
loans
underlying Farmer Mac Guaranteed Securities and LTSPCs, all of which are
at
least 90 days delinquent at the time of purchase. The following table
presents Farmer Mac’s loan purchases of newly originated and current seasoned
loans and defaulted loans purchased underlying Farmer Mac I Guaranteed
Securities and LTSPCs:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(in
thousands)
|
|
Farmer
Mac I newly originated
|
|
|
|
|
|
|
|
|
|
and
current seasoned loan purchases
|
|
$
|
26,114
|
|
$
|
20,382
|
|
$
|
56,374
|
|
$
|
38,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
off-balance
sheet Farmer Mac I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
Securities
|
|
|
-
|
|
|
-
|
|
|
506
|
|
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans underlying on-balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sheet
Farmer Mac I Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
transferred to loans
|
|
|
214
|
|
|
-
|
|
|
813
|
|
|
1,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted
loans purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
underlying
LTSPCs
|
|
|
297
|
|
|
405
|
|
|
3,246
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loan purchases
|
|
$
|
26,625
|
|
$
|
20,787
|
|
$
|
60,939
|
|
$
|
42,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30,
2006, Farmer Mac had 165 approved loan sellers eligible to participate in
the Farmer Mac I program, ranging from single-office to multi-branch
institutions, spanning community banks, FCS institutions, mortgage companies,
commercial banks and insurance companies. The increase in the number of
approved Farmer Mac I loan sellers from 95 as of June 30, 2005 is
principally a result of two factors: (1) an increase in the number of new
Farmer Mac Sellers precipitated largely by the new American Bankers
Association/Farmer Mac Alliance; and (2) a new, customized seller
recertification process that is conducted quarterly instead of annually.
In addition to participating directly in the Farmer Mac I program, some of
the approved loan sellers enable other lenders to participate indirectly in
the
Farmer Mac I program by managing correspondent networks of lenders from
which they purchase loans to sell to Farmer Mac. As of June 30, 2006,
approximately 100 lenders were participating in those networks.
Sellers in the Farmer Mac II program consist mostly of community and
regional banks. As of June 30, 2006, more than 300 lenders were
participating, directly or indirectly, in one or both of the Farmer Mac I or
Farmer Mac II programs.
·
2006 net cash farm income to be $64.8 billion, following record years of $82.8
billion in 2005 and $85.5 billion in 2004.
·
2006 net farm income to be $56.2 billion, which is a decrease of $16.4
billion from 2005 but still slightly above the 10‑year average net farm income
of
$55.7
billion.
·
Total direct U.S. government payments to be $18.5 billion in 2006, down from
the
forecast of $23.0 billion for 2005, but still higher than the estimate
of
$13.3 billion
for 2004.
·
Countercyclical payments are forecast to increase from $4.1 billion in 2005
to
$5.3 billion in 2006.
·
Marketing loan benefits including loan deficiency payments, marketing loan
gains, and certificate exchange gains are projected to be down from $6.2
billion
in 2005 to
$4.1 billion in 2006.
·
The value of U.S. farm real estate to increase 6.5 percent in 2006 to
$1.4 trillion, as compared to the 2005 increase of 6.8 percent, and the
general
economy
to support
further growth in farmland values.
·
The amount of farm real estate debt to increase by 3.1 percent in 2006 to
$122.9 billion, compared to $119.2 billion in 2005.
The
USDA forecasts referenced above relate to U.S. agriculture
generally, but should be favorable for Farmer Mac’s financial condition relative
to its exposure to outstanding guarantees and commitments, as they indicate
above-average borrower cash flows and generally increased values in U.S. farm
real estate.
Balance
Sheet Review
During
the six months ended June 30, 2006, there were $44.7 million of net
principal paydowns in program assets (Farmer Mac Guaranteed Securities and
loans) offset by a $276.1 million increase in the portfolio of investment
securities and cash and cash equivalents. Consistent with the net increase
in assets during the period, total liabilities increased $218.6 million
from December 31, 2005 to June 30, 2006. For further information
regarding off-balance sheet program activities, see “—Off-Balance Sheet Program
Activities” below.
During
the
six months ended June 30, 2006, accumulated other comprehensive income increased
$1.7 million, which is the net effect of a $15.7 million decrease in
after-tax unrealized gains on securities available for sale and a
$17.4 million increase in the after-tax fair value of financial derivatives
classified as cash flow hedges. Accumulated other comprehensive income is
not a component of Farmer Mac’s core capital or regulatory capital.
Farmer Mac is
required to hold capital at the higher of the statutory minimum capital
requirement or the amount required by the risk-based capital stress test.
As of June 30, 2006, Farmer Mac’s core capital totaled $249.8 million,
compared to $244.8 million as of December 31,
2005. As of June 30,
2006, core capital exceeded Farmer Mac’s statutory minimum capital requirement
of $158.5 million by $91.3 million.
Farmer
Mac was in compliance with its risk-based capital standards as
of June 30, 2006. As of June 30, 2006, the risk-based capital stress test
generated a regulatory capital requirement of $67.7 million, up from the
$32.4
million requirement as of December 31, 2005. The increase in the
risk-based capital requirement from December 31, 2005 to June 30, 2006 was
attributable to an increase in Farmer Mac’s outstanding business volume and
changes in the interest rate environment during that period. As of
June 30, 2006, Farmer Mac’s regulatory capital of $256.1 million
exceeded the risk-based capital requirement by approximately
$188.4 million. On November 17, 2005, FCA published in the Federal
Register a proposed rule that would revise the risk-based capital regulation.
For further discussion of that proposed rule, see “Regulatory
Matters.”
Quantitative and Qualitative Disclosures About Market Risk
Management
Interest
Rate Risk. Farmer Mac is subject to interest rate risk on all
assets held for investment because of possible timing differences in the
cash
flows of the assets and related liabilities. This risk is primarily
related to loans held and on-balance sheet Farmer Mac Guaranteed Securities
due
to the ability of borrowers to prepay their mortgages before the scheduled
maturities, thereby increasing the risk of asset and liability cash flow
mismatches. Cash flow mismatches in a changing interest rate environment
can reduce the earnings of the Corporation if assets repay sooner than expected
and the resulting cash flows must be reinvested in lower-yielding investments
when Farmer Mac’s funding costs cannot be correspondingly reduced, or if assets
repay more slowly than expected and the associated debt must be replaced
by
higher-cost debt.
Yield maintenance
provisions and other prepayment penalties contained in many agricultural
mortgage loans reduce, but do not eliminate, prepayment risk, particularly
in
the case of a defaulted loan where yield maintenance may not be collected.
Those provisions require borrowers to make an additional payment when they
prepay their loans so that, when reinvested with the prepaid principal, yield
maintenance payments generate substantially the same cash flows that would
have
been generated had the loan not prepaid. Those provisions create a
disincentive to prepayment and compensate the Corporation for its interest
rate
risks to a large degree. As of June 30, 2006, 55 percent of the
outstanding balance of all loans held and loans underlying on-balance sheet
Farmer Mac I Guaranteed Securities (including 80 percent of all
loans with fixed interest rates) were covered by yield maintenance
provisions and other prepayment penalties. Of the Farmer Mac I fixed rate
loans purchased in second quarter 2006, 14 percent had yield maintenance or
another form of prepayment protection. As of June 30, 2006, none of the
USDA-guaranteed portions underlying Farmer Mac II Guaranteed Securities
had
yield maintenance provisions; however, 14 percent contained prepayment
penalties. Of the USDA‑guaranteed portions purchased in second quarter
2006, less than one percent contained other forms of prepayment penalties.
As of June 30, 2006,
Farmer
Mac had $349.0 million of cash and cash equivalents and $2.0 billion of
investment securities. Cash equivalents and investment securities pose
only limited interest rate risk to Farmer Mac, due to their closely matched
funding. Farmer Mac’s cash equivalents mature within three months and are
match-funded with discount notes having similar maturities. As of June 30,
2006, Farmer Mac’s investment securities consisted of $956.5 million of
floating rate securities that have rates that adjust within one year.
These floating rate investments are funded using:
·
a series of discount note issuances in which each successive discount
note is
issued and matures on or about the corresponding interest rate reset
date
of the related
investment;
·
floating-rate notes having similar rate reset provisions as the related
investment; or
·
fixed-rate notes swapped to floating rates having similar reset provisions
as
the related investment.
