<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From To
Commission File Number 1-7102
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DISTRICT OF COLUMBIA 52-0891669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
Woodland Park, 2201 Cooperative Way, Herndon, VA 22071-3025
(Address of principal executive offices)
Registrant's telephone number, including the area code (703) 709-6700
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
<PAGE> 2
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
A S S E T S
(Unaudited)
November 30, 1995 May 31, 1995
<S> <C> <C>
Cash $ 16,284 $ 26,309
Marketable Securities 29,000 30,000
Debt Service Investments 33,872 32,740
Loans To Members, net 7,240,442 6,747,124
Receivables 91,869 87,638
Fixed Assets, net 36,505 36,807
Debt Service Reserve Funds 115,651 114,094
Other Assets 7,464 6,077
Total Assets $ 7,571,087 $ 7,080,789
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
L I A B I L I T I E S A N D M E M B E R S' E Q U I T Y
(Unaudited)
November 30, 1995 May 31, 1995
<S> <C> <C>
Notes Payable, due within one year $ 2,201,620 $ 1,812,570
Accounts Payable 15,583 16,705
Accrued Interest Payable 42,594 39,343
Long-Term Debt 3,802,120 3,685,682
Other Liabilities 20,044 21,553
Commitments, Guarantees and
Contingencies
Members' Subordinated Certificates:
Membership subscription
certificates 637,130 637,129
Loan & guarantee certificates 603,975 597,586
Total Members' Subordinated
Certificates 1,241,105 1,234,715
Members' Equity 248,021 270,221
Total Members' Subordinated Certi-
ficates & Members' Equity 1,489,126 1,504,936
Total Liabilities and Members'
Equity $ 7,571,087 $ 7,080,789
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
UNAUDITED
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF INCOME, EXPENSES AND NET MARGINS
(Dollar Amounts in Thousands)
For the Quarters and Six Months Ended November 30, 1995 and 1994
Quarters Ended Six Months Ended
November 30, November 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating Income-Interest on
loans to members $124,880 $104,513 $246,928 $202,498
Less-cost of funds allocated 106,408 84,941 209,577 163,428
Gross operating margin 18,472 19,572 37,351 39,070
Expenses:
General, administrative and
loan processing 4,844 4,260 8,539 7,943
Provision for loan and
guarantee losses 2,065 1,875 5,680 3,750
Total expenses 6,909 6,135 14,219 11,693
Operating margin 11,563 13,437 23,132 27,377
Nonoperating Income 928 1,071 1,747 1,582
Net Margins $ 12,491 $ 14,508 $24,879 $28,959
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE> 5
<TABLE> (UNAUDITED)
<CAPTION> NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Quarters Ended November 30, 1995 and 1994
Patronage Capital
Allocated
Educa- Unal- General
Member- tional located Reserve
Total ships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended November 30, 1995
Balance at August 31, 1995 $237,927 $ 1,397 $ 429 $ 14,677 $ 346 $221,078
Retirement of patronage capital (2,402) - - - - (2,402)
Net Margins 12,491 - - 12,491 - -
Other 5 5 - - - -
Balance at November 30, 1995 $248,021 $ 1,402 $ 429 $ 27,168 $ 346 $218,676
Quarter Ended November 30, 1994
Balance at August 31, 1994 $241,759 $ 1,352 $ 353 $ 16,740 $ 318 $222,996
Retirement of patronage capital - - - - - -
Net Margins 14,508 - - 14,508 - -
Other 513 14 - - - 499
Balance at November 30, 1994 $256,780 $ 1,366 $ 353 $ 31,248 $ 318 $223,495
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE> 6
<TABLE> (UNAUDITED)
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Six Months Ended November 30, 1995 and 1994
Patronage Capital
Allocated Educa- Unal- General
Member- tional located Reserve
Total ships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended November 30, 1995
Balance at May 31, 1995 $270,221 $ 1,383 $ 375 $ 2,289 $ 498 $265,676
Retirement of patronage capital (48,313) - - - (152) (48,161)
Net Margins 24,879 - - 24,879 - -
Other 1,234 19 54 - - 1,161
Balance at November 30, 1995 $248,021 $ 1,402 $ 429 $ 27,168 $ 346 $218,676
Six Months Ended November 30, 1994
Balance at May 31, 1994 $260,968 $ 1,339 $ 325 $ 2,289 $ 495 $256,520
Retirement of patronage capital (33,701) - - - (177) (33,524)
Net Margins 28,959 - - 28,959 - -
Other 554 27 28 - - 499
Balance at November 30, 1994 $256,780 $ 1,366 $ 353 $ 31,248 $ 318 $223,495
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION> (UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands)
For the Six Months Ended November 30, 1995 and 1994
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Accrual basis net margins $ 24,879 $ 28,959
Add (deduct):
Provision for loan and guarantee losses 5,680 3,750
Depreciation 629 768
Amortization of deferred income (4,802) (9,231)
Amortization of bond issuance costs 680 644
Add (deduct) changes in accrual accounts:
Receivables 2,915 (3,185)
Accounts payable (1,122) (2,413)
Accrued interest payable 3,251 4,192
Other 76 6,801
Net cash flows provided by operating
activities 32,186 30,285
Cash Flows From Investing Activities:
Advances made on loans (1,918,757) (1,815,312)
Principal collected on loans 1,419,759 1,427,327
Investments in fixed assets (327) (202)
Net cash flows used in investing activities (499,325) (388,187)
Cash Flows From Financing Activities:
Notes payable, net 269,050 150,691
Marketable Securities, Net 1,000 (10,000)
Debt service (1,132) (2,014)
Proceeds from issuance of Long-Term Debt 348,346 271,762
Payments for retirement of Long-Term Debt (111,394) (34,254)
Proceeds from issuance of Members'
Subordinated Certificates 10,837 21,956
Payments for retirement of Members' Subordinated
Certificates (13,441) (3,207)
Payments for retirement of patronage
capital (46,152) (34,804)
Net cash flows provided by financing
activities 457,114 360,130
Net Cash Flows (10,025) 2,228
Beginning Cash and Cash Equivalents 26,309 22,168
Ending Cash and Cash Equivalents $ 16,284 $ 24,396
Supplemental Disclosure of Cash Flow Information:
Cash paid during six months for
Interest Expense $ 207,955 $ 160,332
The accompanying notes are an integral part of these combined financial
statements.
