<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6
(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Federal Agricultural Mortgage Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6
(i)(3).
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Farmer Mac
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
----------------
TO HOLDERS OF FARMER MAC
VOTING COMMON STOCK
April 28, 1995
Dear Farmer Mac Stockholder:
The Board of Directors of the Federal Agricultural Mortgage Corporation
("Farmer Mac" or the "Corporation") is pleased to invite you to attend the
seventh Annual Meeting of Stockholders of the Corporation to be held on
Thursday, June 8, 1995, at 9:00 a.m. local time at the Embassy Suites Hotel,
1250 22nd St., N.W., Washington, D.C. 20037. The Notice of Annual Meeting and
Proxy Statement accompanying this letter describe the business to be transacted
at the meeting.
We hope you will be able to attend the meeting and suggest you read the
enclosed Notice of Annual Meeting and Proxy Statement for information about your
Corporation and the Annual Meeting of Stockholders. We have also enclosed Farmer
Mac's 1994 Annual Report. Although the report is not proxy soliciting material,
we suggest you read it for additional information about your Corporation. Please
complete, sign and return a proxy form at your earliest convenience to help us
establish a quorum and avoid the cost of further solicitation. The giving of
your proxy will not affect your right to vote your shares personally if you do
attend the meeting. If you plan to attend the meeting, please so indicate on the
enclosed proxy card.
We look forward to seeing you on June 8.
Sincerely,
/s/ G. CLYDE SOUTHERN
--------------------------------
G. Clyde Southern
Vice Chairman of the Board
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Farmer Mac
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
________________
TO HOLDERS OF FARMER MAC
NON-VOTING COMMON STOCK
April 28, 1995
Dear Farmer Mac Stockholder:
The Board of Directors of the Federal Agricultural Mortgage Corporation
("Farmer Mac" or the "Corporation") is pleased to invite you to attend the
seventh Annual Meeting of Stockholders of the Corporation to be held on
Thursday, June 8, 1995, at 9:00 a.m. local time at the Embassy Suites Hotel,
1250 22nd St., N.W., Washington, D.C. 20037.
Although the type of stock you hold is not entitled to vote at the
meeting and, accordingly, NO PROXY IS REQUESTED, we hope you will be able to
attend and suggest you read the enclosed Notice of Annual Meeting, Proxy
Statement and Annual Report, which will provide you with information about your
Corporation and the meeting. If you plan to attend the meeting, please advise
Farmer Mac's Secretary at the above address.
We look forward to seeing you on June 8.
Sincerely,
/s/ G. CLYDE SOUTHERN
--------------------------------
G. Clyde Southern
Vice Chairman of the Board
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
________________
NOTICE OF ANNUAL MEETING
April 28, 1995
Notice is hereby given that the seventh Annual Meeting of Stockholders
of the Federal Agricultural Mortgage Corporation (''Farmer Mac'' or the
''Corporation'') will be held on Thursday, June 8, 1995, at 9:00 a.m. local time
at the Embassy Suites Hotel, 1250 22nd St., N.W., Washington, D.C. 20037.
As described in the attached Proxy Statement, the meeting will be held
for the following purposes:
Item No. 1 to elect ten directors, five of whom will represent Class A
Stockholders, and five of whom will represent Class B
Stockholders. Those directors will serve for terms of one year
each, or until their respective successors are elected and
qualify;
Item No. 2 to ratify the selection of independent auditors for the year
1995;
and to consider and act upon any other business that may properly be brought
before the meeting or any adjournment thereof. Please read the attached Proxy
Statement for complete information on the matters to be considered and acted
upon.
Holders of record of the Corporation's Class A Voting Common Stock and
Class B Voting Common Stock at the close of business April 20, 1995 are entitled
to notice of the meeting and to vote at the meeting and any adjournment thereof.
For at least ten days prior to the meeting, a list of Farmer Mac
stockholders will be available for examination by any stockholder for any
purpose germane to the meeting at the offices of the Corporation at the address
indicated above, between the hours of 9:00 a.m. and 5:00 p.m. local time.
