<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 February 29, 1996
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 1 of 27
<PAGE> 2
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED BALANCE SHEETS
(Dollar Amounts In Thousands)
A S S E T S
(Unaudited)
February 29, 1996 May 31, 1995
<S> <C> <C>
Cash $ 59,373 $ 26,309
Marketable Securities 68,000 30,000
Debt Service Investments 40,060 32,740
Loans To Members, net 7,491,043 6,747,124
Receivables 86,978 87,638
Fixed Assets, net 33,745 36,807
Debt Service Reserve Funds 115,651 114,094
Other Assets 7,820 6,077
Total Assets $ 7,902,670 $ 7,080,789
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<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)
February 29, 1996 May 31, 1995
<S> <C> <C>
Notes Payable, due within one year $ 2,119,433 $ 1,812,570
Accounts Payable 15,434 16,705
Accrued Interest Payable 52,003 39,343
Long-Term Debt 4,197,560 3,685,682
Other Liabilities 12,601 21,553
Commitments, Guarantees and
Contingencies
Members' Subordinated Certificates:
Membership subscription
certificates 638,440 637,129
Loan & guarantee certificates 606,385 597,586
Total Members' Subordinated
Certificates 1,244,825 1,234,715
Members' Equity 260,814 270,221
Total Members' Subordinated Certi-
ficates & Members' Equity 1,505,639 1,504,936
Total Liabilities and Members'
Equity $ 7,902,670 $ 7,080,789
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<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 Nine Months Ended
February 29, 1996 and February 28, 1995
Quarters Ended Nine Months Ended
2-29-96 2-28-95 2-29-96 2-28-95
<S> <C> <C> <C> <C>
Operating Income-Interest on
loans to members $126,269 $116,210 $373,197 $318,708
Less-cost of funds allocated 108,121 96,084 317,698 259,512
Gross operating margin 18,148 20,126 55,499 59,196
Expenses:
General, administrative and
loan processing 4,803 4,150 13,342 12,093
Provision for loan and
guarantee losses 1,875 1,875 7,555 5,625
Total expenses 6,678 6,025 20,897 17,718
Operating margin 11,470 14,101 34,602 41,478
Nonoperating Income 1,311 916 3,058 2,498
Net Margins $ 12,781 $ 15,017 $ 37,660 $43,976
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE> 5
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Quarters Ended February 29, 1996 and February 28, 1995
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 February 29, 1996
Balance at November 30, 1995 $248,021 $ 1,402 $ 429 $ 27,168 $ 346 $218,676
Retirement of patronage capital - - - - - -
Net Margins 12,781 - - 12,781 - -
Other 12 12 - - - -
Balance at February 29, 1996 $260,814 $ 1,414 $ 429 $ 39,949 $ 346 $218,676
Quarter Ended February 28, 1995
Balance at November 30, 1994 $256,780 $ 1,366 $ 353 $ 31,248 $ 318 $223,495
Retirement of patronage capital - - - - - -
Net Margins 15,017 - - 15,017 - -
Other 10 11 - - - (1)
Balance at February 28, 1995 $271,807 $ 1,377 $ 353 $ 46,265 $ 318 $223,494
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE> 6
<TABLE> (UNAUDITED)
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollar Amounts in Thousands)
For the Nine Months Ended Febraury 29, 1996 and February 28, 1995
Patronage Capital
Allocated
Educa- Unal- General
Member- tional located Reserve
Total ships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended February 29, 1996
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 37,660 - - 37,660 - -
Other 1,246 31 54 - - 1,161
Balance at February 29, 1996 $260,814 $ 1,414 $ 429 $ 39,949 $ 346 $218,676
Nine Months Ended February 28, 1995
Balance at May 31, 1994 $258,299 $ 1,247 $ 312 $ 2,289 $ 488 $253,963
Retirement of patronage capital (28,654) - - - (295) (28,359)
Net Margins 28,638 - - 28,638 - -
Other (575) 72 33 - - (680)
Balance at February 28, 1995 $257,708 $ 1,319 $ 345 $ 30,927 $ 193 $224,924
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE> 7
<TABLE>
<CAPTION>
(UNAUDITED)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands)
For the Nine Months Ended February 29, 1996 and February 28, 1995
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Accrual basis net margins $ 37,660 $ 43,976
Add (deduct):
Provision for loan and guarantee losses 7,555 5,625
Depreciation 953 1,149
Amortization of deferred income (7,232) (13,555)
Amortization of bond issuance costs 1,543 977
Add (deduct) changes in accrual accounts:
Receivables 10,012 (739)
Accounts payable (1,271) (3,871)
Accrued interest payable 12,660 9,094
Other (5,816) 7,057