</TABLE>
<PAGE> 8
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
Notes to Combined Financial Statements
1. General Information
National Rural Utilities Cooperative Finance Corporation ("CFC") is a
private, not-for-profit cooperative association which provides
supplemental financing and related financial service programs for
the benefit of its members. Membership is limited to certain
cooperatives, not-for-profit corporations, public bodies and related
service organizations, as defined in CFC's Bylaws. CFC is exempt from
the payment of Federal income taxes under Section 501(c)(4) of the
Internal Revenue Code.
CFC's 1,048 members as of November 30, 1995, included 902 rural
electric utility system members ("Utility Members"), virtually all of
which are consumer-owned cooperatives, 73 service members and 73
associate members. The Utility Members included 837 distribution
systems and 65 generation and transmission systems operating in 46
states and U.S. territories. At December 31, 1993, CFC's member
systems served approximately 12.4 million consumers, representing
service to an estimated 32.5 million ultimate users of electricity and
owned approximately $62.6 billion (before depreciation of $17.9
billion) in total utility plant.
Rural Telephone Finance Cooperative ("RTFC") was incorporated as a
private cooperative association in the State of South Dakota in
September, 1987. RTFC is a controlled affiliate of CFC and was
created for the purpose of providing, securing and arranging financing
for its rural telecommunication members and affiliates. RTFC's results
of operations and financial condition have been combined with those of
CFC in the accompanying financial statements. As of November 30,
1995, RTFC had 404 members. RTFC is a taxable entity under Subchapter
T of the Internal Revenue Code and accordingly takes tax deductions
for allocations of net margins to its patrons.
Guaranty Funding Cooperative ("GFC") was incorporated as a private
cooperative association in the state of South Dakota in December 1991.
GFC is a controlled affiliate of CFC and was created for the purpose
of providing and servicing loans to its members to fund the financing
of loans guaranteed by the Rural Utilities Service ("RUS"). GFC's
results of operations and statements of financial condition have been
combined with those of CFC and RTFC in the accompanying financial
statements.Loans held by GFC were transferred to GFC by CFC and are
guaranteed by the RUS. GFC had four members other than CFC at
November 30, 1995. GFC is a taxable entity under Subchapter T of the
Internal Revenue Code and accordingly takes deductions for allocations
of net margins to its patrons.
<PAGE> 9
In the opinion of management, the accompanying unaudited combined financial
statements contain all adjustments (which consist only of normal recurring
accruals) necessary to present fairly the combined financial position of CFC,
RTFC and GFC as of November 30, 1995 and May 31, 1995, and the combined
results of operations, cash flows and changes in members' equity for the
quarters ended November 30, 1995 and 1994.
The Notes to Combined Financial Statements for the years ended May 31, 1995
and 1994 should be read in conjunction with the accompanying financial
statements. (See CFC's Form 10-K for the year ended May 31, 1995, filed on
August 29, 1995). Certain items on the May 31, 1995 Combined Balance Sheets
have been reclassified to conform with the November 30, 1995 presentation.
In May 1993, the Financial Accounting Standards Board (the "FASB") released
Statement No. 114 "Accounting by Creditors for Impairment of a Loan." The
statement requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, observable market value or, in the case of collateral dependent loans,
the fair value of the collateral. In October 1994, the FASB released Statement
No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures". The statement amends FASB Statement No. 114 by eliminating
the interest income recognition provisions and changing the disclosure
requirements. Both statements are required to be implemented in fiscal years
beginning after December 15, 1994 and will apply to loans that are, or become
impaired, based on the provisions of FASB Statement No. 114, or that have
certain restructuring agreements executed on, or after the implementation
date. CFC has implemented these statements.
Principles of Combination
The accompanying financial statements include the combined accounts of CFC,
RTFC and GFC, after elimination of all material intercompany accounts and
transactions. CFC has a $1,000 membership interest in RTFC and GFC. CFC
exercises control over RTFC and GFC through majority representation on their
Boards of Directors. CFC manages the affairs of RTFC through a long-term
management agreement. CFC services the loans for GFC for which it collects a
servicing fee. As of November 30, 1995, CFC had committed to lend RTFC up to
$2,400.0 million to fund loans to its members and their affiliates.
RTFC had outstanding loans and unadvanced loan commitments totaling $1,323.3
million and $1,215.1 million as of November 30, 1995 and May 31, 1995,
respectively. RTFC's net margins are allocated to RTFC's borrowers. Summary
financial information relating to RTFC is presented below:
<PAGE> 10
<TABLE>
<CAPTION> At November 30, At May 31,
(Dollar Amounts In Thousands) 1995 1995
<S> <C> <C>
Outstanding loans to members
and their affiliates $ 968,897 $883,463
Total assets 1,088,521 985,381
Notes payable to CFC 968,897 883,463
Total liabilities 987,500 892,717
Members' Equity and
Subordinated Certificates 101,021 92,664
</TABLE
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1995 1994
<S> <C> <C>
Operating income $ 31,842 $ 23,839
Net margins 1,380 993
</TABLE>
Summary financial information relating to GFC is presented below:
<TABLE>
<CAPTION> At November 30, At May 31,
(Dollar Amounts In Thousands) 1995 1995
<S> <C> <C>
Outstanding loans to members $ 414,873 $421,665
Total assets 432,254 442,878
Notes payable to CFC 418,914 427,875
Total liabilities 431,107 440,410
Members' Equity 1,147 2,468
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended November 30,
(Dollar Amounts In Thousands) 1995 1994
<S> <C> <C>
Operating income $ 14,637 $ 11,498
Net margins 1,081 832
</TABLE>
Unless stated otherwise, references to CFC relate to CFC, RTFC and GFC on a
combined basis.
2. Debt Service Account
A provision of the 1972 Indenture between CFC and Chemical Bank as
trustee ("1972 Indenture") requires monthly deposits into a debt
service account held by the trustee, generally in amounts equal to
one-twelfth of the total annual interest
<PAGE> 11
payments, annual sinking fund payments and the principal amount
of bonds maturing within one year. These deposits may be invested
in permitted investments, as defined in the indenture (generally bank
certificates of deposit and prime rated commercial paper).
On February 15, 1994, CFC completed a new Collateral Trust Bond
Indenture ("1994 Indenture") with First Bank National Association as
trustee. This indenture does not require the maintenance of a debt
service account. All future Collateral Trust Bonds will be issued
under the 1994 Indenture.