An
important “stress test” of Farmer Mac’s exposure to long-term interest rate risk
is the measurement of the sensitivity of its market value of equity (“MVE”) to
yield curve shocks. MVE represents the present value of all future cash
flows from on- and off-balance sheet assets, liabilities and financial
derivatives, discounted at current interest rates and spreads. The
following schedule summarizes the results of Farmer Mac’s MVE sensitivity
analysis as of June 30, 2006 and December 31, 2005 to an immediate and
instantaneous parallel shift in the yield curve.
|
|
|
Percentage
Change in MVE from Base Case
|
|
Interest
Rate
|
|
June
30,
|
|
December
31,
|
|
Scenario
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
+
300 bp
|
|
-9.2%
|
|
-6.2%
|
|
+
200 bp
|
|
-5.8%
|
|
-3.6%
|
|
+
100 bp
|
|
-2.6%
|
|
-1.4%
|
|
-
100 bp
|
|
1.0%
|
|
0.0%
|
|
-
200 bp
|
|
0.4%
|
|
-0.7%
|
|
-
300 bp
|
|
-0.7%
|
|
-1.5%
|
|
|
|
|
|
|
During
second quarter
2006, Farmer Mac maintained a low level of interest rate sensitivity through
ongoing asset and liability management activities. As of June 30, 2006, a
uniform or “parallel” increase of 100 basis points would have increased
Farmer Mac’s net interest income (“NII”), a shorter-term measure of interest
rate risk, by 3.1 percent, while a parallel decrease of 100 basis points
would have decreased NII by 5.1 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 June 30, 2006,
both MVE and NII showed similar or lesser sensitivity to non-parallel shocks
as
to the parallel shocks. As of June 30, 2006, Farmer Mac’s effective
duration gap, another standard measure of interest rate risk that measures
the
difference between the sensitivities of assets compared to that of liabilities,
was plus 1.4 months, compared to plus 0.5 months as of
December 31, 2005. Duration matching helps to maintain the
correlation of cash flows and stable portfolio earnings even when interest
rates
are not stable. Farmer Mac believes the relative insensitivity of its MVE
and NII to both parallel and non-parallel interest rate shocks, and its
duration
gap, indicate that Farmer Mac’s approach to managing its interest rate risk
exposures is effective.
As of
June
30, 2006, Farmer Mac had $1.4 billion combined notional amount of interest
rate
swaps with terms ranging from 1 to 15 years. Of those interest rate swaps,
$774.7 million were floating-to-fixed rate interest rate swaps, $279.0 million
were fixed-to-floating interest rate swaps and $372.9 million were basis
swaps.
Farmer
Mac
uses financial derivatives as an end-user for hedging purposes, not for trading
or speculative purposes. When financial derivatives meet the specific
hedge criteria under SFAS 133, they are accounted for as either fair value
hedges or cash flow hedges. Financial derivatives that do not satisfy
those hedge criteria are not accounted for as hedges and changes in the fair
value of those financial derivatives are reported as a gain or loss on financial
derivatives and trading assets in the consolidated statements of
operations. All of Farmer Mac’s financial derivative transactions are
conducted under standard collateralized agreements that limit Farmer Mac’s
potential credit exposure to any counterparty. As of June 30, 2006, Farmer
Mac had uncollateralized net exposure of $2.6 million to two
counterparties.
Credit
Risk. Farmer Mac’s primary exposure to credit risk is the risk of
loss resulting from the inability of borrowers to repay their mortgages in
conjunction with a deficiency in the value of the collateral relative to
the
amount outstanding on the mortgage and the costs of liquidation. Farmer
Mac has established underwriting, appraisal and documentation standards for
Farmer Mac I agricultural mortgage loans to mitigate the risk of loss from
borrower defaults and to provide guidance concerning the management,
administration and conduct of underwriting and appraisals to all participating
sellers and potential sellers in its programs.
Farmer
Mac’s allowance for losses is presented in three components on its consolidated
balance sheet:
·
an “Allowance for loan losses” on loans held for investment;
·
a valuation allowance on real estate owned, which is included in the balance
sheet under “Real estate owned”;
·
an allowance for losses on loans underlying post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs, which is included in the balance sheet
under
“Reserve
for
losses.”
Farmer
Mac’s provision for losses is presented in two components on its consolidated
statement of operations:
·
a “Provision for loan losses,” which represents losses on Farmer Mac’s loans
held for investment; and
·
a “Provision for losses,” which represents losses on loans underlying post-1996
Act Farmer Mac I Guaranteed Securities and LTSPCs and real
estate
owned.
Historically, Farmer
Mac
estimated probable losses using a systematic process that began with
management’s evaluation of the results of a proprietary loan pool simulation and
guarantee fee model. That model drew upon historical information from a
data set of agricultural mortgage loans screened to include only those
loans
with credit characteristics similar to those eligible for Farmer Mac’s
programs. The results generated by that model were then modified, as
necessary, by the application of management’s judgment.
During 2005, Farmer
Mac
completed the planned migration of its methodology for determining its
allowance
for losses away from one based on its loan pool simulation and guarantee
fee
model to one based on its own historical portfolio loss experience and
credit
trends. Farmer Mac recorded the effects of that change as a change in
accounting estimate as of September 30, 2005.
Farmer Mac’s current
methodology for determining its allowance for losses incorporates the
Corporation’s proprietary automated loan classification system. That
system scores loans based on criteria such as historical repayment performance,
loan seasoning, loan size and loan-to-value ratio. For the purposes of the
loss allowance methodology, the loans in Farmer Mac’s portfolio of loans and
loans underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs
have been scored and classified for each calendar quarter since first quarter
2000. The new allowance methodology captures the migration of loan scores
across concurrent and overlapping 3-year time horizons and calculates loss
rates
separately within each loan classification for (1) loans underlying LTSPCs
and
(2) loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities. The calculated loss rates are applied to the current
classification distribution of Farmer Mac’s portfolio to estimate inherent
losses, on the assumption that the historical credit losses and trends
used to
calculate loss rates will continue in the future. Management evaluates
this assumption by taking into consideration several factors, including:
·
economic conditions;
·
geographic and agricultural commodity/product concentrations in the
portfolio;
·
the credit profile of the portfolio;
·
delinquency trends of the portfolio; and
·
historical charge-off and recovery activities of the portfolio.
If, based on that evaluation,
management concludes that the assumption is not valid due to other more
compelling indicators, the loss allowance calculation is modified by the
addition of further assumptions to capture current portfolio trends and
characteristics that differ from historical experience.
As of
June 30, 2006, Farmer Mac concluded that the credit profile of its portfolio
was
consistent with Farmer Mac’s historical credit profile and trends.
Management believes that its use of this methodology produces a reliable
estimate of inherent probable losses, as of the balance sheet date, for
all
loans held, real estate owned and loans underlying post-1996 Act Farmer
Mac I
Guaranteed
Securities and LTSPCs in accordance with Statement of Financial Accounting
Standards No. 5, Accounting for Contingencies and Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan, as amended.
No
allowance for losses has been made for loans underlying Farmer Mac
I Guaranteed
Securities issued prior to the 1996 Act, AgVantage securities or Farmer
Mac II
Guaranteed Securities. Farmer Mac I Guaranteed Securities issued
prior to the 1996 Act are supported by unguaranteed first loss subordinated
interests, which are expected to exceed the estimated credit losses
on those
loans. Each AgVantage security is a general obligation of an issuing
institution approved by Farmer Mac and is collateralized by eligible
mortgage
loans. As of June 30, 2006, there were no probable losses inherent in
Farmer Mac’s AgVantage securities. The guaranteed portions collateralizing
Farmer Mac II Guaranteed Securities are guaranteed by the USDA. Each USDA
guarantee is an obligation backed by the full faith and credit of the
United
States. As of June 30, 2006, Farmer Mac had not experienced any credit
losses on any Farmer Mac I Guaranteed Securities issued prior to the
1996 Act,
AgVantage securities or Farmer Mac II Guaranteed Securities and does
not expect
to incur any such losses in the future.