Net cash flows provided by operating
activities 56,064 49,713
Cash Flows From Investing Activities:
Advances made on loans (2,799,225) (2,770,987)
Principal collected on loans 2,047,751 2,107,581
Investments in fixed assets 2,110 (224)
Net cash flows used in investing activities (749,364) (663,630)
Cash Flows From Financing Activities:
Notes payable, net 456,863 403,616
Marketable Securities, Net (38,000) ( 10,000)
Debt service (7,320) (8,517)
Proceeds from issuance of Long-Term Debt 543,070 426,736
Payments for retirement of Long-Term Debt (180,875) (169,665)
Proceeds from issuance of Members'
Subordinated Certificates 14,113 25,839
Payments for retirement of Members' Subordinated
Certificates (15,335) (11,373)
Payments for retirement of patronage
capital (46,152) (37,054)
Net cash flows provided by financing
activities 726,364 619,582
Net Cash Flows 33,064 5,665
Beginning Cash and Cash Equivalents 26,309 22,168
Ending Cash and Cash Equivalents $ 59,373 $ 27,833
Supplemental Disclosure of Cash Flow Information:
Cash paid during nine months for
Interest Expense $ 307,603 $ 341,633
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<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 1,049 members as of February 29, 1996, included 902 rural electric
utility system members ("Utility Members"), virtually all of which are
consumer-owned cooperatives, 73 service members and 74 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, 1994, CFC's member systems served approximately 12.2 million consumers,
representing service to an estimated 32.0 million ultimate users of electricity
and owned approximately $66.5 billion (before depreciation of $19.4 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 February 29, 1996, RTFC had 414 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.
<PAGE> 9
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
February 29, 1996. 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.
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 February 29, 1996 and May 31, 1995, and the combined results
of operations, cash flows and changes in members' equity for the quarters ended
February 29, 1996 and February 28, 1995.
The Notes to Combined Financial Statements for the years ended May 31, 1995
and 1994 should be read in conjunction with the accompanying financial state-
ments. (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 February 29, 1996 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 policies consistent with 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 February 29, 1996, CFC had committed to lend RTFC
<PAGE> 10
up to $2,400.0 million to fund loans to its members and their affiliates.
RTFC had outstanding loans and unadvanced loan commitments totaling $1,371.6
million and $1,215.1 million as of February 29, 1996 and May 31, 1995,
respectively. RTFC's net margins are allocated to RTFC's borrowers. Summary
financial information relating to RTFC is presented below:
<TABLE>
<CAPTION>
At February 29, At May 31,
(Dollar Amounts In Thousands) 1996 1995
<S> <C> <C>
Outstanding loans to members
and their affiliates $ 953,169 $883,463
Total assets 1,073,330 985,381
Notes payable to CFC 953,169 883,463
Total liabilities 970,168 892,717
Members' Equity and
Subordinated Certificates 103,162 92,664
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
(Dollar Amounts In Thousands) 2-29-96 2-28-95
<S> <C> <C>
Operating income $ 48,384 $ 38,879
Net margins 2,074 1,466
</TABLE>
<TABLE>
<CAPTION>
Summary financial information relating to GFC is presented below:
At February 29, At May 31,
(Dollar Amounts In Thousands) 1996 1995
<S> <C> <C>
Outstanding loans to members $ 411,373 $421,665
Total assets 427,054 442,878
Notes payable to CFC 415,414 427,875
Total liabilities 425,075 440,410
Members' Equity 1,979 2,468
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
(Dollar Amounts In Thousands) 2-29-96 2-28-95
<S> <C> <C>
Operating income $ 21,511 $ 20,839
Net margins 1,913 2,142
</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 second 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 February 29, 1996 and May 31, 1995, mortgage notes representing
approximately $1,118.9 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 February 29, 1996 and May 31, 1995
were $981.7 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 February 29,
1996 and May 31, 1995, such allowance was $213.2 million and $205.6 million,
respectively.