3. Loans Pledged as Collateral to Secure Collateral Trust Bonds
As of November 30, 1995 and May 31, 1995, mortgage notes representing
approximately $944.3 million and $789.9 million, respectively, related
to outstanding long-term loans to members, were pledged as collateral
to secure Collateral Trust Bonds. Both the 1972 Indenture and the
1994 Indenture require that CFC pledge eligible mortgage notes (or
other permitted assets) as collateral that at least equal the
outstanding balance of Collateral Trust Bonds. Under CFC's revolving
credit agreement (See Note 6), CFC cannot pledge mortgage notes in
excess of 150% of Collateral Trust Bonds outstanding.
Collateral Trust Bonds outstanding at November 30, 1995 and May 31,
1995 were $881.5 million and $682.0 million, respectively.
4. Allowance for Loan and Guarantee Losses
CFC maintains an allowance for loan and guarantee losses at a level
considered to be adequate in relation to the quality and size of its
loan and guarantee portfolio. It is CFC's policy to periodically
review its loans and guarantees and to make adjustments to the
allowance as necessary.
The allowance is based on estimates, and accordingly, actual loan and
guarantee losses may differ from the allowance amount. As of November
30, 1995 and May 31, 1995, such allowance was $211.3 million and
$205.6 million, respectively.
<PAGE> 12
Activity in the allowance account is summarized as follows for the six
months ended November 30, 1995 and the year ended May 31, 1995.
<TABLE>
<CAPTION>
November 30, May 31,
(Dollar Amounts in Thousands) 1995 1995
<S> <C> <C>
Beginning Balance $205,596 $188,196
Provision for loan and 5,680 17,400
guarantee losses
Ending Balance $211,276 $205,596
</TABLE>
5. Members' Subordinated Certificates
Members' Subordinated Certificates are subordinated obligations
purchased by members as a condition of membership and in connection
with CFC's extension of long-term loans and guarantees to them. Those
issued as a condition of membership (Subscription Capital Term
Certificates) generally mature 100 years from issuance date and bear
interest at 5% per annum. The other certificates either mature 46 to
50 years from issuance or amortize proportionately based on the
principal balance of the credit extended, and either are non-interest-
bearing or bear interest at varying rates.
The proceeds from certain non-interest-bearing subordinated
certificates issued in connection with CFC's guarantees of tax-exempt
bonds are pledged by CFC to the debt service reserve fund established
in connection with the bond issue, and any earnings from the
investment of the fund inure solely to the benefit of the member.
6. Credit Arrangements
As of November 30, 1995, CFC had two revolving credit agreements
totaling $4,100.0 million with 56 banks, including Morgan Guaranty
Trust Company of New York as Arranger, Administrative Agent, and Co-
Syndication Agent and The Bank of Nova Scotia as Co-Syndication Agent.
These credit facilities were arranged principally to provide liquidity
support for CFC's outstanding commercial paper, CFC's guaranteed
commercial paper issued by the National Cooperative Services
Corporation ("NCSC") and the adjustable or floating/fixed rate bonds
which CFC has guaranteed and agreed to purchase for the benefit of its
members.
Under the respective revolving credit agreements, CFC can borrow up
to $2,460.0 million until February 28, 2000 (the "five-year
facility"), and $1,640.0 million until February 27, 1996 (the "364-day
facility"). Any amounts outstanding will be due on those dates. In
connection with the five-year
<PAGE> 13
facility, CFC pays a per annum facility/commitment fee of .125 of 1%.
The per annum facility fee for the 364-day is .10 of 1%. If CFC's
long-term ratings decline, these fees may be increased by no more than
.1250 of 1%. Borrowings under both agreements will be at one or more
rates as defined in the agreements, as selected by CFC.
The revolving credit agreements require CFC, among other things to
maintain Members' Equity and Members' Subordinated Certificates of at
least $1,345.0 million (increased each fiscal year by 90% of net
margins not distributed to members), an average fixed charge coverage
ratio over the six most recent fiscal quarters of at least 1.025 and
prohibits the retirements of patronage capital unless CFC has achieved
a fixed charge coverage ratio of at least 1.05 for the preceding
fiscal year. The credit agreements prohibit CFC from incurring senior
debt (including guarantees but excluding indebtedness incurred to fund
RUS guaranteed loans) in an amount in excess of ten times the sum of
Members' Equity and subordinated certificates and restricts, with
certain exceptions, the creation by CFC of liens on its assets and
certain other conditions to borrowing.
The agreement also prohibits CFC from pledging collateral in excess of
150% of the principal amount of Collateral Trust Bonds outstanding.
Provided that CFC is in compliance with these financial covenants
(including that CFC has no material contingent or other liability or
material litigation that were not disclosed by or reserved against in
its most recent annual financial statements) and is not in default,
CFC may borrow under the agreements until the termination dates. As of
November 30, 1995 and May 31, 1995, CFC was in compliance with all
covenants and conditions under its revolving credit agreements and
there were no borrowings outstanding under the revolving credit
agreements.
At November 30, 1995 and May 31, 1995, CFC classified $2,460.0 million
and $2,430.0 million, respectively, of its notes payable outstanding
as long-term debt. CFC expects to maintain more than $2,460.0 million
of notes payable during the next twelve months. If necessary, CFC can
refinance such notes payable on a long-term basis by borrowing under
the five-year facility subject to the conditions herein.
7. Unadvanced Loan Commitments
As of November 30, 1995 and May 31, 1995, CFC had unadvanced loan
commitments, summarized by type of loan, as follows:
<PAGE> 14
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) November 30, 1995 May 31, 1995
<S> <C> <C>
Long-term $1,616,391 $1,325,141
Intermediate-term 205,188 186,313
Short-term 3,329,740 3,121,212
Telecommunications 354,387 331,633
Associate Member 59,804 53,483
Restructured (See Note 11(D)) 20,000 20,000
Total unadvanced loan
commitments $5,585,510 $5,037,782
</TABLE>
Unadvanced commitments include loans approved by CFC for which loan
contracts have not yet been executed and for which loan contracts have
been executed but funds have not been advanced. CFC may require additional
information to assure itself that all conditions for advance of funds have
been fully met and that there has been no material change in the member's
condition as represented in the documents supplied to CFC. Since
commitments may expire without being fully drawn upon, the total amounts
reported as commitments do not necessarily represent future cash
requirements. Collateral and security requirements for loan commitments
are identical to those for advanced loans.