|
|
|
|
|
|
June
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
REO
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
Valuation
|
|
Reserve
|
|
Allowance
|
|
|
|
Losses
|
|
Allowance
|
|
for
Losses
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
3,883
|
|
$
|
-
|
|
$
|
2,931
|
|
$
|
6,814
|
|
Provision/(recovery)
for losses
|
|
|
(594
|
)
|
|
5
|
|
|
587
|
|
|
(2
|
)
|
Net
charge-offs
|
|
|
(555
|
)
|
|
(5
|
)
|
|
-
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
2,734
|
|
$
|
-
|
|
$
|
3,518
|
|
$
|
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,876
|
|
$
|
-
|
|
$
|
3,777
|
|
$
|
8,653
|
|
Provision/(recovery)
for losses
|
|
|
(1,606
|
)
|
|
155
|
|
|
(259
|
)
|
|
(1,710
|
)
|
Net
charge-offs
|
|
|
(536
|
)
|
|
(155
|
)
|
|
-
|
|
|
(691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
2,734
|
|
$
|
-
|
|
$
|
3,518
|
|
$
|
6,252
|
|
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
REO
|
|
|
|
Total
|
|
|
|
for
Loan
|
|
Valuation
|
|
Reserve
|
|
Allowance
|
|
|
|
Losses
|
|
Allowance
|
|
for
Losses
|
|
for
Losses
|
|
|
|
(in
thousands)
|
|
Three
Months Ended:
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
3,846
|
|
$
|
-
|
|
$
|
12,485
|
|
$
|
16,331
|
|
Provision
for losses
|
|
|
(203
|
)
|
|
-
|
|
|
(91
|
)
|
|
(294
|
)
|
Net
recoveries
|
|
|
27
|
|
|
-
|
|
|
-
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
3,670
|
|
$
|
-
|
|
$
|
12,394
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
4,395
|
|
$
|
-
|
|
$
|
12,706
|
|
$
|
17,101
|
|
Provision/(recovery)
for losses
|
|
|
(787
|
)
|
|
120
|
|
|
(312
|
)
|
|
(979
|
)
|
Net
(charge-offs)/recoveries
|
|
|
62
|
|
|
(120
|
)
|
|
-
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
3,670
|
|
$
|
-
|
|
$
|
12,394
|
|
$
|
16,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During second quarter
2006, Farmer Mac released $2,000 from the allowance for losses, compared to
the
release of $0.3 million in second quarter 2005. During second quarter
2006, Farmer Mac charged off $0.9 million in losses against the allowance for
losses and had $0.3 million in recoveries for net charge-offs of $0.6
million. During second quarter 2005, Farmer Mac charged off
$15,000 in losses against the allowance for losses and had $42,000 in
recoveries for net charge-offs of $27,000. There was no previously accrued
or advanced interest on loans or Farmer Mac I Guaranteed Securities that was
charged off in second quarter 2006 or second quarter 2005. As of June 30,
2006, Farmer Mac’s allowance for losses totaled
$6.3 million, or 13 basis points of the outstanding principal
balance of loans held and loans underlying post-1996 Act Farmer Mac I
Guaranteed Securities (excluding AgVantage securities) and LTSPCs, compared
to
$8.7 million (20 basis points) as of December 31,
2005.
As
of June 30, 2006, Farmer Mac’s 90‑day delinquencies totaled
$21.0 million and represented 0.46 percent of the principal balance of all
loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities
(excluding AgVantage securities) and LTSPCs, compared to $36.8 million
(0.85 percent) as of June 30, 2005. As of June 30, 2006, Farmer
Mac’s non-performing assets (which includes 90-day delinquencies, loans
performing under either their original loan terms or a court-approved bankruptcy
plan, and real estate owned) totaled $40.0 million and represented 0.87
percent of the principal balance of all loans held and loans underlying
post-1996 Act Farmer Mac I Guaranteed Securities (excluding AgVantage
securities) and LTSPCs, compared to $60.7 million (1.39 percent) as of
June 30, 2005.
Loans
that have
been restructured after delinquency were insignificant and are included
within
the reported 90‑day delinquency and non-performing asset disclosures.
From quarter to quarter, Farmer Mac anticipates that 90-day delinquencies
and non-performing assets will fluctuate, both in dollars and as a percentage
of
the outstanding portfolio, with higher levels likely at the end of the
first and
third quarters of each year corresponding to the semi-annual (January
1
st and July 1
st) payment characteristics of most
Farmer Mac I loans.
The
following table presents historical information regarding Farmer Mac’s
non-performing assets and 90-day delinquencies:
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
Guarantees
(1),
|
|
Non-
|
|
|
|
REO
and
|
|
|
|
|
|
|
|
LTSPCs,
|
|
performing
|
|
|
|
Performing
|
|
90-Day
|
|
|
|
|
|
and
REO
|
|
Assets
|
|
Percentage
|
|
Bankruptcies
|
|
Delinquencies
|
|
Percentage
|
|
|
|
(dollars
in thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006
|
|
$
|
4,633,841
|
|
$
|
40,083
|
|
|
0.87
|
%
|
$
|
19,075
|
|
$
|
21,008
|
|
|
0.46
|
%
|
March
31, 2006
|
|
|
4,224,669
|
|
|
49,475
|
|
|
1.17
|
%
|
|
20,713
|
|
|
28,762
|
|
|
0.68
|
%
|
December
31, 2005
|
|
|
4,399,189
|
|
|
48,764
|
|
|
1.11
|
%
|
|
23,303
|
|
|
25,461
|
|
|
0.58
|
%
|
September
30, 2005
|
|
|
4,273,268
|
|
|
64,186
|
|
|
1.50
|
%
|
|
23,602
|
|
|
40,584
|
|
|
0.95
|
%
|
June
30, 2005
|
|
|
4,360,670
|
|
|
60,696
|
|
|
1.39
|
%
|
|
23,925
|
|
|
36,771
|
|
|
0.85
|
%
|
March
31, 2005
|
|
|
4,433,087
|
|
|
70,349
|
|
|
1.59
|
%
|
|
24,561
|
|
|
45,788
|
|
|
1.04
|
%
|
December
31, 2004
|
|
|
4,642,208
|
|
|
50,636
|
|
|
1.09
|
%
|
|
25,353
|
|
|
25,283
|
|
|
0.55
|
%
|
September
30, 2004
|
|
|
4,756,839
|
|
|
75,022
|
|
|
1.58
|
%
|
|
27,438
|
|
|
47,584
|
|
|
1.01
|
%
|
June
30, 2004
|
|
|
4,882,505
|
|
|
69,751
|
|
|
1.43
|
%
|
|
36,978
|
|
|
32,773
|
|
|
0.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Excludes loans underlying AgVantage securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006,
approximately $1.3 billion (29.1 percent) of Farmer Mac’s outstanding loans held
and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities (excluding
AgVantage securities) and LTSPCs were in their peak delinquency and default
years (approximately years three through five after origination), compared
to
$1.2 billion (28.4 percent) as of June 30, 2005.
As of
June
30, 2006, Farmer Mac individually analyzed $30.8 million of its
$68.8 million of impaired assets for collateral shortfalls against updated
appraised values, other updated collateral valuations or discounted
values. Farmer Mac evaluated the remaining $38.0 million of impaired
assets for which updated valuations were not available in the aggregate in
consideration of their similar risk characteristics and historical
statistics. Of the $30.8 million of assets analyzed individually,
$29.4 million were adequately collateralized. For the
$1.4 million of assets that were not adequately collateralized, individual
collateral shortfalls totaled $15,000. Accordingly, Farmer Mac recorded
specific allowances of $15,000 for those under-collateralized assets as of
June
30, 2006. In addition to the specific allowances provided, Farmer Mac’s
non-specific or general allowances were $6.2 million as of June 30,
2006.