Activity in the allowance account is summarized as follows for the nine
months ended February 29, 1996 and the year ended May 31, 1995.
<PAGE> 12
<TABLE>
<CAPTION>
February 29, May 31,
(Dollar Amounts in Thousands) 1996 1995
<S> <S> <S>
Beginning Balance $205,596 $188,196
Provision for loan and 7,555 17,400
guarantee losses
Ending Balance $213,151 $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 February 29, 1996, CFC had two revolving credit agreements totaling
$4,550.0 million with 60 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 out-
standing 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
$2,730.0 million until February 28, 2000 (the "five-year facility"), and
$1,820.0 million until February 25, 1997 (the "364-day facility"). Any
amounts outstanding will be due on those dates. In connection with the
five-year facility, CFC pays a per annum facility fee of .10 of 1% and per
annum commitment fee of .025 of 1%. The per annum facility fee for the
364-day is .08 of 1% and there is no commitment fee at CFC's current credit
rating level. If CFC's long-term ratings decline, these fees may be
increased by no
<PAGE> 13
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 February 29, 1996 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 February 29, 1996 and May 31, 1995, CFC classified $2,730.0 million and
$2,430.0 million, respectively, of its notes payable outstanding as long-
term debt. CFC expects to maintain more than $2,730.0 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 above.
7. Unadvanced Loan Commitments
As of February 29, 1996 and May 31, 1995, CFC had unadvanced loan commit-
ments, summarized by type of loan, as follows:
<PAGE> 14
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) February 29, 1996 May 31, 1995
<S> <C> <C>
Long-term $1,528,249 $1,325,141
Intermediate-term 211,493 186,313
Short-term 3,257,870 3,121,212
Telecommunications 418,454 331,633
Associate Member 55,543 53,483
Restructured (See Note 11(D)) 0 20,000
Total unadvanced loan
commitments $5,471,609 $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 retired 70% of their FY 1995 allocation in January, 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 February 29, 1996 and May 31, 1995, CFC had guaranteed the following
contractual obligations of its members:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) February 29, 1996 May 31, 1995
<S> <C> <C>
Long-term tax-exempt bonds (A) $1,458,705 $1,496,930
Debt portions of leveraged lease
transactions (B) 432,539 568,662
Indemnifications of tax benefit
transfers (C) 368,058 389,755
Other guarantees (D) 136,659 119,575
Total guarantees $2,395,961 $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 pay-
ments. 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, $1,172.5 million and $1,200.1 million as of February 29, 1996
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 February 29, 1996 and May 31, 1995, CFC had unconditionally guaranteed
commercial paper, along with the related interest rate exchange agreement,
issued by NCSC of $34.5 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 February 29, 1996 and May 31, 1995:
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
Maturity Notional Principal Amount
Date February 29, 1996 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
October 2004 (1) 45,600 0
Total $375,600 $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 an A long-term
credit rating.
11. Contingencies
(A) At February 29, 1996 and May 31, 1995, nonperforming loans in the amount
of $25.9 million and $27.6 million, respectively, were on a nonaccrual basis
with respect to interest income. At February 29, 1996 and May 31, 1995, the
total amount of restructured debt was $215.1 million and $185.0 million,
respectively. CFC elected to apply all principal and interest payments
received against principal outstanding on restructured debt of $161.4 million
and $131.1 million, respectively. At February 29, 1996 and May 31, 1995, CFC
had committed to lend $0.0 million to non-performing borrowers and $0.0 million
and $20.0 million respectively to restructured borrowers, all on a senior
secured lien basis.