8. Retirement of Patronage Capital
CFC patronage capital in the amount of $47.6 million was retired on August
31, 1995, representing one-sixth of the total allocations for fiscal years
1988, 1989 and 1990 and 70% of the allocation for fiscal year 1995.
During the second quarter GFC retired patronage capital in the amount of
$2.4 million. RTFC will retire 70% of their FY 1995 allocation by January
31, 1996. Future retirements of patronage capital allocated to patrons
may be made annually as determined by CFC's Board of Directors with due
regard for CFC's financial condition.
9. Guarantees
As of November 30, 1995 and May 31, 1995, CFC had guaranteed the following
contractual obligations of its members:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) November 30, 1995 May 31, 1995
<S> <C> <C>
Long-term tax-exempt bonds (A) $1,472,265 $1,496,930
Debt portions of leveraged lease
transactions (B) 559,718 568,662
Indemnifications of tax benefit
transfers (C) 378,016 389,755
Other guarantees (D) 137,714 119,575
Total guarantees $2,547,713 $2,574,922
</TABLE>
<PAGE> 15
(A) CFC has unconditionally guaranteed to the holders or to trustees for the
benefit of holders of these bonds the full principal, premium (if any) and
interest payments on each bond when due. In the event of default, the
bonds cannot be accelerated as long as CFC makes the scheduled debt
service payments. In addition, CFC has agreed to make up, at certain
times, deficiencies in the debt service reserve funds for some of these
issues of bonds. Of the amounts shown, $1,179.8 million and $1,200.1
million as of November 30, 1995 and May 31, 1995, respectively, are
adjustable or floating/fixed rate bonds. The interest rate on such bonds
may be converted to a fixed rate as specified in the indenture for each
bond offering. During the variable rate period (including at the time of
conversion to a fixed rate), CFC has unconditionally agreed to purchase
bonds tendered or called for redemption if such bonds are not sold to
other purchasers by the remarketing agents.
(B) CFC has unconditionally guaranteed the repayment of debt raised by
National Cooperative Services Corporation ("NCSC") for leveraged lease
transactions.
(C) CFC has unconditionally guaranteed to lessors certain indemnity payments
which may be required to be made by the lessees in connection with tax
benefit transfers. The amounts of such guarantees reach a maximum and
then decrease over the life of the lease.
(D) At November 30, 1995 and May 31, 1995, CFC had unconditionally guaranteed
commercial paper, along with the related interest rate exchange agreement,
issued by NCSC of $35.1 million and $34.9 million, respectively.
10. Interest Rate Exchange Agreements
The following table lists the notional principal amounts of CFC's
interest rate exchange agreements at November 30, 1995 and May 31, 1995:
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
Maturity Notional Principal Amount
Date November 30, 1995 May 31, 1995
<S> <C> <C>
August 1996 (1) $ 30,000 $ 30,000
September 1996 (2) 150,000 150,000
February 1997 (1) 35,000 35,000
February 1997 (1) 40,000 40,000
February 1997 (1) 25,000 25,000
February 1998 (2) 50,000 50,000
Total $330,000 $330,000
</TABLE>
<PAGE> 16
(1) Under these agreements, CFC pays a fixed rate of interest and
receives interest based on a variable rate.
(2) Under these agreements, CFC pays a variable rate of interest and
receives a variable rate of interest.
CFC's objective in using interest rate exchange agreements in which it
pays a fixed rate of interest and receives a variable rate of interest is
to fix the interest rate on a portion of its commercial paper. CFC then
uses commercial paper, in an amount equal to the notional principal value
of the interest rate exchange agreements, to fund a portion of its long-
term fixed rate loan portfolio. The net difference between the rate paid
by CFC and the rate received is included in the cost of funds.
CFC's objective in using interest rate exchange agreements in which it
pays and receives a variable rate of interest is to change the variable
rate on a notional amount of debt from a LIBOR rate index to a commercial
paper rate index. The variable rate Collateral Trust Bonds and Medium-
Term Notes are issued based on a LIBOR rate index, while CFC sets its
variable rate loan interest rates based on a commercial paper rate. The
net difference between the rate paid by CFC and the rate received is
included in the cost of funds.
CFC is exposed on these interest rate swap agreements to interest rate
risk if the counterparty to the interest rate swap agreement does not
perform to the agreement's terms. CFC does have a policy intended to
limit counterparty credit risk by maintaining long-term swap agreements
only with financial institutions with at least a AA long-term credit
rating, and short-term swap agreements only with financial institutions
with at least a A long-term credit rating.
11. Contingencies
(A) At November 30, 1995 and May 31, 1995, nonperforming loans in the
amount of $26.4 million and $27.6 million, respectively, were on a
nonaccrual basis with respect to interest income. At November 30,
1995 and May 31, 1995, the total amount of restructured debt was
$196.0 million and $185.0 million, respectively. CFC elected to
apply all principal and interest payments received against principal
outstanding on restructured debt of $142.3 million and $131.1
million, respectively. At November 30, 1995 and May 31, 1995, CFC had
committed to lend $0.0 million to non-performing borrowers, $20.0
million to restructured borrowers, respectively, all on a senior
secured lien basis.
(B) Out of the $222.4 million and $212.6 million of loans described in
footnote 11(A) at November 30, 1995 and May 31, 1995, respectively,
CFC has classified $168.7 million and $158.8
<PAGE> 17
million as impaired with respect to the provisions of FASB Statements
No. 114 and 118. At those dates CFC had allocated $50.8 million and
$40.1 million of the loan and guarantee loss allowance to such
impaired loans. At November 30, 1995 and May 31, 1995, 97% of the
loans classified as impaired were collateral dependent. Loans are
collateral dependent when there are no reliable future payment
schedules and the amount expected to be collected is directly related
to the value of the assets and future revenues that represent the
underlying security for the loan. The amount of loan and guarantee
loss allowance allocated to such loans was based on a comparison of
the recorded investment in the loan to the estimated value of the
collateral. CFC does not recognize interest income on any of the
loans classified as impaired. Instead, all payments received are
applied as a reduction of principal. The average recorded investment
in impaired loans for the six months ended November 30, 1995 was
$171.0 million.
(C) On May 23, 1985, Wabash Valley Power Association, Inc. ("WVPA") filed
a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in connection with the canceled Marble Hill plant
construction.
On August 7, 1991, the Bankruptcy Court confirmed WVPA's
reorganization plan pending approval of rates as contemplated in the
plan.