As
of
June 30, 2006, the weighted-average original loan-to-value (“LTV”) ratio for
all loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs was 50.1 percent, and the weighted-average original
LTV
ratio for all post-1996 Act non‑performing assets was 56.1 percent. The
following table summarizes the post-1996 Act non-performing assets by original
LTV ratio:
Distribution
of Post-1996 Act Non-performing
|
|
Assets
by Original LTV Ratio
|
|
as
of June 30, 2006
|
|
(dollars
in thousands)
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
Non-performing
|
|
|
|
Original
LTV Ratio
|
|
Assets
|
|
Percentage
|
|
0.00%
to 40.00%
|
|
$
|
4,147
|
|
|
10
|
%
|
40.01%
to 50.00%
|
|
|
6,329
|
|
|
16
|
%
|
50.01%
to 60.00%
|
|
|
17,120
|
|
|
43
|
%
|
60.01%
to 70.00%
|
|
|
12,185
|
|
|
30
|
%
|
70.01%
to 80.00%
|
|
|
302
|
|
|
1
|
%
|
80.01%
+
|
|
|
-
|
|
|
0
|
%
|
Total
|
|
$
|
40,083
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
The
following table presents outstanding loans held and loans underlying post-1996
Act Farmer Mac I Guaranteed Securities and LTSPCs, post-1996 Act non-performing
assets and specific allowances for losses as of June 30, 2006 by year of
origination, geographic region and commodity/collateral type:
Farmer
Mac I Post-1996 Act Non-performing Assets and Specific Allowance
for
Losses
|
|
|
|
Distribution
of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Outstanding
|
|
Post-1996
Act
|
|
|
|
|
|
|
|
Loans,
|
|
Loans,
|
|
Non-
|
|
Non-
|
|
Specific
|
|
|
|
Guarantees
and
|
|
Guarantees
and
|
|
performing
|
|
performing
|
|
Allowance
|
|
|
|
LTSPCs
|
|
LTSPCs
(1)
|
|
Assets
(2)
|
|
Asset
Rate
|
|
for
Losses
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
Before
1996
|
|
|
12
|
%
|
$
|
562,756
|
|
$
|
3,619
|
|
|
0.64
|
%
|
$
|
-
|
|
1996
|
|
|
5
|
%
|
|
222,025
|
|
|
7,053
|
|
|
3.18
|
%
|
|
-
|
|
1997
|
|
|
6
|
%
|
|
280,529
|
|
|
3,270
|
|
|
1.17
|
%
|
|
-
|
|
1998
|
|
|
10
|
%
|
|
462,138
|
|
|
8,668
|
|
|
1.88
|
%
|
|
15
|
|
1999
|
|
|
10
|
%
|
|
481,517
|
|
|
6,946
|
|
|
1.44
|
%
|
|
-
|
|
2000
|
|
|
6
|
%
|
|
277,814
|
|
|
4,239
|
|
|
1.53
|
%
|
|
-
|
|
2001
|
|
|
9
|
%
|
|
416,876
|
|
|
4,082
|
|
|
0.98
|
%
|
|
-
|
|
2002
|
|
|
11
|
%
|
|
523,406
|
|
|
369
|
|
|
0.07
|
%
|
|
-
|
|
2003
|
|
|
11
|
%
|
|
493,231
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
2004
|
|
|
8
|
%
|
|
353,116
|
|
|
1,184
|
|
|
0.34
|
%
|
|
-
|
|
2005
|
|
|
10
|
%
|
|
450,804
|
|
|
653
|
|
|
0.14
|
%
|
|
-
|
|
2006
|
|
|
2
|
%
|
|
109,629
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
$
|
4,633,841
|
|
$
|
40,083
|
|
|
0.87
|
%
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
|
19
|
%
|
$
|
863,845
|
|
$
|
27,066
|
|
|
3.13
|
%
|
$
|
-
|
|
Southwest
|
|
|
46
|
%
|
|
2,204,629
|
|
|
5,727
|
|
|
0.26
|
%
|
|
-
|
|
Mid-North
|
|
|
16
|
%
|
|
723,383
|
|
|
2,168
|
|
|
0.30
|
%
|
|
15
|
|
Mid-South
|
|
|
7
|
%
|
|
307,183
|
|
|
2,315
|
|
|
0.75
|
%
|
|
-
|
|
Northeast
|
|
|
7
|
%
|
|
319,752
|
|
|
1,354
|
|
|
0.42
|
%
|
|
-
|
|
Southeast
|
|
|
5
|
%
|
|
215,049
|
|
|
1,453
|
|
|
0.68
|
%
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
$
|
4,633,841
|
|
$
|
40,083
|
|
|
0.87
|
%
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
41
|
%
|
$
|
1,894,824
|
|
$
|
16,978
|
|
|
0.90
|
%
|
$
|
-
|
|
Permanent
plantings
|
|
|
27
|
%
|
|
1,208,917
|
|
|
18,531
|
|
|
1.53
|
%
|
|
15
|
|
Livestock
|
|
|
24
|
%
|
|
1,113,776
|
|
|
3,564
|
|
|
0.32
|
%
|
|
-
|
|
Part-time
farm/rural housing
|
|
|
6
|
%
|
|
294,356
|
|
|
1,010
|
|
|
0.34
|
%
|
|
-
|
|
Ag
storage and processing
|
|
|
2
|
%
|
|
100,127
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
Other
|
|
|
0
|
%
|
|
21,841
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
$
|
4,633,841
|
|
$
|
40,083
|
|
|
0.87
|
%
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 credit losses and current
specific allowances relative to the cumulative original balance for all
loans
purchased and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities
and LTSPCs as of June 30, 2006. The purpose of this table is to present
information regarding losses and collateral deficiencies relative to original
guarantees and commitments.
Farmer
Mac I Post-1996 Act Credit Losses and Specific Allowance for
Losses
|
|
Relative
to all Cumulative Original Loans, Guarantees and
LTSPCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
Current
|
|
Combined
|
|
|
|
Original
Loans,
|
|
|
|
Cumulative
|
|
Cumulative
|
|
Specific
|
|
Credit
Loss
|
|
|
|
Guarantees
|
|
|
|
Net
Credit
|
|
Loss
|
|
Allowance
|
|
and
Specific
|
|
|
|
and
LTSPCs (1)
|
|
|
|
Losses
|
|
Rate
|
|
for
Losses
|
|
Allowance
Rate
|
|
|
|
(dollars
in thousands)
|
|
By
year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
1996
|
|
$
|
2,746,062
|
|
|
|
|
$
|
381
|
|
|
0.01
|
%
|
$
|
-
|
|
|
0.01
|
%
|
1996
|
|
|
647,049
|
|
|
|
|
|
1,503
|
|
|
0.23
|
%
|
|
-
|
|
|
0.23
|
%
|
1997
|
|
|
742,814
|
|
|
|
|
|
2,513
|
|
|
0.34
|
%
|
|
-
|
|
|
0.34
|
%
|
1998
|
|
|
1,107,868
|
|
|
|
|
|
3,895
|
|
|
0.35
|
%
|
|
15
|
|
|
0.35
|
%
|
1999
|
|
|
1,116,350
|
|
|
|
|
|
1,323
|
|
|
0.12
|
%
|
|
-
|
|
|
0.12
|
%
|
2000
|
|
|
716,717
|
|
|
|
|
|
2,283
|
|
|
0.32
|
%
|
|
-
|
|
|
0.32
|
%
|
2001
|
|
|
937,171
|
|
|
|
|
|
651
|
|
|
0.07
|
%
|
|
-
|
|
|
0.07
|
%
|
2002
|
|
|
944,660
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
2003
|
|
|
748,274
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
2004
|
|
|
458,595
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
2005
|
|
|
531,550
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
2006
|
|
|
149,327
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,846,437
|
|
|
|
|
$
|
12,549
|
|
|
0.12
|
%
|
$
|
15
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
geographic region (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
|
|
$
|
2,195,071
|
|
|
|
|
$
|
7,244
|
|
|
0.33
|
%
|
$
|
-
|
|
|
0.33
|
%
|
Southwest
|
|
|
4,803,870
|
|
|
|
|
|
4,732
|
|
|
0.10
|
%
|
|
-
|
|
|
0.10
|
%
|
Mid-North
|
|
|
1,513,283
|
|
|
|
|
|
18
|
|
|
0.00
|
%
|
|
15
|
|
|
0.00
|
%
|
Mid-South
|
|
|
629,756
|
|
|
|
|
|
336
|
|
|
0.05
|
%
|
|
-
|
|
|
0.05
|
%
|
Northeast
|
|
|
856,859
|
|
|
|
|
|
1
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
Southeast
|
|
|
847,598
|
|
|
|
|
|
218
|
|
|
0.03
|
%
|
|
-
|
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,846,437
|
|
|
|
|
$
|
12,549
|
|
|
0.12
|
%
|
$
|
15
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
commodity/collateral type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
$
|
4,440,433
|
|
|
|
|
$
|
(19
|
)
|
|
0.00
|
%
|
$
|
-
|
|
|
0.00
|
%
|
Permanent
plantings
|
|
|
2,754,559
|
|
|
|
|
|
9,653
|
|
|
0.35
|
%
|
|
15
|
|
|
0.35
|
%
|
Livestock
|
|
|
2,598,381
|
|
|
|
|
|
2,709
|
|
|
0.10
|
%
|
|
-
|
|
|
0.10
|
%
|
Part-time
farm/rural housing
|
|
|
775,146
|
|
|
|
|
|
206
|
|
|
0.03
|
%
|
|
-
|
|
|
0.03
|
%
|
Ag
storage and processing
|
|
|
179,273
|
|
|
(3
|
)
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
Other
|
|
|
98,645
|
|
|
|
|
|
-
|
|
|
0.00
|
%
|
|
-
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,846,437
|
|
|
|
|
$
|
12,549
|
|
|
0.12
|
%
|
$
|
15
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Excludes loans underlying AgVantage securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Geographic regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA,
WY);
Southwest (AZ, CA, CO,
|
HI,
NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI); Mid-South
(KS, OK,
TX);
|
|
|
|
Northeast
(CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY, OH, PA, RI, TN, VA, VT,
WV);
|
|
|
|
and
Southeast (AL, AR, FL, GA, LA, MS, SC).
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
Several of the loans underlying agricultural storage and processing
LTSPCs
are for facilities under
|
construction,
and as of June 30, 2006, approximately $53.9 million of the loans
were not
yet
|
|
|
|
disbursed
by the lender.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Farmer
Mac has sufficient liquidity and capital resources to support its operations
for
the next twelve months and has a contingency funding plan to handle
unanticipated disruptions in its access to the capital markets.
Debt
Issuance. Section 8.6(e) of Farmer Mac’s statutory charter (12
U.S.C. § 2279aa‑6(e)) authorizes Farmer Mac to issue debt obligations to
purchase eligible mortgage loans and Farmer Mac Guaranteed Securities and to
maintain reasonable available cash and cash equivalents for business operations,
including adequate liquidity. Farmer Mac funds its purchases of program
(loans and Farmer Mac Guaranteed Securities), mission-related and non-program
assets primarily by issuing debt obligations of various maturities in the public
capital markets. Farmer Mac’s debt obligations consist of discount notes
and medium-term notes, including floating rate notes. Farmer Mac also
issues discount notes and medium-term notes to obtain funds to finance its
investments, transaction costs, guarantee payments and LTSPC purchase
obligations.