(B) Of the $241.0 million and $212.6 million of loans described in footnote
11(A) at February 29, 1996 and May 31, 1995, respectively, CFC has classified
$187.3 million and $158.8 million as impaired with respect to the provisions
of FASB
<PAGE> 17
Statements No. 114 and 118. At those dates CFC had allocated $87.9 million
and $40.1 million of the loan and guarantee loss allowance to such impaired
loans. At February 29, 1996 and May 31, 1995, 100% and 97% respectively, 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 nine months ended February 29, 1996 was $173.1 million.
Effective April 1, 1996 CFC has classified an additional $49.4 million of
loans as impaired, bringing the total impaired loans to $236.7 million. As
of April 1, 1996 CFC has allocated $117.9 million of the loan and guarantee
loss allowance to such impaired loans.
(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 requested that the U.S. Court of Appeals rehear the
case. The judges of the Court of Appeals have denied the RUS request. RUS
has notified the U.S. Supreme Court that it is considering filing an appeal.
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 resolution 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.
<PAGE> 18
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 is operating in Bankruptcy, CFC has
classified these loans as nonperforming, and therefore, does not accrue
interest income on these loans. As of February 29, 1996, CFC had $19.3
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. The ARO had an effective date of January 1, 1989. The agreement
provided for the reduction of Deseret's debt service and rental requirements
until January 1996, when large sales of power were intended to commence.
Deseret failed to make the payments required under the ARO during 1995.
Deseret's creditors agreed to extend the provisions of the ARO first until
January 31, 1996, and then again until February 29, 1996. These extensions
were intended to allow the creditors to develop final terms for a negotiated
long-term restructuring of the ARO. Under the proposed restructuring, CFC
and the members of Deseret would purchase the RUS claims against Deseret for
$250 million. CFC would fund the Deseret members' portion of the purchase
through long-term secured loans to the members. The creditors were unable to
agree on the terms of a negotiated settlement and thus the ARO has been
terminated as of the end of February 1996. CFC filed a foreclosure action
against the owner of the Bonanza Plant in State court in Utah on March 21,
1996. In this action, CFC has not terminated the lease and sought removal
of Deseret as the plant operator. The other parties to the lease have 30 days
to respond to CFC's foreclosure action. On February 29, 1996, Deseret, RUS
and CFC entered into agreements which have since been modifed but continue
through June 1996, regarding certain obligations and payments to be performed
or made by Deseret in exchange for forbearance by RUS for exercising certain
remedies. CFC continues to discuss the possibility of a workout, including
a buyout of RUS claims, with Deseret creditors other than the owners of the
Bonanza Plant.
From January 1, 1989, through February 29, 1996, CFC has funded $143.7
million in cashflow shortfalls related to Deseret's debt service and rental
obligations. As of February 29, 1996, CFC had approximately $465.9 million
in current credit exposure to Deseret. This exposure consists of $161.4
million in secured loans and $304.5 million of guarantees by CFC of various
direct and indirect obligations of Deseret. The guarantees include $6.0
million in tax-benefit indemnifications, $26.5 million
<PAGE> 19
related to mine equipment leases and $271.9 million related to the leveraged
lease financing of the Bonanza generating station. CFC does not recognize
interest income on its loans to Deseret and does not anticipate the recognition
of interest income on such loans until Deseret's power sales are sufficient to
service all debt obligations.
CFC believes that given the underlying collateral value and its secured position
against the mortgage of the Bonanza plant, it is adequately reserved for any
potential loss on its loans and guarantees to Deseret.
As part of the long-term proposed purchase of the RUS claims by CFC and the
Deseret members, CFC would fund the members portion of the $250 million
purchase, $55 million, through long-term secured loans to the Deseret members.
In addition, RUS would require the Deseret members to prepay their RUS loans,
totaling approximately $50 million. CFC would fund the members prepayment of
the RUS loans through long-term secured loans to the members. This total of
$105 million lent to the Deseret members would be secured against the assets
and future revenues of the members and not by the assets of 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 February 29, 1996, 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 $13.0 million outstanding
to Soyland under the super-secured revolving credit agreement and $14.9 million
outstanding on the super-secured capital additions loan, both of which are
mentioned above. CFC also had $274.0 million in loans to Soyland which are
guaranteed by the U.S. Government.