On June 22, 1994, the U.S. District Court affirmed (over RUS's
objection) the Wabash plan in reorganization. RUS appealed to the
U.S. Court of Appeals. On December 28, 1995, the U.S. Court of
Appeals reaffirmed the Wabash plan of reorganization. RUS now may
request that the U.S. Court of Appeals review or rehear the case
and/or appeal the judgement to the U.S. Supreme Court.
Under the Wabash plan, CFC would realize an estimated total loss of
approximately $12 million ($8.6 million of which has been written off
to date), after the offset of subordinated capital term certificates
(without taking into account interest since the petition date). CFC
and RUS have agreed to distribute all settlement proceeds from Wabash
in compliance with provisions under the shared mortgage. Upon re-
solution of the bankruptcy there will be a final accounting of the
cash flow subsequent to the petition date. At this time it is
anticipated that this final accounting will result in CFC making a
net payment to RUS to true-up the cash distribution between RUS and
CFC.
In May 1993, CFC advanced $24.4 million in variable interest rate
secured loans to WVPA, which was used to effect an early redemption
of the tax-exempt bonds guaranteed by CFC. As WVPA
<PAGE> 18
is operating in Bankruptcy, CFC has classified these loans as non-
performing, therefore, does not accrue interest income on these
loans. As of November 30, 1995, CFC had $19.8 million in loans
outstanding to Wabash.
Based on WVPA's preliminary reorganization plan, management believes
that CFC has adequately reserved for any potential loss.
(D) Deseret Generation & Transmission Co-operative ("Deseret") and its
major creditors entered into an Agreement Restructuring Obligations
("ARO") document that restructured Deseret's debt obligations to RUS,
CFC and certain other creditors, including certain lease payments due
on the Bonanza Power Plant. The ARO, which closed in January 1991
with an effective date of January 1, 1989, provides for the reduction
of Deseret's debt service and rental obligations on the Bonanza Power
Plant until 1996 when large sales of power are intended to commence.
Under the ARO, CFC expected to fund Deseret's cashflow shortfalls
totaling $117 million and expected a maximum exposure of $439
million in 1996. At November 30, 1995, CFC had funded $124.6 million
of the shortfall. CFC's current exposure of $457.0 million is
greater than the expected maximum from the ARO because it loaned
Deseret funds to permit the early redemption, at a premium, of two
high interest rate bond issues. Under the ARO assumptions, CFC expects
to fund Deseret's cash flow shortfalls until at least 1996 under its
various guarantees of debt obligations.
As part of a separate agreement, in conjunction with the ARO, CFC will
be obligated to repay out of payments by Deseret $25.9 million (plus
interest) received from a party to the Bonanza Lease transaction to
cover shortfalls in the July 1989, January 1990 and July 1990 lease
payments which were funded by that party. This amount will be repaid
if the available annual cash flow were to exceed the debt repayment
requirements as defined in the ARO (i.e., CFC is no longer required
to fund a shortfall).
As of November 30, 1995, CFC had approximately $457.0 million in
current credit exposure on behalf of Deseret consisting of $142.3
million in secured loans, and $314.7 million for guarantees by CFC of
various direct and indirect obligations of Deseret. CFC's guarantees
include $8.4 million in tax-benefit indemnifications and $27.3
million relating to mining equipment for a coal supplier of Deseret.
The remainder of CFC's guarantee is for semiannual debt service
payments on $279.0 million of bonds issued in a $655 million
leveraged lease financing of a generating station in 1985. Under
the ARO, CFC has also provided Deseret a $20.0 million five-year
senior
<PAGE> 19
secured line of credit. At November 30, 1995, there was no balance
outstanding under this line of credit which expires in January 1996.
CFC does not anticipate interest income recognition on the
outstanding loans until such time that Deseret's power sales produce
cash flows sufficient to service all debt.
The parties to the ARO have agreed to extend the ARO until January
31, 1996, in order to provide an opportunity to develop a final term
sheet for a negotiated restructuring of Deseret's obligation. Under
the proposal being developed, CFC would fund the purchase of the RUS
claims by CFC and the members of Deseret for $250 million. The
portion of the purchase amount lent to Deseret will receive a
priority for payment out of future Deseret cash flows. CFC will
fund the Deseret members' portion of the purchase amount through
long-term secured loans. Refinancing of other obligations of Deseret
at current market rates, future asset sales and expected contracts
for excess capacity is expected to enable Deseret to meet its
obligations under the proposal. At this time additional approvals,
including regulatory consents, are required to implement the proposal
and therefore its implementation can not be assured.
CFC believes that given the underlying collateral value and the terms
of the ARO, it has adequately reserved for any potential loss on its
loans and guarantees to Deseret.
(E) As a consequence of high costs associated with the Clinton Nuclear
Station, Soyland Power Cooperative ("Soyland") charged costs for
wholesale power which resulted in its member's retail rates being
uncompetitive. This situation resulted in revenues which were
inadequate to service its debt. Soyland, RUS and CFC entered into a
debt restructuring agreement, dated as of December 15, 1993, which
restructured Soyland's indebtedness to RUS. As part of this agreement,
CFC agreed to extend additional credit to Soyland in the form of a
$30 million revolving credit facility and a $30 million loan for
capital additions. The revolving credit loan and the capital
additions loan have priority in payment over the existing RUS loans
and the prior CFC loan.
At November 30, 1995, CFC had $49.4 million in outstanding long-term
loans to Soyland which were secured equally and ratably with the RUS
on all assets and future revenues of Soyland. In addition, CFC had
$1.2 million outstanding to Soyland under the super-secured revolving
credit agreement and $15.0 million outstanding on the super-secured
capital additions loan, both of which are mentioned above. CFC also
had $277.5 million in loans to Soyland which are guaranteed by the
U.S. Government.
Soyland has presented the details of a third party offer to purchase
most of Soyland's assets for an amount substantially less than the
combined RUS and CFC debt. Cash flow from any source regarding
Soyland will first be applied against the CFC super-secured loans,
with any remaining proceeds split pro-rata
<PAGE> 20
between CFC and RUS based on total debt outstanding to Soyland. The
proposal was reviewed by RUS and CFC. The third party subsequently
requested termination of their offer, which expired on December 31,
1995. CFC believes that, given the underlying collateral value of
its secured loans to Soyland, it has adequately reserved for any
potential loss on its loans.
12. Loans Guaranteed by RUS
At November 30, 1995, CFC held $422.3 million in Trust Certificates
related to the refinancings of Federal Financing Bank loans. These
Trust Certificates are supported by payments from certain CFC Power
Supply members whose payments are guaranteed by RUS.