Whether you intend to be present at the meeting or not, please complete
the enclosed proxy card, date and sign it exactly as your name appears thereon
and return it in the postpaid envelope. This will ensure the voting of your
shares if you do not attend the meeting. Giving your proxy will not affect your
right to vote your shares personally if you do attend the meeting. THIS PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS OF THE CORPORATION.
By order of the Board of Directors,
/s/ MICHAEL T. BENNETT
-------------------------
Michael T. Bennett
Corporate Secretary
<PAGE>
Table of Contents
Page
Voting Rights ........................................................ 1
Proxy Procedure ...................................................... 2
Proxy Statement Proposals ............................................ 3
Directors ............................................................ 4
Item No. 1: Election of Directors .................................... 4
Information about Nominees for Directors ............................. 6
Class A Nominees ............................................ 6
Class B Nominees ............................................ 7
Appointed Members ........................................... 9
Security Ownership of Directors and Executive Officers ............... 10
Executive Officers ................................................... 12
Compensation of Directors and Executive Officers ..................... 13
- - - Compensation of Directors .......................................... 13
- - - Compensation of Executive Officers ................................. 14
General ..................................................... 14
Compensation of Committee Report on Executive Compensation .. 14
Compensation Tables ......................................... 20
Employment Agreements ....................................... 21
Certain Relationships and Related Transactions With Directors 22
Performance Graph ........................................... 23
Stock Option Plan ........................................... 24
Defined Contribution Pension Plan ........................... 25
401 (k) Saving Plan ......................................... 26
Item No. 2: Selection of Independent Auditors ........................ 26
Other Matters ........................................................ 27
Principal Stockholders of Voting Common Stock ........................ 27
Non-Voting Common Stock .............................................. 30
Expenses of Solicitation ............................................. 30
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Farmer Mac
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
PROXY STATEMENT
For the Annual Meeting of Stockholders
to be held on June 8, 1995
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of the Federal Agricultural Mortgage Corporation
("Farmer Mac" or the "Corporation") of proxies from the holders of the
Corporation's Class A Voting Common Stock and Class B Voting Common Stock (the
"Voting Common Stock"). The proxies will be voted at the Annual Meeting of
Stockholders of the Corporation (the "Meeting"), to be held on Thursday, June 8,
1995 at 9:00 a.m. local time at the Embassy Suites Hotel, 1250 22nd St., N.W.
Washington, D.C. 20037 and at any adjournments or postponements thereof. The
Notice of Annual Meeting, this Proxy Statement and the enclosed proxy card are
being mailed to stockholders on or about April 28, 1995.
The Board of Directors will present for a vote at the Meeting the
election of ten members to the Board of Directors for the coming year and the
ratification of KPMG Peat Marwick as independent auditors for the Corporation
for 1995. The Board is not aware of any other matter to be presented for a vote
at the Meeting.
Voting Rights
One of the purposes of the Meeting is to elect ten members to the Board
of Directors. Title VIII of the Farm Credit Act of 1971, as amended (the "Act"),
provides that Class A Voting Common Stock may be held only by banks, insurance
companies and other financial entities that are not Farm Credit System
institutions. Class B Voting Common Stock may be held only by Farm Credit System
institutions. Holders of the Class A Voting Common Stock (the "Class A Holders")
and holders of the Class B Voting Common Stock (the "Class B Holders") must each
elect five members to the Board of Directors. The remaining five members of the
Board are appointed by the President of the United States, with the advice and
consent of the United States Senate.
The Board of Directors fixed April 20, 1995 as the record date for the
determination of stockholders entitled to receive notice of the Meeting and to
vote at the Meeting. At the close of business on that date, there were issued
and outstanding 670,000 shares of Class A Voting Common Stock and 500,301 shares
of Class B Voting Common Stock, which constitute the only outstanding capital
stock of the Corporation entitled to vote at the Meeting. See "Principal
Stockholders of Voting Common Stock."