Soyland has sent out approximately 200 Requests for Proposals (RFP's) and
taken out an ad in the Wall Street Journal offering to sell its assets. The
deadline for receipt of RFP's was March 18, 1996. The RFP was not reviewed
with RUS and CFC prior to distribution. Soyland has received 18 responses to
the RFP. RUS and CFC have not been able to review any of the responses.
<PAGE> 20
Cash flow from any source regarding Soyland will first be applied against the
CFC super-secured loans, with any remaining proceeds split pro-rata between
CFC and RUS based on total debt outstanding to Soyland. As of April 1, 1996,
the $49.4 million loan to Soyland was placed on nonaccrual status with respect
to interest income.
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 February 29, 1996, CFC held $416.6 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 nine months ended February 29, 1996, CFC's total assets increased
by $821.9 or 11.6% to $7,902.7 from $7,080.8 at May 31, 1995, primarily due
to an increase of $743.9 in net loans outstanding. Changes to the loan port-
folio included increases of $803.8 in long-term loans and $30.1 in restructured
loans, offset by decreases of $72.7 in short-term loans. Long-term loan
activity consisted primarily of $1,104.0 in advances and $278.8 in principal
repayments. Included in Long-term loan advances was $724.5 advanced to 49
members for the prepayment of their RUS loans.
Net loans to members represented 95% of total assets at February 29, 1996 and
May 31, 1995. Long-term loans represented 87% and 85% of gross loans at
February 29, 1996 and May 31, 1995. Fixed rate loans represented 37% of
gross loans at February 29, 1996 and 32% at May 31, while the remaining loans
carry a variable rate that may be adjusted monthly or semi-monthly. At
February 29, 1996, $547.8 or 7.1% of gross loans were unsecured, compared to
$627.2 million or 9.0% at May 31, 1995. All other loans were secured pro-rata
with other lenders (primarily RUS), by all assets and future revenues of the
borrower.
At February 29, 1996 CFC had provided $2,396.0 in guarantees, a decrease of
$178.9 from the $2,574.9 at May 31, 1995. 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 February 29, 1996 CFC had unadvanced loan commitments of $5,471.6, an
increase of $433.8 from the $5,037.8 committed at May 31, 1995. 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 commit-
ments 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.
<PAGE> 22
During the nine months ended February 29, 1996, CFC's total liabilities and
members' equity increased by $821.9 or 11.6% to $7,902.7 from $7,080.8 at May
31, 1995. The increase was primarily due to increases of $306.9 in notes
payable and $511.9 in long-term debt.
The notes payable increase is due to increases of $357.5 in Dealer Commercial
Paper, $74.4 in Member Commercial Paper and the reclassification of $150.0 in
Collateral Trust Bonds maturing September 15, 1996, offset by an increase of
$300.0 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 February 29, 1996 represents a 6.7% increase over
the May 31, 1995 balance. The increase in long-term debt is due to increases
of $62.2 in Medium-Term Notes outstanding, $99.8 in Collateral Trust Bonds
outstanding and $300.0 in the amount of short-term debt reclassified as long-
term debt. CFC has issued $300.0 in Collateral Trust Bonds so far this year
and has averaged about $11.3 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 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 April 4, 1996, CFC issued $100.0 in Collateral Trust Bonds, due 2001 at a
rate of 6.45%.
The allowance for loan and guarantee losses increased by $7.6 to $213.2 at
February 29, 1996 from $205.6 at May 31, 1995. At February 29, 1996 the loan
and guarantee loss allowance represented 2.77% of gross loans, 2.11% of gross
loans and guarantees, 88.46% of nonperforming and restructured loans, and
823.2% of nonperforming loans compared to 2.96%, 2.16%, 96.71% and 743.8% at
May 31, 1995, respectively. The allowance is periodically reviewed by manage-
ment 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 February 29, 1996, 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 February 29, 1996, CFC had advanced $775.3 to 55 members for the pre-
payment 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 re-
maining 5% was prepaid out of the members' general funds. As of February 29,
1996 CFC had approved loan applications for an additional $136.2 from 18
members for the purpose of prepaying their RUS notes. In
<PAGE> 23
addition, there were $78.9 in loan prepayment applications pending at RUS.