<PAGE> 21
Part I. Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(all dollar amounts in millions)
Changes in Financial Condition
During the six months ended November 30, 1995, CFC's total assets increased
by $490.3 or 6.9% to $7,571.1 from $7,080.8 at May 31, 1995, primarily due
to an increase of $493.3 in net loans outstanding. Changes to the loan
portfolio included increases of $592.0 in long-term loans, offset by
decreases of $101.5 in short-term loans.
Long-term loan activity consisted primarily of $775.5 in advances and $175.1
in principal repayments. Included in Long-term loan advances was $294.7
advanced to 16 members for the prepayment of their RUS loans, and $29.0
advanced to 7 members for telephone exchange acquisitions.
Net loans to members represented 96% and 95% of total assets at November 30,
1995 and May 31, 1995. Long-term loans represented 87% and 85% of gross loans
at November 30, 1995 and May 31, 1995. Fixed rate loans represented 36% of
gross loans at November 30, 1995 and 32% at May 31, while the remaining loans
carry a variable rate that may be adjusted monthly or semi-monthly. At
November 30, 1995, $568.1 or 7.6% of gross loans were unsecured, compared to
$627.2 million or 9.0% at May 31. All other loans were secured pro-rata with
other lenders (primarily RUS), by all assets and future revenues of the
borrower.
At November 30, CFC had provided $2,547.7 in guarantees, a decrease of $27.2
from the $2,574.9 at May 31. These guarantees relate primarily to tax-exempt
financed pollution control equipment and to leveraged lease transactions for
plant and equipment. All guarantees are secured on a pro-rata basis with
other creditors on all assets and future revenues of the borrower or by the
underlying financed assets.
Also at November 30, CFC had unadvanced loan commitments of $5,585.5, an
increase of $547.7 from the $5,037.8 committed at May 31. Most unadvanced
loan commitments contain a material adverse change clause that would relieve
CFC from its obligation to lend if the borrower's financial condition had
changed materially from the time the loan was approved. Many of these
commitments are provided for operational back-up liquidity. CFC does not
anticipate funding the majority of the commitments outstanding during the
next twelve to eighteen months.
During the quarter ended November 30, CFC's total liabilities and members'
equity increased by $490.3 or 6.9% to $7,571.1 from $7,080.8 at May 31. The
increase was primarily due to increases of $389.0 in notes payable, $116.4 in
long-term debt, offset by a decrease of $15.8 in members' equity and
subordinated certificates.
<PAGE> 22
The notes payable increase is due to increases of $106.1 in Dealer Commercial
Paper, $162.9 in Member Commercial Paper and the reclassification of $150.0 in
Collateral Trust Bonds maturing September 15, 1996, offset by an increase of
$30.0 in the amount of short-term debt supported by the five year revolving
credit agreement and reclassified as long-term debt. The member commercial
paper balance outstanding at November 30, 1995 represents a 14.7% increase
over the May 31, 1995 balance. The increase in long-term debt is due to
increases of $36.9 in Medium-Term Notes outstanding, $49.5 in Collateral
Trust Bonds outstanding and $30.0 in the amount of short-term debt
reclassified as long-term debt. CFC has issued $200.0 in Collateral
Trust Bonds so far this year and has averaged about $13.0 in Medium-Term
Note sales to members each month. The increase in Collateral Trust Bonds
outstanding represents the new issues less the reclassification of the bonds
maturing on September 15, 1996, to notes payable. The decrease in members'
equity and subordinated certificates was primarily due to the retirement of
$50.0 in patronage capital offset by the $24.9 net margins for the six months
and by the issuance of $6.4 in subordinated certificates related to the
advance of loans. The increases to notes payable and long-term debt were
required to fund the increase in loans outstanding. Subsequent to the end of
the quarter on January 4, 1996, CFC issued $100.0 in Collateral Trust Bonds,
due 2003 at a rate of 5.95%.
The allowance for loan and guarantee losses increased by $5.7 to $211.3 at
November 30, from $205.6 at May 31. At November 30, the loan and guarantee
loss allowance represented 2.84% of gross loans, 2.11% of gross loans and
guarantees, 94.97% of nonperforming and restructured loans, and 800.4% of
nonperforming loans compared to 2.96%, 2.16%, 96.71% and 743.8% at May 31,
respectively. The allowance is periodically reviewed by management for
adequacy. In performing this assessment, management considers various
factors including an analysis of the financial strength of CFC's borrowers,
delinquencies, loan charge-off history, underlying collateral and economic and
industry conditions. As of November 30, management believes that the
allowance for loan and guarantee losses is adequate to cover any portfolio
losses which have occurred or may occur.
As of December 31, 1995, CFC had advanced $815.3 to 53 members for the
prepayment of RUS loans. CFC estimates that this amount represented 88% of
the total RUS prepayments. Other lenders have lent 7% of the total and the
remaining 5% was prepaid out of the members' general funds. As of December
31, 1995 CFC had approved loan applications for an additional $165.1 from 26
members for the purpose of prepaying their RUS notes. In addition, there were
$116.3 in loan prepayment applications pending at RUS. RTFC had loan
applications for $336.1 from 33 members for telephone exchange acquisitions.
CFC has implemented Financial Accounting Standards Board ("FASB") Statement
No. 112, "Employers' Accounting for Postemployment Benefits." The
implementation of this statement did not have a material impact on CFC's
financial statements.
<PAGE> 23
CFC has implemented FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The CFC investments covered by
this statement at November 30, 1995, include Marketable Securities and Debt
Service investments. These items have been recorded at amortized cost, due
to CFC's intent and ability to hold all investments to maturity.
CFC has implemented FASB Statement No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." CFC is
neither a dealer nor trader in derivative financial instruments. CFC uses
interest rate exchange agreements to help manage its interest rate risk.
The net difference between the rates paid by CFC and the rates received by
CFC is included in the cost of funds. CFC is exposed to interest rate risk
if the counterparty to the agreement does not perform to the agreement's
terms. CFC's policy is to enter into interest rate exchange agreements only
with financial institutions with at least a AA long-term credit rating.
CFC has implemented FASB Statements No. 114, "Accounting by Creditors for
Impairment of a Loan" and No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosure." As of November 30, 1995, CFC has
classified $168.7 of loans outstanding as impaired with respect to the
provisions of these statements. At November 30, 1995, CFC has specifically
allocated $50.8 of the loan and guarantee loss allowance to such impaired
loans. CFC has not recognized any interest income on its impaired loans
during the six months ended November 30, 1995. Instead, CFC has applied all
payments received as a reduction to principal outstanding.