The holders of Voting Common Stock are entitled to one vote per share,
with cumulative voting at all elections of directors. Under cumulative voting,
each stockholder is entitled to cast the number of votes equal to the number of
shares of the Class of Voting Common Stock owned by that stockholder, multiplied
by the number of directors to be elected by that class. All of a stockholder's
votes may be cast for a single candidate for director, or may be distributed
among any number of candidates. Class A Holders are entitled to vote only for
the five directors representing Class A Holders, and Class B Holders are
entitled to vote only for the five directors representing Class B Holders.
Proxy Procedure
Although many of Farmer Mac's stockholders are unable to attend the
Meeting in person, they are afforded the right to vote by means of the proxy
solicited by the Board of Directors. When a proxy is returned properly completed
and signed, the shares it represents must be voted by the Proxy Committee
(described below) as directed by the stockholder. Stockholders are urged to
specify their choices by marking the appropriate boxes on the enclosed proxy.
Unless authority to vote is withheld, proxies will be voted for the election of
either the Class A Nominees or the Class B Nominees named herein, whichever is
applicable. A stockholder may withhold a vote from one or more Nominees by
writing the names of those Nominees in the space provided on the proxy card.
Under those circumstances, unless other instructions are given in writing, the
stockholder's votes will then be cast evenly among the remaining Nominees for
its class. The five Nominees from each class who receive the greatest number of
votes will be elected directors. If one or more of the Nominees becomes
unavailable for election, votes will be cast by the Proxy Committee under the
authority granted by the enclosed proxy for such substitute Nominee as the Board
of Directors may designate. If no instructions are indicated on the proxies, the
proxies represented by the Class A Voting Common Stock will be voted in favor of
the five Nominees specified herein as Class A Nominees and the proxies
represented by the Class B Voting Common Stock will be voted in favor of the
five Nominees specified herein as Class B Nominees. A proxy submitted by a
stockholder may indicate that all or a portion of the shares represented by such
proxy are not being voted by such stockholder with respect to a particular
matter. This could occur, for example, when a broker is not permitted to vote
stock held in street name on certain matters in the absence of instructions from
the beneficial owner of the stock. The shares subject to any such proxy that are
not being voted with respect to a particular matter (the "non-voted shares")
will be considered shares not present and entitled to vote on such matter,
although such shares will be counted for purposes of determining the presence of
a quorum. Shares voted to abstain as to a particular matter will not be
considered non-voted shares. Execution of a proxy will not prevent a stockholder
from attending the Meeting, revoking a previously submitted proxy and voting in
person.
The Proxy Committee, composed of three executive officers of the
Corporation, H.D. Edelman, M.T. Bennett and T.R. Clark, will vote all shares of
Voting Common Stock represented by proxies signed and returned by stockholders.
As authorized by the proxies, the Proxy Committee will also vote the shares
represented thereby on any matters not known at the time this Proxy Statement
was printed that may properly be presented for action at the Meeting.
Any stockholder who gives a proxy may revoke it at any time before it
is voted by notifying the Secretary of the Corporation in writing on a date
later than the date of the proxy, by submitting a later dated proxy, or by
voting in person at the Meeting. Mere attendance at the Meeting, however, will
not constitute revocation of a proxy. Written notices revoking a proxy should be
sent to Michael T. Bennett, Secretary, Federal Agricultural Mortgage
Corporation, 919 18th Street, N.W., Suite 200, Washington, D.C. 20006.
Proxy Statement Proposals
Each year, at the annual meeting, the Board of Directors submits to the
stockholders its nominees for election as Class A and Class B directors. In
addition, the Audit Committee's selection of independent auditors for the year
is submitted for stockholder ratification at each annual meeting, pursuant to
the Corporation's By-Laws. The Board of Directors may, in its discretion and
upon proper notice, also present other matters to the stockholders for action at
the annual meeting. In addition to those matters presented by the Board of
Directors, the stockholders may be asked to act at the annual meeting upon
proposals timely submitted by stockholders.