RTFC had loan applications for $83.5 from 12 applicants for telephone exchange
acquisitions.
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 February 29, 1996, CFC
has classified $187.3 of loans outstanding as impaired with respect to the
provisions of these statements. At February 29, 1996, CFC has specifically
allocated $87.9 of the loan and guarantee loss allowance to such impaired
loans. CFC has not recognized any interest income on its impaired loans
during the nine months ended February 29, 1996. Instead, CFC has applied all
payments received as a reduction to principal outstanding.
At February 29, 1996, CFC has loans outstanding in the amount of $25.9
classified as nonperforming and $215.1 classified as restructured. All
nonperforming loans and $161.4 of restructured loans were on a nonaccrual
basis with respect to interest income.
As of February 29, 1996, CFC had $465.9 in current credit exposure to
Deseret, consisting of $161.4 in secured loans and $304.5 for guarantees
of various direct and indirect obligations of Deseret. On February 29,
1996, Deseret, RUS and CFC entered into agreements which have since been
modified but continue through June 1996, regarding certain obligations
and payments to be performed or made by Deseret in exchange for fore-
bearance by RUS for exercising certain remedies. On March 21, 1996, CFC
filed a foreclosure action against the owner of the Bonanza Plant in the
Utah State Court. In this action, CFC has not terminated the lease and
sought removal of Deseret as the plant operator.
On December 28, 1995, the U.S. Court of Appeals reaffirmed the lower courts
approval of the Wabash plan of reorganization. RUS requested that the
U.S. Court of Appeals rehear the case. The RUS request was denied by the
judges of the Court of Appeals. RUS has notified the U.S. Supreme Court
that it is considering filing an appeal. As of February 29, 1996, CFC had
$19.3 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 February 29, 1996, CFC had $49.4 in long-term secured loans, $13.0
outstanding under the super-secured revolving credit agreement and $14.9
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 has received 18 responses
to the approximately 200 RFPs it distributed offering to sell its assets.
RUS and CFC have not been able to review any of the responses. As of
April 1, the $49.4 loan to Soyland was placed on nonaccrual status with
respect to interest income.
<PAGE> 24
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 nine months
ended February 29, 1996, CFC achieved a Times Interest Earned Ratio (TIER)
of 1.12. This was a decrease from the 1.17 TIER for the quarter ended
February 28, 1995. The decrease in TIER was primarily due to a reduction
in the amount of conversion fees recognized, $7.2 for the nine months ended
February 28, 1996; compared to $13.6 for the nine months ended February 29,
1995. 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 nine months ended February 29, 1996, was $373.2, an
increase of $54.5 from the prior year period. The increase in operating
income was due to both a positive volume variance of $45.8 and a positive rate
variance of $8.7. Average loans outstanding increased by $888.2 and the
average yield increased by 19 basis points from the prior year period. For
the nine months ended February 29, 1996, average loans outstanding were
$7,338.3 and the average yield was 6.77%, compared to average loans out-
standing of $6,450.1 and an average yield of 6.61% for the nine months ended
February 28, 1995. 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 nine months ended February 29, 1996, totaled
$317.7, an increase of $58.2 from the prior year. The increase was due to
a negative volume variance of $37.7 and a negative rate variance of $20.5.
The average interest rate on funds used by CFC at February 29, 1996, was
5.77%, an increase of 41 basis points compared to the average rate of 5.36%
at February 28, 1995. Included in the cost of funds is interest
<PAGE> 25
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 nine months ended February 29, 1996 and February 28, 1995, general and
administrative expenses totaled $13.3 and $12.1, respectively. General and
administrative expenses represented 24 basis points of average loan volume for
the nine months ended February 29, 1996, 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 nine months ended February
29, 1996, totaled $7.6 or 14 basis points, compared to the prior year total of
$5.6 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 nine months ended February 29, 1996, CFC
made planned additional provisions to the loan and guarantee loss allowance
totaling $1.9.