At November 30, 1995, CFC has loans outstanding in the amount of $26.4
classified as nonperforming and $196.0 classified as restructured. All
nonperforming loans and $142.3 of restructured loans were on a nonaccrual
basis with respect to interest income.
The parties to the Deseret restructuring have agreed to extend the ARO until
January 31, 1996 in order to provide an opportunity to develop a negotiated
restructuring of Deseret's obligations under the ARO. Under the proposal
being developed, CFC and the Deseret members would buyout RUS for a total of
$250. CFC will fund the Deseret member's portion of the buyout through long-
term secured loans to the members. At this time the terms of the agreement
have not been finalized and the necessary approvals required for
implementation have not been secured, therefore implementation of the plan
cannot be assured. As of November 30, 1995, CFC had $457.0 in current credit
exposure to Deseret, consisting of $142.3 in secured loans and $314.7 for
guarantees of various direct and indirect obligations of Deseret.
On December 28, 1995, the U.S. Court of Appeals reaffirmed the lower courts
approval of the Wabash plan of reorganization. RUS now may request that the
U.S. Court of Appeals review or rehear the case and/or appeal the judgement
to the U.S. Supreme Court. As of November 30,
<PAGE> 24
1995, CFC had $19.8 in loans outstanding to Wabash. Upon resolution of the
bankruptcy, CFC and RUS have agreed to split all proceeds from Wabash in
compliance with the provisions of the shared mortgage. At this time, it is
anticipated that this final accounting will result in CFC making a net
payment to RUS to true up the cash distribution between CFC and RUS.
As of November 30, 1995, CFC had $49.4 in long-term secured loans, $1.2
outstanding under the super-secured revolving credit agreement and $15.0
outstanding on the super-secured capital additions loan to Soyland. The
amounts outstanding under the super-secured revolving credit agreement and
the super-secured capital additions loan would be repaid first from the
proceeds of asset sales or liquidation. Soyland had presented a third party
offer to purchase most of Soyland's assets, this offer was not accepted by the
creditors and expired on December 31, 1995.
CFC believes that, given the value of the collateral underlying the loans to
Deseret, Wabash and Soyland, it is adequately reserved for any potential
losses.
Changes in the Results of Operations
CFC's net margins are subject to change as interest rates change. Therefore,
CFC uses an interest coverage ratio, instead of the dollar amount of gross or
net margins, as a primary performance indicator. During the six months ended
November 30, 1995, CFC achieved a Times Interest Earned Ratio (TIER) of 1.12.
This was a decrease from the 1.18 TIER for the quarter ended November 30,
1994. The decrease in TIER was primarily due to a reduction in the amount of
conversion fees recognized, $4.8 for the six months ended November 30, 1995;
compared to $9.2 for the six months ended November 30, 1994. TIER for the
two periods without conversion fees would have been 1.10 and 1.12,
respectively. During the early 1990's, a large volume of CFC's fixed rate
loan portfolio converted to a variable rate, which required the payment of a
fee. These conversion fees were collected, deferred and amortized into income
through the loan's next scheduled repricing date. The majority of the
conversion fees were recognized during fiscal years 1993, 1994 and 1995. The
remaining deferred conversion fees will be amortized into income during fiscal
years 1996 and 1997, approximately $19.2 per year. Future conversions from
the fixed rate to the variable rate, of the magnitude experienced in the early
1990's, are not anticipated for fiscal years 1996 and 1997. Management has
established a 1.10 TIER as its minimum operating level.
Operating income for the six months ended November 30, 1995, was $246.9, an
increase of $44.4 from the prior year period. The increase in operating
income was due to both a positive rate variance of $17.3 and a positive volume
variance of $27.1. Average loans outstanding increased by $875.9 and the
average yield increased by 45 basis points from the prior year period. For
the six months ended November 30, 1995, average loans outstanding were
$7,209.8 and the average yield was 6.83%, compared to average loans
outstanding of $6,333.9 and an average yield
<PAGE> 25
of 6.38% for the six months ended November 30, 1994. CFC sets the interest
rates on its loans to cover the cost of funds, general and administrative
expenses, a provision for loan and guarantee losses and a reasonable TIER.
As a result, the yield earned on the loan portfolio will move in conjunction
with the rates in the capital markets.
CFC's cost of funds for the six months ended November 30, 1995, totaled
$209.6, an increase of $46.2 from the prior year. The increase was due to a
negative rate variance of $24.9 and a positive volume variance of $21.3. The
average interest rate on funds used by CFC at November 30, 1995, was 5.80%, an
increase of 65 basis points compared to the average rate of 5.15% at November
30, 1994. Included in the cost of funds is interest expense on CFC's
Subordinated Certificates and other instruments offset by income from the
overnight investments of excess cash and the interest earnings on debt service
investments.
For the six months ended November 30, 1995 and November 30, 1994, general and
administrative expenses totaled $8.5 and $7.9, respectively. General and
administrative expenses represented 24 basis points of average loan volume for
the six months ended November 30, 1995, which is a decrease of 1 basis point
from 25 basis points for the prior year period.
The provision for loan and guarantee losses for the six months ended November
30, 1995, totaled $5.7 or 15 basis points, compared to the prior year total of
$3.8 or 12 basis points. CFC has maintained the provision for loan and
guarantee losses in line with management's assessment of the size and quality
of the loan portfolio. During the six months ended November 30, 1995, CFC
made planned additional provisions to the loan and guarantee loss allowance
totaling $1.9.
Overall, CFC's net margins for the six months ended November 30, 1995, totaled
$24.9, a decrease of $4.1 from the prior year period total of $29.0.
Liquidity and Capital Resources
CFC is subject to liquidity risk to the extent cash repayments on its assets
or other sources of funds are insufficient to cover the cash requirements on
maturing liabilities. For the most part, CFC funds its long-term loans with
much shorter term maturity debt instruments, however, CFC's long-term loans
typically are repriced monthly or on a multiple number of years basis, and as
such, CFC will match the loan repricing periods with similarly repriced
sources of funding, thus minimizing interest rate risk.