Proposals of stockholders to be presented at the 1995 Annual Meeting of
Stockholders were required to be received by the Secretary of the Corporation
prior to December 31, 1994 for inclusion in this Proxy Statement and the
accompanying proxy. No such proposals have been received and the Board of
Directors knows of no other matters to be presented for action at the Meeting.
If any other matters should properly be brought before the Meeting or any
adjournment thereof, the Proxy Committee intends to vote such proxy in accord
with its members' best judgment.
To be eligible for inclusion in the 1996 Proxy Statement and subsequent
presentation at the 1996 Annual Meeting of Stockholders, proposals of
stockholders must be received by the Secretary of the Corporation prior to
December 31, 1995.
Directors
The Board of Directors conducted a total of 7 regular meetings since
the last annual meeting in June 1994. Each of the members of the Board of
Directors attended 75% or more of the aggregate number of meetings of the Board
of Directors and of the committees of which they were members since the last
annual meeting.
The Board has used a number of committees to assist it in the
performance of its duties. The committees currently consist of the following:
Audit Committee, Class A Nominating Committee, Class B Nominating Committee,
Compensation Committee, Executive Committee, Finance Committee, Marketing
Committee, Program Development Committee and Public Policy Committee. Each
Director serves on at least two committees. See "Class A Nominees," "Class B
Nominees" and "Appointed Members" for information regarding the committees on
which Directors serve. See "Item No. 1: Election of Directors," "Compensation of
Directors and Executive Officers" and "Item No. 2: Selection of Independent
Auditors" for information concerning the Class A and Class B Nominating
Committees, the Compensation Committee and the Audit Committee, respectively.
The last election of Directors of the Corporation was conducted at the
Annual Meeting of Stockholders held on June 9, 1994. A total of 477,945, or
approximately 71%, of the 670,000 shares of Class A Voting Common Stock and a
total of 493,501, or approximately 99%, of the 500,301 shares of Class B Voting
Common Stock eligible to vote were present for voting purposes at that meeting.
Of the shares of Class A Voting Common Stock and Class B Voting Common Stock
present and voting, a majority was cast for each Class A and Class B Nominee,
respectively.
Item No. 1: Election of Directors
At the Meeting, ten directors will be elected. The Act provides that
five of the directors will be elected by a plurality of the votes of the Class A
Holders, and five of the directors will be elected by a plurality of the votes
of the Class B Holders. Three of the Class A Nominees and four of the Class B
Nominees currently are members of the Board of Directors. The Directors elected
by the Class A Holders and the Class B Holders will hold office until the next
annual meeting of the stockholders of the Corporation, or until their successors
have been elected and qualify.
The Act further provides that the President of the United States will
appoint five members to the Board of Directors with the advice and consent of
the United States Senate (the "Appointed Members"). As noted under "Appointed
Members" below, two of the Appointed Members were confirmed by the Senate on
September 30, 1988 and two others were confirmed on October 4, 1994. The
remaining position for a director appointed by the President became vacant on
June 17, 1994 as a result of the termination by President Clinton of the
services of former Chairman John R. Dahl. The Board of Directors, after the
election at the Meeting, will consist of the four Appointed Members named under
"Appointed Members" below and the ten members who are elected by the holders of
Voting Common Stock.1 The Appointed Members serve at the pleasure of the
President of the United States.
In order to facilitate the selection of director nominees, the Board of
Directors established two nominating committees. The members of the Class A
Nominating Committee are all of the current Class A Directors: Messrs. Brown,
Holthus, Dean and Tubbs (not a nominee for re-election).2 The members of the
Class B Nominating Committee are all of the current Class B Directors: Messrs.
Cirona, Egerton (not a nominee for re-election), Mainer, McCarthy and Raines.