Overall, CFC's net margins for the nine months ended February 29, 1996, totaled
$37.7, a decrease of $6.3 from the prior year period total of $44.0.
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 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
<PAGE> 26
and believes this funding is more stable than funding obtained from outside
sources.
At February 29, 1996, CFC had $4,550.0 in available credit, $2,730.0 of which
is available through February 27, 2001 and $1,820.0 is available through
February 26, 1997. As of February 29, 1996 CFC was in compliance with all
covenants and conditions to borrowing.
As of February 29, 1996, CFC had shelf registrations for Collateral Trust
Bonds and Medium-Term Notes of $350.0 and $205.9, respectively. As of
February 29, 1996, CFC had SEC shelf registrations for Grantor Trust
Certificates of $139.4. During the first nine months of fiscal year 1996,
CFC also developed and registered $250 of a new debt security, Quarterly
Income Capital Securities. CFC plans on selling these securities 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 February 29,
1996, CFC had not issued any of these new securities.
Member invested funds, including the loan and guarantee loss allowance, at
February 29, 1996 and May 31, 1995, were $3,151.2 and $3,126.7 or 40.0% 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 5.56 at February 29, 1996, 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 February 29, 1996
(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 $ 19.9 $ 440.8 $ 566.2 $ 981.7 $ 668.6 $ 160.3 $2,837.5
Total Assets $ 19.9 $ 440.8 $ 566.2 $ 981.7 $ 668.6 $ 160.3 $2,837.5
Liabilities and Equity:
Long-Term Debt $ 128.2 $ 559.3 $ 111.7 $ 267.1 $ 82.2 $ 200.0 $1,348.5
Subordinated Certificates 4.9 16.2 9.4 443.4 416.1 85.6 975.6
Equity - - - 187.9 45.0 - 232.9
Total Liabilities and Equity $ 133.1 $ 575.5 $ 121.1 $ 898.4 $ 543.3 $ 285.6 $2,557.0
Gap * $(113.2) $(134.7) $ 445.1 $ 83.3 $ 125.3 $(125.3) $ 280.5
Cumulative Gap $(113.2) $(247.9) $ 197.2 $ 280.5 $ 405.8 $ 280.5
Cumulative Gap as a %
of Total Assets 1.43% 3.14% 2.5% 3.55% 5.13% 3.55%
</TABLE>
* Loan amortization/repricing over/(under) debt maturities
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 amoust of
fixed rate assets repricing or amortizing to the total fixed rate debt
maturing over the periods listed in the above table. At February 29,
1996, CFC had $19.9 in fixed rate assets amortizing or repricing and
$133.1 in fixed rate liabilities maturing during the remainder of fiscal
year 1996. The difference, $113.2, represents the amount of CFC's assets
that are not considered match-funded as to interest rate. CFC's
difference of $113.1 at February 29, 1996 represents 1.43% 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.
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.
None.
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
April 12, 1996
/s/ Angelo M. Salera
Controller (Principal Accounting Officer)
April 12, 1996
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
Steven L. Lilly, Chief Financial Officer
April , 1996
Angelo M. Salera, Controller (Principal
Accounting Officer)
April , 1996
329
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the February
29, 1996 10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 59,373
<SECURITIES> 68,000
<RECEIVABLES> 86,978
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 254,411
<PP&E> 41,723
<DEPRECIATION> 7,978
<TOTAL-ASSETS> 7,902,670
<CURRENT-LIABILITIES> 2,199,471
<BONDS> 4,197,560
0
0
<COMMON> 0
<OTHER-SE> 1,505,639
<TOTAL-LIABILITY-AND-EQUITY> 7,902,670
<SALES> 373,197
<TOTAL-REVENUES> 376,255
<CGS> 317,698
<TOTAL-COSTS> 317,698
<OTHER-EXPENSES> 13,341
<LOSS-PROVISION> 7,555
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,660
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,660
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