The interest and principal
on Farmer Mac’s debt are not guaranteed by and do not constitute debts or
obligations of FCA or the United States or any agency or instrumentality of
the
United States other than Farmer Mac. Farmer Mac is an
institution of the FCS, but is not liable for any debt or
obligation of any other institution of the FCS. Likewise, neither the FCS
nor any other individual institution of the FCS is liable for any debt or
obligation of Farmer Mac. Income to the purchaser of a Farmer Mac discount
note or medium-term note is not exempt under federal law from federal, state
or
local taxation. The Corporation’s discount notes and medium-term notes are
not currently rated by a nationally recognized statistical rating
organization.
Farmer
Mac’s board of directors has authorized the issuance of up to $5.0 billion of
discount notes and medium-term notes (of which $4.2 billion was outstanding
as
of June 30, 2006), subject to periodic review of the adequacy of that level
relative to Farmer Mac’s borrowing requirements. Farmer Mac invests the
proceeds of such issuances in loans, Farmer Mac Guaranteed Securities,
mission-related assets and non-program investment assets in accordance with
policies established by its board of directors.
Liquidity.
The funding and liquidity needs of Farmer Mac’s business programs are driven by
the purchase and retention of eligible loans, Farmer Mac Guaranteed Securities
and mission-related assets; the maturities of Farmer Mac’s discount notes and
medium-term notes; and payment of principal and interest on Farmer Mac
Guaranteed Securities. Farmer Mac’s primary sources of funds to meet these
needs are:
·
principal and interest payments and ongoing guarantee and commitment fees
received on loans, Farmer Mac Guaranteed Securities, LTSPCs and
mission-related
assets;
·
principal and interest payments received from investment securities; and
·
the issuance of new discount notes and medium-term notes.
As
a result of Farmer Mac’s regular issuance of discount notes and medium-term
notes and its status as a federally chartered instrumentality of the United
States, Farmer Mac has been
able to access the capital markets at favorable rates. Farmer Mac has
also used floating-to-fixed interest rate swaps, combined with discount note
issuances, as a source of fixed-rate funding. While the swap market may
provide favorable fixed rates, swap transactions expose Farmer Mac to the
risk
of future widening of its own issuance spreads versus corresponding LIBOR
rates. If the spreads on the Farmer Mac discount notes were to increase
relative to LIBOR, Farmer Mac would be exposed to a commensurate reduction
on
its net interest yield on the notional amount of its floating-to-fixed interest
rate swaps and other LIBOR-based floating rate assets.
Farmer
Mac
maintains cash and liquidity investments in cash equivalents (including
commercial paper and other short-term money market instruments) and liquid
investment securities that can be drawn upon for liquidity needs. As of
June 30, 2006, Farmer Mac’s cash and cash equivalents and liquidity investment
securities were $349.0 million and $1.5 billion, respectively. In
addition, as of June 30, 2006, Farmer Mac held: (1) $500.0 million of
mission-related non‑program investment securities issued by the National Rural
Utilities Cooperative Finance Corporation; and (2) $830.1 million of Farmer
Mac
II Guaranteed Securities backed by USDA-guaranteed portions that carry the
full
faith and credit of the U.S. government. Both types of assets could be
drawn upon as an additional source of liquidity. As of June 30, 2006,
the aggregate of the Farmer Mac II Guaranteed Securities, mission-related
non-program investments, cash and liquidity investments represented
86 percent of Farmer Mac’s total liabilities. Farmer Mac has a policy
of maintaining a minimum of 60 days of liquidity and a target of 90 days of
liquidity. For second quarter 2006, Farmer Mac maintained an average of
greater than 90 days of liquidity.
Capital.
During second quarter 2006, Farmer Mac repurchased 282,500 shares of its
Class C Non-Voting Common Stock at an average price of $26.55 per share
pursuant to the Corporation’s previously announced stock repurchase
program. These repurchases reduced the Corporation’s capital by
approximately $7.5 million. During the six months ended June 30,
2006, Farmer Mac repurchased 321,450 shares of its Class C Non-Voting Common
Stock at an average price of $26.70, which reduced the Corporation’s capital by
approximately $8.6 million. All of the repurchased shares were
purchased in open market transactions and were retired to become authorized
but
unissued shares available for future issuance.
Regulatory
Matters
On
September 30,
2005, the final regulation relating to Farmer Mac’s investments and liquidity
became effective. FCA included several of the revisions to the proposed
regulation suggested by Farmer Mac in comments to the proposal and Farmer
Mac
expects to be able to comply with the regulation in accordance with the
timeframes established in the regulation. Farmer Mac is required to comply
with the liquidity provisions of the regulation by September 30,
2007.
In
the November 17, 2005 issue of the Federal Register, FCA published for public
comment a proposed rule that would revise certain FCA regulations governing
the
risk-based capital stress test applicable to Farmer Mac. The public
comment period for that proposed rule closed May 17, 2006. Farmer Mac has
provided written comments on the proposed rule to FCA. FCA’s announcement
of the proposed rule stated that it “is designed to update Farmer Mac’s
risk-based capital stress test to reflect the evolution of the Corporation’s
loan portfolio and the
practices of other leading financial institutions.” The FCA Board is
currently scheduled to consider a final rule for the Farmer Mac risk-based
capital stress test in November 2006.
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. Farmer Mac believes
that, under current economic conditions and the state of the Corporation’s
portfolio, the proposed risk-based capital rule, if adopted in its proposed
form, would increase the Corporation’s risk-based capital requirement from its
current level ($67.7 million) to a higher level. As of June 30,
2005, Farmer Mac’s regulatory capital, which must be maintained at a level
greater than risk-based capital, was $254.3 million. FCA has estimated
that, had the proposed rule been effective on June 30, 2005, the risk-based
capital requirement as of that date would have been $123.5 million,
compared to the $49.6 million risk-based capital requirement under the
existing
risk-based capital stress test. FCA has not provided Farmer Mac with an
estimate of what the risk-based capital requirement under the proposed
rule
would have been as of June 30, 2006 and, as of the date of this filing,
Farmer
Mac does not have adequate information to project that requirement with
certainty. Farmer Mac believes, however, that as of June 30, 2006, the
risk-based capital requirement under the proposed rule would have been
significantly higher than $123.5 million (possibly in excess of the
$158.5 million statutory minimum capital requirement), based upon its net
increase in program business volume and changes in the interest rate environment
since June 30, 2005. During the period from June 30, 2005 through
June 30, 2006, Farmer Mac increased its net program business volume by
$854.6
million, including a $500.0 million AgVantage transaction in January
2006. AgVantage transactions have minimal effect in the determination of
the risk-based capital requirement under the existing rule, and Farmer
Mac
expects no change if the proposed rule becomes effective in its current
form. Looking ahead, if the proposed rule becomes effective in its current
form, the volume and product mix of Farmer Mac’s future growth could be
constrained.
Other
Matters
Since fourth quarter
2004,
Farmer Mac has paid quarterly dividends of $0.10 per share on each of the
Corporation’s three classes of common stock – Class A Voting Common Stock,
Class B Voting Common Stock, and Class C Non-Voting Common
Stock. Each dividend was paid on the last business day of each quarter to
holders of record as of the 15th day of the month in which the
dividend was paid. On August 2, 2006, Farmer Mac’s board of directors
declared a quarterly dividend of $0.10 per share on the Corporation’s three
classes of common stock payable on September 29, 2006 to holders of record
as of September 15, 2006. Farmer Mac expects to continue to pay
comparable quarterly cash dividends for the foreseeable future, subject
to the
outlook and indicated capital needs of the Corporation and the determination
of
the board of directors. Farmer Mac’s ability to declare and pay dividends
could be restricted if it were to fail to comply with the applicable regulatory
capital requirements. See “Business—Government Regulation of Farmer
Mac—Regulation—Capital Standards—Enforcement levels” in Farmer Mac’s Annual
Report on Form 10‑K for the fiscal year ended December 31, 2005, as filed
with the SEC on March 16, 2006. Farmer Mac’s ability to pay dividends on
its common stock is also subject to the payment of dividends on its outstanding
preferred stock.
On
November 11, 2005, Farmer Mac established a program to repurchase up to
10 percent, or 958,632 shares, of the Corporation’s outstanding Class C
Non-Voting Common
Stock. The authority for this stock repurchase program expires in
November 2007. During second quarter 2006, Farmer Mac repurchased 282,500
shares of its Class C Non-Voting Common Stock under the repurchase program
at an average price of $26.55 per share.
The
following tables present quarterly and annual information regarding
loan
purchases, guarantees and LTSPCs and outstanding guarantees and LTSPCs.