The Class A Nominating Committee met one time since the last annual meeting. The
members of the Class B Nominating Committee, in lieu of holding formal meetings,
recommended the Class B Nominees to the Board on the basis of a vote in which
all holders of Class B Voting Common Stock were eligible to participate. This
nominating vote was held pursuant to a procedure agreed upon by holders of Class
B Voting Common Stock for the selection of director nominees. Each nominating
committee recommended five individuals to be considered for election and the
Board of Directors has approved these recommendations. The individuals
recommended by each nominating committee are referred to as "Class A Nominees"
and "Class B Nominees," respectively, and, collectively, the "Nominees." The
Nominees will stand for election to serve for terms of one year each, or until
their respective successors are elected and qualify.
For the 1996 Annual Meeting of Stockholders, the Class A Nominating
Committee will consider nominees recommended by holders of Class A Voting Common
Stock who may submit such recommendations by letter to the Secretary of Farmer
Mac. The Class B Nominating Committee will, unless the holders of Class B Voting
Common Stock revise the current nominating procedures, consider only those
nominees chosen in the pre-nomination election discussed above.
If any of the ten Nominees named below is unable or unwilling to stand
as a candidate for the office of director at the date of the Meeting or at any
adjournment thereof, the proxies received on behalf of such Nominee will be
voted for such substitute Nominee as the Board of Directors may designate. The
Board of Directors has no reason to believe that any of the Nominees will be
unable or unwilling to serve if elected.
___________________________
1 On January 5, 1995, President Clinton nominated Charles Eugene
Branstool, Utica, Ohio, to be an Appointed Member of the Board of
Directors, subject to Senate confirmation. It is uncertain at this time
whether Mr. Branstool will be confirmed prior to the Meeting.
2 Neil D. Levin, formerly a Class A Director, resigned from the Board on
January 13, 1995 following his appointment as Superintendent of Banks
of the State of New York.
Information about Nominees for Director
Each of the Nominees has been principally employed in his current
position for the past five years unless otherwise noted.
Class A Nominees
William H. Brandon, Jr., 62, has been the Chairman and Chief Executive Officer
of First National Bank of Phillips County, Helena, Arkansas, since 1993, having
previously served as its President since 1971. From 1992 to 1993, Mr. Brandon
served as President of the American Bankers Association and previously served in
a number of additional capacities within that organization, including Chairman
of the Community Bankers Division from 1988 to 1989 and, most recently, as a
member of the Rural Economic Development Task Force. He has held a number of
positions within the State of Arkansas, including Chairman of the Arkansas
Economic Development Commission; member of the Arkansas Industrial Development
Commission; and member of the Governor's Advisory Committee on Economic
Development. Mr. Brandon serves as Chairman of the Fannie Mae National Advisory
Council and is a former member of the Board of Directors of the Memphis Branch
of the Federal Reserve Bank of St. Louis.
E. J. Brown, 55, has been a member of the Board of Directors of the Corporation
since June 4, 1991, and is Chairman of the Program Development Committee and a
member of the Marketing Committee and the Class A Nominating Committee. He is
President, Chief Operating Officer and a director of Equitable Agri-Business,
Inc., the agricultural credit subsidiary of The Equitable Life Assurance Society
of the United States. He has held such positions since June 1994. From December
1992 to June 1994, he was the Executive Vice President and Chief Operating
Officer of Equitable Agri-Business. From March 1991 until December 1992, he was
Executive Vice President - Chief Investment Officer and, from September 1990
until March 1991, he was Senior Vice President - Investments for Equitable
Agri-Business. Prior to that, he held various positions with Equitable
Agri-Business in Des Moines, Iowa for 21 years, including the post of Regional
Vice President, to which he was appointed in July 1985. Mr. Brown was a member
of Farmer Mac's Credit Underwriting Standards Task Force in 1989.
John C. Dean, 69, has been a member of the Board of Directors of the Corporation
since June 9, 1994, and is a member of the Program Development Committee and the
Class A Nominating Committee. He is the President and Chief Executive Officer of
Glenwood State Bank, Glenwood, Iowa, a position he has held since 1962. An
active farmer, Mr. Dean owns and operates a commercial farm in Mills County,
Iowa and a working ranch in central Nebraska. He has held numerous positions
with the Independent Bankers Association of America (IBAA), including Chairman
of the Agriculture-Rural America Committee and Chairman of the UCC (Article 9)
Task Force. Mr. Dean also has been active in the Iowa banking community, serving
at various times as an officer and director of both the Iowa Independent Bankers
Association and the Iowa Bankers Association. Mr. Dean was a member of the
Farmer Mac Appraisal Standards Task Force in 1989.