With regard to liquidity risk, CFC manages its liquidity risk by ensuring that
other sources of funding are available to make debt maturity payments. CFC
accomplishes this in five ways. First, CFC maintains revolving credit
agreements which (subject to certain conditions) allows CFC to borrow funds
on terms of up to five years. Second, CFC has maintained investment grade
ratings, facilitating access to the capital markets. Third, CFC maintains
SEC shelf registrations
<PAGE> 26
for both its Collateral Trust Bonds, Medium-Term Notes and other debt
securities, which (absent market disruptions and assuming CFC maintains
investment grade ratings) could be issued at fixed or variable rates in
sufficient amounts to fund the next 18 to 24 months funding requirements.
Fourth, CFC maintains SEC registrations for the Grantor Trust Certificates
which permits public issuance. Fifth, CFC obtains much of its funding
directly from its members and believes this funding is more stable than
funding obtained from outside sources.
At November 30, 1995, CFC had $4,100.0 in available credit, $2,460.0 of which
is available through February 28, 2000 and $1,640.0 is available through
February 27, 1996. As of November 30, 1995 CFC was in compliance with all
covenants and conditions to borrowing.
As of November 30, 1995, CFC had shelf registrations for Collateral Trust
Bonds and Medium-Term Notes of $450.0 and $298.4, respectively. Subsequent
to the end of the quarter, CFC completed one bond issue, the $100.0 5.95%
Collateral Trust Bonds, due 2003. As of November 30, 1995, CFC had SEC shelf
registrations for Grantor Trust Certificates of $139.4. During the first six
months of fiscal year 1996, CFC also developed and registered $250 of a new
debt security, Quarterly Income Capital Securities. These securities will be
sold in the retail markets with maturities of 30 to 50 years. The interest
due on these securities will be deferrable by CFC for up to five years. As
of November 30, 1995, CFC had not issued any of these new securities.
Member invested funds, including the loan and guarantee loss allowance, at
November 30, 1995 and May 31, 1995, were $3,273.8 and $3,126.7 or 42.5% and
43.4% of CFC's total capitalization, respectively (long- and short-term debt
outstanding, members' certificates and equity and the loan and guarantee loss
allowance).
CFC's leverage ratio was 5.51 at November 30, 1995, a slight increase over the
5.13 reported at May 31, 1995. The increase was primarily due to additional
debt required to fund new loans and a decrease in the members' equity due to
the retirement of patronage capital on August 31, 1995.
The following chart schedules the maturities of CFC's fixed rate loans and
fixed rate funding. The chart is a useful tool to identify gaps in the
matching of fixed rate loans with fixed rate funds.
<PAGE> 27
<TABLE>
<CAPTION>
Interest-Rate Gap Analysis
(Fixed Assets/Liabilities)
As of November 30, 1995
(Dollar Amounts In Millions)
FY 96 FY 97-98 FY 99-00 FY 01-05 FY 06-15 FY 16+ Total
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loan Amortization
and repricing $ 173.0 $ 431.2 $ 540.7 $ 720.5 $ 566.9 $ 139.6 $2,571.9
Total Assets $ 173.0 $ 431.2 $ 540.7 $ 720.5 $ 566.9 $ 139.6 $2,571.9
Liabilities and Equity:
Long-Term Debt $ 54.2 $ 637.3 $ 50.5 $ 197.2 $ 113.5 $ 200.0 $1,252.7
Subordinated Certificates 4.3 16.2 110.1 505.6 287.9 53.1 977.2
Equity - - 154.4 17.7 52.0 - 224.1
Total Liabilities and Equity $ 58.5 $ 653.5 $ 315.0 $ 720.5 $ 453.4 $ 253.5 $2,454.0
Gap * $ 114.5 $(222.3) $ 225.7 $ (0.0) $ 113.5 $(113.5) $ 117.9
Cumulative Gap $ 114.5 $(107.8) $ 117.9 $ 117.9 $ 231.4 $ 117.9
Cumulative Gap as a %
of Total Assets 1.51% 1.42% 1.56% 1.56% 3.06% 1.56%
* Loan amortization/repricing over/(under) debt maturities
</TABLE>
CFC is subject to interest rate risk to the extent CFC's loans are subject to
interest rate adjustment at different times than the liabilities which fund
those assets. Therefore, CFC's interest rate risk management policy involves
the close matching of asset and liability repricing terms within a range of 5%
of gross assets (total assets plus the loan and guarantee loss allowance
which is netted against gross loans on the balance sheet). CFC measures the
matching of funds to assets by comparing the amount of fixed rate assets
repricing or amortizing to the total fixed rate debt maturing over the
periods listed in the above table. At November 30, 1995, CFC had $173.0 in
fixed rate assets amortizing or repricing and $58.5 in fixed rate liabilities
maturing during the remainder of fiscal year 1996. The difference, $114.5,
represents the amount of CFC's assets that are not considered match-funded as
to interest rate. CFC's difference of $114.5 at November 30, 1995 represents
1.5% of total assets.
Variable rate loans are repriced monthly and are funded with variable rate
liabilities that are also priced monthly and as such are considered to be
match-funded with respect to interest rate repricings.
<PAGE> 28
Part II
Item 1, Legal Proceedings.
None.
Item 2, Changes in Securities.
None.
Item 3, Defaults upon Senior Securities.
None.
Item 4, Submission of Matters to a Vote of Security Holders.
None.
Item 5, Other Information.
None.
Item 6,
A. Exhibits
27 - Financial Data Schedules
B. Reports on Form 8-K.
Item 5 on September 11, 1995 - Filing of Underwriting Agreement for Bond
Issue
Item 5 on October 5, 1995 - Filing of Underwriting Agreement for Bond
Issue
<PAGE> 29
Signatures
Pursuant to the requirements 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.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
/s/ Steven L. Lilly
Chief Financial Officer
January 16, 1996
/s/ Angelo M. Salera
Controller (Principal Accounting Officer)
January 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
30, 1995 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 16,284
<SECURITIES> 29,000
<RECEIVABLES> 91,869
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 171,025
<PP&E> 44,757
<DEPRECIATION> 8,252
<TOTAL-ASSETS> 7,571,087
<CURRENT-LIABILITIES> 2,279,841
<BONDS> 3,802,120
0
0
<COMMON> 0
<OTHER-SE> 1,489,126
<TOTAL-LIABILITY-AND-EQUITY> 7,571,087
<SALES> 246,928
<TOTAL-REVENUES> 248,675
<CGS> 209,577
<TOTAL-COSTS> 209,577
<OTHER-EXPENSES> 8,539
<LOSS-PROVISION> 5,680
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,879
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</TABLE>