Farmer
Mac Purchases, Guarantees and LTSPCs
|
|
|
|
|
|
Farmer
Mac I
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
LTSPCs
|
|
|
|
Farmer
Mac II
|
|
Total
|
|
|
|
|
|
(in
thousands)
|
|
For
the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006
|
|
|
|
|
$
|
26,114
|
|
$
|
570,595
|
|
|
(1
|
)
|
$
|
61,204
|
|
$
|
657,913
|
|
March
31, 2006
|
|
|
|
|
|
530,260
|
|
|
73,155
|
|
|
(2
|
)
|
|
45,127
|
|
|
648,542
|
|
December
31, 2005
|
|
|
|
|
|
31,313
|
|
|
239,957
|
|
|
|
|
|
59,230
|
|
|
330,500
|
|
September
30, 2005
|
|
|
|
|
|
39,821
|
|
|
91,783
|
|
|
|
|
|
52,181
|
|
|
183,785
|
|
June
30, 2005
|
|
|
|
|
|
20,382
|
|
|
96,419
|
|
|
|
|
|
45,123
|
|
|
161,924
|
|
March
31, 2005
|
|
|
|
|
|
18,540
|
|
|
33,282
|
|
|
|
|
|
43,634
|
|
|
95,456
|
|
December
31, 2004
|
|
|
|
|
|
28,211
|
|
|
34,091
|
|
|
|
|
|
55,122
|
|
|
117,424
|
|
September
30, 2004
|
|
|
|
|
|
23,229
|
|
|
84,097
|
|
|
|
|
|
49,798
|
|
|
157,124
|
|
June
30, 2004
|
|
|
|
|
|
27,520
|
|
|
127,098
|
|
|
|
|
|
34,671
|
|
|
189,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
|
|
|
110,056
|
|
|
461,441
|
|
|
(3 |
) |
|
200,168
|
|
|
771,665
|
|
December
31, 2004
|
|
|
|
|
|
104,404
|
|
|
392,559
|
|
|
|
|
|
174,074
|
|
|
671,037
|
|
|
|
(1)
|
$29.5
million of the LTSPCs during second quarter were for agricultural
storage
and processing facilities. Several of the loans underlying those
LTSPCs
are for facilities under construction, and as of June 30, 2006,
approximately $12.0 million of the loans were not yet disbursed
by the
lender.
|
(2)
|
$28.5
million of the LTSPCs during first quarter were for agricultural
storage
and processing facilities. Several of the loans underlying those
LTSPCs
are for facilities under construction, and as of June 30, 2006,
approximately $21.7 million of the loans were not yet disbursed
by the
lender.
|
(3)
|
$104.8
million of the LTSPCs during 2005 were for agricultural storage
and
processing facilities. Several of the loans underlying those LTSPCs
are
for facilities under construction, and as of June 30, 2006, approximately
$20.2 million of the loans were not yet disbursed by the lender.
|
|
|
Guarantees
and LTSPCs
|
|
|
|
Farmer
Mac I
|
|
|
|
|
|
|
|
Post-1996
Act
|
|
|
|
|
|
|
|
|
|
Loans
and
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
LTSPCs
|
|
Pre-1996
Act
|
|
Farmer
Mac II
|
|
Total
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2006 (1)
|
|
$
|
3,015,653
|
|
$
|
2,149,677
|
|
$
|
9,922
|
|
$
|
863,778
|
|
$
|
6,039,030
|
|
March
31, 2006
|
|
|
2,509,306
|
|
|
2,243,259
|
|
|
11,337
|
|
|
842,363
|
|
|
5,606,265
|
|
December
31, 2005
|
|
|
2,094,411
|
|
|
2,329,798
|
|
|
13,046
|
|
|
835,732
|
|
|
5,272,987
|
|
September
30, 2005
|
|
|
2,116,680
|
|
|
2,183,058
|
|
|
14,209
|
|
|
810,686
|
|
|
5,124,633
|
|
June
30, 2005
|
|
|
2,199,508
|
|
|
2,181,896
|
|
|
16,333
|
|
|
786,671
|
|
|
5,184,408
|
|
March
31, 2005
|
|
|
2,243,357
|
|
|
2,209,792
|
|
|
17,236
|
|
|
777,465
|
|
|
5,247,850
|
|
December
31, 2004
|
|
|
2,367,460
|
|
|
2,295,103
|
|
|
18,639
|
|
|
768,542
|
|
|
5,449,744
|
|
September
30, 2004
|
|
|
2,398,854
|
|
|
2,381,006
|
|
|
18,909
|
|
|
742,474
|
|
|
5,541,243
|
|
June
30, 2004
|
|
|
2,511,302
|
|
|
2,390,779
|
|
|
22,155
|
|
|
715,750
|
|
|
5,639,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
Loans
and Guaranteed Securities and LTSPCs amounts reflect the conversion of $550.1
million of existing LTSPCs to Farmer Mac I Guaranteed
Securities
during second
quarter 2006 at the request of a program participant.
Outstanding
Balance of Loans Held and Loans Underlying
|
|
On-Balance
Sheet Farmer Mac Guaranteed Securities
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Fixed
Rate
|
|
5-to-10-Year
|
|
1-Month-to-3-Year
|
|
Held
in
|
|
|
|
(10-yr.
wtd. avg. term)
|
|
ARMs
& Resets
|
|
ARMs
|
|
Portfolio
|
|
|
|
(in
thousands)
|
|
As
of:
|
|
|
|
|
|
|
|
|
|
June
30, 2006
|
|
$
|
885,875
|
|
$
|
749,289
|
|
$
|
441,063
|
|
$
|
2,076,227
|
|
March
31, 2006
|
|
|
871,054
|
|
|
729,992
|
|
|
464,032
|
|
|
2,065,078
|
|
December
31, 2005
|
|
|
866,362
|
|
|
752,885
|
|
|
479,649
|
|
|
2,098,896
|
|
September
30, 2005
|
|
|
840,330
|
|
|
785,387
|
|
|
477,345
|
|
|
2,103,062
|
|
June
30, 2005
|
|
|
838,872
|
|
|
803,377
|
|
|
488,555
|
|
|
2,130,804
|
|
March
31, 2005
|
|
|
828,985
|
|
|
822,275
|
|
|
492,358
|
|
|
2,143,618
|
|
December
31, 2004
|
|
|
763,210
|
|
|
923,520
|
|
|
533,686
|
|
|
2,220,416
|
|
September
30, 2004
|
|
|
753,205
|
|
|
929,641
|
|
|
520,246
|
|
|
2,203,092
|
|
June
30, 2004
|
|
|
782,854
|
|
|
978,531
|
|
|
529,654
|
|
|
2,291,039
|
|
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—Quantitative and Qualitative
Disclosures About Market Risk Management—Interest Rate Risk” for more
information about Farmer Mac’s exposure to interest rate risk and strategies to
manage such risk. For information regarding Farmer Mac’s use of and
accounting policies for financial derivatives, see Note 1(c) to the interim
unaudited condensed consolidated financial statements contained in this
report. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources” for further
information regarding Farmer Mac’s debt issuance and liquidity risks.
Item
4. Controls and Procedures
Evaluation of Disclosure
Controls and Procedures. Farmer Mac maintains disclosure controls and
procedures designed to ensure that information required to be disclosed in
the
Corporation’s periodic filings under the Securities Exchange Act of 1934 (the
“Exchange Act”), including this report, is recorded, processed, summarized and
reported on a timely basis. These disclosure controls and procedures
include controls and procedures designed to ensure that information required
to
be disclosed under the Exchange Act is accumulated and communicated to the
Corporation’s management on a timely basis to allow decisions regarding required
disclosure. Management, including Farmer Mac’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of the Corporation’s disclosure controls and procedures (as defined
under Rules 13a-15(e) and 15d‑15(e) of the Exchange Act) as of
June
30, 2006. Based upon that
evaluation, they have concluded that the Corporation’s disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report.
Changes in Internal
Control Over Financial Reporting. There was no change in Farmer Mac’s
internal control over financial reporting during the quarter ended June 30,
2006
that has materially affected, or is reasonably likely to materially affect,
Farmer Mac’s internal control over financial reporting.
PART II - OTHER
INFORMATION
Item
1. Legal Proceedings
Farmer Mac is not a party to any
material
pending legal proceedings.
Item 1A. Risk
Factors
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, 2005.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
(a)
Farmer Mac is
a federally chartered instrumentality of the United States and its
Common Stock is exempt from registration pursuant to Section 3(a)(2) of the
Securities Act of 1933.
On April 4, 2006, pursuant to Farmer
Mac’s policy that permits directors of Farmer Mac to elect to receive shares
of
Class C Non-Voting Common Stock in lieu of their annual cash retainers,
Farmer
Mac issued an aggregate of 503 shares of its Class C Non-Voting Common
Stock, at
an issue price of $29.42 per share, to the eight directors who elected
to
receive such stock in lieu of their cash retainers.
During second quarter 2006, Farmer
Mac
granted options under its 1997 Stock Option Plan to purchase an aggregate
of
358,928 shares of Class C Non-Voting Common Stock to directors, officers
and
employees. 356,928 of the options were granted on June 1, 2006 and
have an exercise price of $26.36 per share; and 2,000 of the options
were
granted on June 19, 2006 and have an exercise price of $26.10 per share.
(b)
Not applicable.