C. G. Holthus, 61, has been a member of the Board of Directors of the
Corporation since June 4, 1991, and is Chairman of the Marketing Committee and a
member of the Compensation Committee, the Executive Committee, and the Class A
Nominating Committee. He is President and Chief Executive Officer of the First
National Bank of York, Nebraska, a position he has held since 1977. He is also
Chairman and Chief Executive Officer of the Albion National Bank, Albion,
Nebraska, a position he has held since January 1991. He served as president of
the American Bankers Association (ABA) from 1989 to 1990 and, from 1986 to 1987,
was the president of the Nebraska Bankers Association. Mr. Holthus has also
served as a member of the ABA Agricultural Secondary Market Task Force, ABA
Community Bankers Advisory Board and the Farmer Mac II Program Development Task
Force.
Michael C. Nolan, 39, has been a Managing Director with the New York-based
investment banking firm of Bear Stearns & Co. since 1991. From 1984 to 1991, he
served as an Investments Representative with the investment firm of Morgan
Stanley & Co., Inc. and, for two years prior to that, was an associate with
Goldman, Sachs & Co. Mr. Nolan earned his B.S. in Agricultural Economics at
Cornell University's College of Agriculture and Life Sciences, and is
Chairman-elect (1995-96) of the Committee on Alumni Trustee Nominations for the
University. While at Cornell, Mr. Nolan was an agricultural loan specialist with
the Farmers Home Administration.
Class B Nominees
James M. Cirona, 63, has been a member of the Board of Directors since June 9,
1994, and is Chairman of the Audit Committee and a member of the Marketing
Committee and the Class B Nominating Committee. He has been the President and
Chief Executive Officer of Western Farm Credit Bank since March 1993. From
January 1992 until November 1992, Mr. Cirona was Chairman, President and Chief
Executive Officer of Homestead Savings, Millbrae, California. From 1983 to 1991,
Mr. Cirona was the President and Chief Executive Officer of the Federal Home
Loan Bank of San Francisco, the largest of the twelve Federal Home Loan Banks.
He also served as a Director of the Federal Home Loan Bank of New York from 1981
to 1983, including Vice Chairman in 1982 and Chairman of the Executive Committee
in 1983, before moving to San Francisco. From 1977 to 1983, he served as
President, Chief Executive Officer and Chairman of the Board of Directors of
First Federal Savings and Loan Association of Rochester, New York.
Bill Mainer, 58, has been a member of the Board of Directors of the Corporation
since March 2, 1989, and is Chairman of the Finance Committee and a member of
the Class B Nominating Committee. Since 1980, Mr. Mainer has been a
self-employed dairy farmer and Holstein breeder in Branch, Arkansas. He also
owns County Line Realty Co. in Branch, Arkansas and is a registered real estate
broker. Mr. Mainer served as a member of the Board of Directors of the Farm
Credit Bank of St. Louis from 1988 to 1992, and as its Vice Chairman from 1989
to 1992, and since 1992 has served as a member of the Board of Directors of
Agribank, FCB, St. Paul, Minnesota, having been elected Vice Chairman in April
1994.
James A. McCarthy, 65, has been a member of the Board of Directors of the
Corporation since June 9, 1994, and is a member of the Program Development
Committee and the Class B Nominating Committee. He is a cotton, grain and
sugarcane farmer and cattle feeder in Rio Hondo, Texas. Currently, Mr. McCarthy
is a member of the Board of Directors of the Farm Credit Bank of Texas. He is a
member of Agriculture Co-Op Development International and has served as a member
of the National Commission on Agricultural Finance, the Advisory Board of the
Federal Intermediate Credit Bank of Texas and the Board of Directors of the
Production Credit Association of South Texas. Mr. McCarthy also serves as an
officer and director of several closely held companies engaged in construction,
farming, shipping and land acquisition and development.
John Dan Raines, Jr., 50, has been a member of the Board of Directors of the
Corporation since June 18, 1992, and is a member of the Compensation Committee,
the Marketing Committee and the Class B Nominating Committee. He is the owner
and operator of Georgia Produce Exchange, Inc., a fresh vegetable sales firm,
and Raines Insurance Agency, Inc., a general insurance agency. From 1986 to
1990, Mr. Raines was a member of the Board of Directors of the South Atlantic
Production Credit Association, and served as its Chairman in 1989 and 1990.
Since 1990, Mr. Raines has served as a member of the Board of Directors of
AgFirst, Farm Credit Bank (formerly, the Farm Credit Bank of Columbia, South
Carolina). He also has served since 1981 as a member of the Board of Directors
of South Central Farm Credit, ACA, and its predecessor Farm Credit System
institution.
Darryl W. Rhodes, 44, has been the Senior Vice President - Finance of the Farm
Credit Bank of Wichita, Kansas, since 1991. From 1986 to 1991, he was a Senior
Vice President of the Ninth District Federal Land Bank Association/Production
Credit Association, Wichita, Kansas. For 14 years prior to that, he held
numerous positions with the Farm Credit Bank of Wichita, including Vice
President - Association Supervision.
Appointed Members
Marilyn Peters, 65, has been a member of the Board of Directors of the
Corporation since October 12, 1994, and is a member of the Public Policy
Committee and the Program Development Committee. Her appointment to the Board
was confirmed by the United States Senate on October 4, 1994. Mrs. Peters and
her husband own farm and ranch land in Marshall County, South Dakota, used for
the production of grain crops and cattle. Mrs. Peters is a former teacher and
current member of the Britton Public School Board. In 1985, she was appointed by
the Governor of South Dakota to serve on the South Dakota Council on Vocational
Education, the South Dakota Private Industry Council and the South Dakota
Professional Administrators Practices and Standards Commission. She also has
been active in other farm, education and political organizations for many years,
having served, among other positions, as a member of the National Association of
State Councils on Vocational Education representing the interest of the
agricultural community in the work of the association.
Gordon Clyde Southern, 68, has been a member of the Board of Directors of the
Corporation since March 2, 1989, and has served as its Vice Chairman since
August 1994. He also serves as Chairman of the Executive, Public Policy and
Compensation Committees and is a member of the Finance Committee. His
appointment to the Board was confirmed by the United States Senate on September
30, 1988. Mr. Southern has been a farmer and President of the Southern Farm Co.,
Inc. in Steele, Missouri since 1954. He serves as Chairman of the Bootheel
Resources Conservation and Development Council and as a member of the Executive
Council of the University of Missouri Delta Experiment Station, and is a member
of the Lower Mississippi River Valley Flood Control Association. He has served
as Presiding Commissioner of Pemiscot County and as Chairman of the Pemiscot
County Port Authority. He is currently serving as President of the Pemiscot
County Farm Bureau Federation.
Clyde A. Wheeler, Jr., 73, has been a member of the Board of Directors of the
Corporation since October 12, 1994, and is a member of the Public Policy
Committee, the Compensation Committee and the Audit Committee. His appointment
to the Board was confirmed by the United States Senate on October 4, 1994. Mr.
Wheeler, a self-employed farmer and rancher, owns and operates with his son the
Clear Creek Ranch, a cattle and hay operation in Laverne, Oklahoma. He spent
several years in public service, having begun as an administrative assistant to
an Oklahoma Congressman in 1951, then as a special assistant to former Secretary
of Agriculture Ezra Taft Benson and then as a staff assistant to President
Eisenhower. Following his public service career, he spent the next 24 years with
Sun Company, Inc. (and its predecessor companies), most recently as corporate
Vice President upon his retirement in 1984.