(c)
As shown in
the table below, Farmer Mac repurchased 282,500 shares of its
Class C Non-Voting Common Stock during second quarter 2006 at an average
price of $26.55 per share. All of the repurchased shares were purchased in
open market transactions and were retired to become authorized but unissued
shares available for future issuance.
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
|
|
|
|
|
|
|
Class
C Shares
|
|
Maximum
Number
|
|
|
|
Total
Number
|
|
Average
|
|
Purchased
as Part
|
|
of
Class C Shares
|
|
|
|
of
Class C
|
|
Price
Paid
|
|
of
Publicly
|
|
that
May Yet Be
|
|
|
|
Shares
|
|
per
Class
|
|
Announced
|
|
Purchased
Under
|
|
Period
|
|
Purchased
|
|
C
Share
|
|
Program*
|
|
the
Program
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2006 - April 30, 2006
|
|
|
30,500
|
|
$
|
27.69
|
|
|
30,500
|
|
|
845,232
|
|
May
1, 2006 - May 31, 2006
|
|
|
45,100
|
|
$
|
26.38
|
|
|
45,100
|
|
|
800,132
|
|
June
1, 2006 - June 30, 2006
|
|
|
206,900
|
|
$
|
26.42
|
|
|
206,900
|
|
|
593,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
282,500
|
|
$
|
26.55
|
|
|
282,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* On
November 17, 2005, Farmer Mac
publicly announced that its board of directors had authorized a program to
repurchase up to
10 percent
of the Corporation’s outstanding Class C
Non-Voting Common Stock (958,632 shares). The authority for this
stock repurchase
program
expires in November 2007.
Item
3. Defaults Upon Senior Securities
(a)
Not applicable.
(b)
Not applicable.
Item
4. Submission of Matters to a Vote of Security
Holders
(a)
Farmer Mac’s Annual Meeting of Stockholders was held on June 1, 2006.
(b)
See paragraph (c)(1) below. In addition to the Directors elected at the
Annual Meeting of Stockholders on June 1, 2006, the following Directors
appointed by the President of the United States continue to serve as Directors
of Farmer Mac:
Fred L. Dailey (Chairman)
Julia Bartling
Grace T. Daniel
Lowell L. Junkins
Glen O. Klippenstein
(c) |
(1)Election
of Directors:
|
Class
A Nominees
Number
of
Shares
For Withheld
Dennis
L.
Brack
716,723
72,495
Dennis
A.
Everson 784,418
4,800
Mitchell
A. Johnson 725,740 63,478
Timothy
F. Kenny
786,518 2,700
Charles
E. Kruse
786,318 2,900
Class
B Nominees
Number
of
Shares
For Withheld
Ralph
“Buddy” Cortese 391,678 100,573
Paul
A.
DeBriyn 391,778 100,473
Ernest
M.
Hodges
492,051 200
John
G.
Nelson, III
391,778 100,473
John
Dan
Raines 391,678 100,573
(2) |
Selection
of Independent Registered Public Accounting
Firm
|
(Deloitte
& Touche LLP):
Class
A Stockholders
Number
of Shares
For 787,368
Against
1,250
Abstain
600
Class
B Stockholders
Number
of Shares
For 492,151
Against
100
Abstain
0
Item
5. Other Information
(a)
None.
(b)
Not applicable.
Item
6. Exhibits
*
3.1
- Title VIII of the Farm Credit Act of
1971, as most recently amended by the Farm Credit System Reform Act of 1996,
P.L. 104-105 (Form 10-K filed March 29, 1996).
*
3.2
- Amended and restated By-Laws of the
Registrant (Form 10-Q filed August 9, 2004).
*
4.1
- Specimen Certificate for Farmer Mac
Class A Voting Common Stock (Form 10-Q filed May 15, 2003).
*
4.2
- Specimen Certificate for Farmer Mac
Class B Voting Common Stock (Form 10-Q filed May 15, 2003).
*
4.3
- Specimen Certificate for Farmer Mac
Class C Non-Voting Common Stock (Form 10-Q filed May 15, 2003).
*
4.4
- Certificate of Designation of Terms
and Conditions of Farmer Mac 6.40% Cumulative Preferred Stock, Series A
(Form 10-Q filed May 15, 2003).
*
4.5.2 - Supplemental
Agreement for 4.25% Fixed Rate Global Notes Due July 29, 2008 (Previously
filed as Exhibit 4.4 to Form 8-A filed August 4, 2005).
†*
10.1 - Stock
Option Plan (Previously filed as Exhibit 19.1 to Form 10-Q filed August 14,
1992).
†*
10.1.1 - Amendment No. 1 to
Stock Option Plan (Previously filed as Exhibit 10.2 to Form 10-Q filed
August 16, 1993).
†*
10.1.2 - 1996 Stock Option Plan
(Form 10-Q filed August 14, 1996).
†*
10.1.3 - Amended and Restated
1997 Incentive Plan (Form 10-Q filed November 14, 2003).
†*
10.1.4 - Form of stock option
award agreement under 1997 Incentive Plan (Form 10‑K filed March 16,
2005).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
†*
10.2 -
Employment Agreement dated May 5, 1989 between Henry D. Edelman and the
Registrant (Previously filed as Exhibit 10.4 to Form 10-K filed
February 14, 1990).
†*
10.2.1 - Amendment No. 1 dated
as of January 10, 1991 to Employment Contract between Henry D. Edelman
and the
Registrant (Previously filed as Exhibit 10.4 to Form 10-K filed April 1,
1991).
†*
10.2.2 - Amendment to Employment
Contract dated as of June 1, 1993 between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993).
†*
10.2.3 - Amendment No. 3 dated
as of June 1, 1994 to Employment Contract between Henry D. Edelman and
the
Registrant (Previously filed as Exhibit 10.6 to Form 10-Q filed August 15,
1994).
†*
10.2.4 - Amendment No. 4 dated
as of February 8, 1996 to Employment Contract between Henry D. Edelman
and the
Registrant (Form 10-K filed March 29, 1996).
†*
10.2.5 - Amendment No. 5 dated
as of June 13, 1996 to Employment Contract between Henry D. Edelman and
the
Registrant (Form 10-Q filed August 14, 1996).
†*
10.2.6 - Amendment No. 6 dated
as of August 7, 1997 to Employment Contract between Henry D. Edelman and
the
Registrant (Form 10-Q filed November 14, 1997).
†*
10.2.7 - Amendment No. 7 dated
as of June 4, 1998 to Employment Contract between Henry D. Edelman and
the
Registrant (Form 10-Q filed August 14, 1998).
†*
10.2.8 - Amendment No. 8 dated
as of June 3, 1999 to Employment Contract between Henry D. Edelman and
the
Registrant (Form 10-Q filed August 12, 1999).
†*
10.2.9 - Amendment No. 9 dated
as of June 1, 2000 to Employment Contract between Henry D. Edelman and
the
Registrant (Form 10-Q filed August 14, 2000).
†*
10.2.10 - Amendment No. 10 dated as of June
7, 2001 to Employment Contract between Henry D. Edelman and the Registrant
(Form
10-Q filed August 14, 2001).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
†*
10.2.11 - Amendment No. 11 dated as of June
6, 2002 to Employment Contract between Henry D. Edelman and the Registrant
(Form
10-Q filed August 14, 2002).
†*
10.2.12 - Amendment No. 12 dated as of June
5, 2003 to Employment Contract between Henry D. Edelman and the Registrant
(Form 10-Q filed August 14, 2003).
†*
10.2.13 - Amendment No. 13 dated as of
August 3, 2004 to Employment Contract between Henry D. Edelman and the
Registrant (Form 10-Q filed November 9, 2004).
†*
10.2.14 - Amendment No. 14 dated as of
June 16, 2005 to Employment Contract between Henry D. Edelman and the
Registrant (Form 10-Q filed August 9, 2005).
†**
10.2.15 - Amendment No. 15 dated as of
June 1, 2006 to Employment Contract between Henry D. Edelman and the
Registrant.
†*
10.3 -
Employment Agreement dated May 11, 1989 between Nancy E. Corsiglia and the
Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed
February 14, 1990).
†*
10.3.1 - Amendment dated
December 14, 1989 to Employment Agreement between
Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit
10.5 to Form 10-K filed February 14, 1990).
†*
10.3.2 - Amendment No. 2 dated
February 14, 1991 to Employment Agreement between Nancy E. Corsiglia and
the
Registrant (Previously filed as Exhibit 10.7 to Form 10-K filed April 1,
1991).
†*
10.3.3 - Amendment to Employment
Contract dated as of June 1, 1993 between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993).
†*
10.3.4 - Amendment No. 4 dated
June 1, 1993 to Employment Contract between Nancy E. Corsiglia and the
Registrant (Previously filed as Exhibit 10.10 to Form 10-K filed March
31,
1994).
†*
10.3.5 - Amendment No. 5 dated
as of June 1, 1994 to Employment Contract between Nancy E. Corsiglia and
the
Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed August 15,
1994).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
†*
10.3.6 - Amendment No. 6 dated
as of June 1, 1995 to Employment Contract between Nancy E. Corsiglia
and the
Registrant (Form 10-Q filed August 14, 1995).
†*
10.3.7 - Amendment No. 7 dated
as of February 8, 1996 to Employment Contract between Nancy E. Corsiglia
and the
Registrant (Form 10-K filed March 29, 1996).
†*
10.3.8
- Amendment No. 8 dated as of June 13,
1996 to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form
10-Q filed August 14, 1996).
†*
10.3.9
- Amendment No. 9 dated as of August
7, 1997 to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q filed November 14, 1997).
†*
10.3.10
- Amendment No. 10 dated as of June 4, 1998
to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q
filed August 14, 1998).
†*
10.3.11
- Amendment No. 11 dated as of June 3, 1999
to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q
filed August 12, 1999).
†*
10.3.12
- Amendment No. 12 dated as of June 1, 2000
to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q
filed August 14, 2000).
†*
10.3.13 - Amendment No. 13 dated as of June
7, 2001 to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q filed August 14, 2001).
†*
10.3.14 - Amendment No. 14 dated as of June
6, 2002 to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q filed August 14, 2002).
†*
10.3.15 - Amendment No. 15 dated as of June
5, 2003 to Employment Contract between Nancy E. Corsiglia and the Registrant
(Form 10-Q filed August 14, 2003).
*
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.
†*
10.3.16 - Amendment No. 16 dated as of
August 3, 2004 to Employment Contract between Nancy E. Corsiglia and the
Registrant (Form 10-Q filed November 9, 2004).
†*
10.3.17 - Amendment No. 17 dated as of
June 16, 2005 to Employment Contract between Nancy E. Corsiglia and the
Registrant (Form 10-Q filed August 9, 2005).
†**
10.3.18 - Amendment No. 18 dated as of
June 1, 2006 to Employment Contract between Nancy E. Corsiglia and the
Registrant.
†*
10.4 -
Employment Contract dated as of September 1, 1997 between Tom D. Stenson
and the
Registrant (Previously filed as Exhibit 10.8 to Form 10-Q filed November
14,
1997).
†*
10.4.1 - Amendment No. 1 dated
as of June 4, 1998 to Employment Contract between Tom D. Stenson and the
Registrant (Previously filed as Exhibit 10.8.1 to Form 10-Q filed August
14,
1998).
†*
10.4.2 - Amendment No. 2 dated
as of June 3, 1999 to Employment Contract between Tom D. Stenson and the
Registrant (Form 10-Q filed August 12, 1999).
†*
10.4.3 - Amendment No. 3 dated
as of June 1, 2000 to Employment Contract between Tom D. Stenson and the
Registrant (Form 10-Q filed August 14, 2000).
†*
10.4.4 - Amendment No. 4 dated
as of June 7, 2001 to Employment Contract between Tom D. Stenson and the
Registrant (Form 10-Q filed August 14, 2001).
†*
10.4.5 - Amendment No. 5 dated
as of June 6, 2002 to Employment Contract between Tom D. Stenson and the
Registrant (Form 10-Q filed August 14, 2002).
†*
10.4.6 - Amendment No. 6
dated as of June 5, 2003 to Employment Contract between Tom D. Stenson
and the
Registrant (Form 10-Q filed August 14, 2003).
†*
10.4.7 - Amendment No. 7
dated as of August 3, 2004 to Employment Contract between Tom D. Stenson
and the
Registrant (Form 10-Q filed November 9, 2004).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
†*
10.4.8 - Amendment No. 8
dated as of June 16, 2005 to Employment Contract between Tom D. Stenson and
the Registrant (Form 10-Q filed August 9, 2005).
†**
10.4.9 - Amendment No. 9
dated as of June 1, 2006 to Employment Contract between Tom D. Stenson and
the Registrant.
†*
10.5 -
Employment Contract dated February 1, 2000 between Jerome G. Oslick
and the
Registrant (Previously filed as Exhibit 10.6 to Form 10-Q filed May 11,
2000).
†*
10.5.1 - Amendment No. 1 dated
as of June 1, 2000 to Employment Contract between Jerome G. Oslick
and the
Registrant (Previously filed as Exhibit 10.6.1 to Form 10-Q filed
August 14, 2000).
†*
10.5.2 - Amendment No. 2 dated
as of June 7, 2001 to Employment Contract between Jerome G. Oslick
and the
Registrant (Previously filed as Exhibit 10.6.2 to Form 10-Q filed
August 14, 2001).
†*
10.5.3 - Amendment No. 3 dated
as of June 6, 2002 to Employment Contract between Jerome G. Oslick
and the
Registrant (Form 10-Q filed August 14, 2002).
†*
10.5.4 - Amendment No. 4 dated
as of June 5, 2003 to Employment Contract between Jerome G. Oslick
and the
Registrant (Form 10-Q filed August 14, 2003).
†*
10.5.5 - Amendment No. 5
dated as of June 16, 2005 to Employment Contract between Jerome G.
Oslick and
the Registrant (Form 10-Q filed August 9, 2005).
†**
10.5.6 - Amendment No. 6
dated as of June 1, 2006 to Employment Contract between Jerome G. Oslick
and the
Registrant.
†*
10.6 -
Employment Contract dated June 5, 2003 between Timothy L. Buzby and
the
Registrant (Form 10-Q filed August 14, 2003).
†*
10.6.1 - Amendment No. 1 dated
as of August 3, 2004 to Employment Contract between Timothy L. Buzby
and the
Registrant (Form 10-Q filed November 9, 2004).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
†*
10.6.2 - Amendment No. 2 dated
as of June 16, 2005 to Employment Contract between Timothy L. Buzby and the
Registrant (Form 10-Q filed August 9, 2005).
†**
10.6.3 - Amendment No. 3 dated
as of June 1, 2006 to Employment Contract between Timothy L. Buzby and the
Registrant.
*
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 - Master Central
Servicing Agreement dated as of December 17, 1996 between Zions
First National
Bank and the Registrant (Form 10-Q filed November 14, 2002).
*#
10.11.1 - Amendment No. 1 dated as of
February 26, 1997 to Master Central Servicing Agreement dated as
of December 17,
1996 between Zions First National Bank and the Registrant (Form
10-Q filed
November 14, 2002).
*#
10.11.2 - Amended and Restated Master
Central Servicing Agreement dated as of May 1, 2004 between Zions First
National Bank and the Registrant (Form 10-Q filed August 9,
2004).
*#
10.12 - Loan Closing File
Review Agreement dated as of August 2, 2005 between Zions First National
Bank and the Registrant (Form 10-Q filed November 9, 2005).
*#
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).
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
*#
10.13.1 - Amendment No. 1 dated as of
January 1, 2000 to Long Term Standby Commitment to Purchase dated as of
August 1, 1998 between AgFirst Farm Credit Bank and the Registrant (Form
10-Q filed November 14, 2002).
*
10.13.2 - Amendment No. 2 dated as of
September 1, 2002 to Long Term Standby Commitment to Purchase dated as
of August
1, 1998, as amended by Amendment No. 1 dated as of January 1, 2000, between
AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 14,
2002).
*
10.14 - Lease Agreement,
dated June 28, 2001 between EOP – Two Lafayette, L.L.C. and the Registrant
(Previously filed as Exhibit 10.10 to Form 10-K filed March 27, 2002).
†*
10.15 - Lease Agreement
dated May 26, 2005 between Zions First National Bank and the Registrant
(Previously filed as Exhibit 10.19 to Form 10-Q filed August 9,
2005).
*#
10.16 - Long Term Standby
Commitment to Purchase dated as of June 1, 2003 between Farm Credit Bank of
Texas and the Registrant (Form 10-Q filed
November 9, 2004).
*#
10.17 - Central Servicer
Delinquent Loan Servicing Transfer Agreement dated as of July 1, 2004
between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed
November 9, 2004).
†*
10.18 - Employment
Contract dated June 20, 2005 between Mary K. Waters and the Registrant
(Form 10-Q filed August 9, 2005).
†**
10.18.1 - Amendment No. 1 dated as of dated
June 1, 2006 to Employment Contract between Mary K. Waters and the
Registrant.
†**
10.19 - Description of
compensation agreement between the Registrant and its directors.
21
- Farmer Mac Mortgage Securities
Corporation, a Delaware corporation.
**
31.1 -
Certification of Chief Executive Officer relating to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, pursuant to
Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
** 31.2
- Certification of
Chief Financial Officer relating to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2006, pursuant to
*
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.
Rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**
32
- Certification of Chief Executive
Officer and Chief Financial Officer relating to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006, pursuant to 18
U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
†
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
August
9, 2006
|
By:
|
/s/ Henry D. Edelman
|
|
|
Henry
D. Edelman
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
/s/ Nancy E. Corsiglia
|
|
|
Nancy
E. Corsiglia
Vice
President - Finance
(Principal
Financial Officer)
|