Edward Charles Williamson, Jr., 50, has been a member of the Board of Directors
of the Corporation since March 2, 1989, and is a member of the Public Policy
Committee, the Marketing Committee and the Program Development Committee. His
appointment to the Board was confirmed by the United States Senate on September
30, 1988. Mr. Williamson was a member of the Interim Board from June 16, 1988 to
March 2, 1989. Mr. Williamson is a farmer and has served as the Manager,
Director and Vice President of James Lee Adams Farms in Camilla, Georgia since
1979. Mr. Williamson also is an agent for Jefferson-Pilot Life Insurance Company
in Camilla, Georgia, and since 1985, has served as a member of the Board of
Directors of AAA Cleaning Company, a family-operated business.
In addition to the affiliations set forth above, the Nominees and
Appointed Members are active in many local and national trade, commodity,
charitable and religious organizations.
<PAGE>
Security Ownership of Directors and Executive Officers
As of the record date, April 20, 1995, it is believed that the
following individuals who are members of the Board of Directors and Nominees for
election as Directors might be deemed to be "beneficial owners" of equity
securities of the Corporation, as defined by the rules and regulations of the
Securities and Exchange Commission. The Corporation's Voting Common Stock may be
held only by financial institutions and Farm Credit System institutions, and may
not be held by individuals. Thus, no officer owns, directly or indirectly, any
shares of any class of the Corporation's Voting Common Stock. No Class B
Director or Nominee is deemed to be a "beneficial owner" of any equity
securities of the Corporation. Furthermore, Appointed Members may not be
officers or directors of financial institutions or Farm Credit System
institutions; consequently, they may not own Voting Common Stock of the
Corporation directly or indirectly. There are no ownership restrictions on the
Class C Non-Voting Common Stock.
<TABLE>
<CAPTION>
Voting Common Stock Non-Voting Common Stock 3
Class A Percent Class C Percent
<S> <C> <C> <C> <C>
John C. Dean 4 800 * 800 *
C.G. Holthus 5 600 * 600 *
Alan R. Tubbs 6 600 * 600 *
All directors and executive
officers
as a group 2000 * 2000 *
- - --------------
<FN>
* Less than 1%
_____________________
3 Does not include shares of Class C Non-Voting Common Stock that may be
acquired within 60 days through the exercise of stock options as
follows: Mr. Edelman, 40,000 shares; Mr. Bennett, 20,000 shares; Mr.
Clark, 20,000 shares; Ms. Corsiglia, 20,000 shares; Mr. Dunn, 5,000
shares; and all directors and officers as a group, 105,000 shares. See
"Stock Option Plan" below.
4 As 97% owner of Glenwood Bancorp, which owns 87% of Glenwood State
Bank, Glenwood, Iowa (owner of 800 shares each of Class A Voting Common
Stock and Class C Non-Voting Common Stock), Mr. Dean may be deemed a
beneficial owner of such shares. Mr. Dean disclaims such beneficial
ownership.
5 As 50% owner of First York BanCorp, which owns 100% of the First
National Bank of York, Nebraska (owner of 500 shares each of Class A
Voting Common Stock and Class C Non-Voting Common Stock), and 54% of
the Albion National Bank, Albion, Nebraska (owner of 100 shares each of
Class A Voting Common Stock and Class C Non-Voting Common Stock), Mr.
Holthus may be deemed a beneficial owner of such shares. Mr. Holthus
disclaims such beneficial ownership.
6 As a member of a group that owns 36% of Ohnward Bancshares, Inc., which
owns 100% of Maquoketa State Bank, Maquoketa, Iowa (owner of 400 shares
each of Class A Voting Common Stock and Class C Non-Voting Common
Stock), Baldwin Savings Bank, Baldwin, Iowa (owner of 100 shares each
of Class A Voting Common Stock and Class C Non-Voting Common Stock) and
First Central State Bank, DeWitt, Iowa (owner of 100 shares each of
Class A Voting Common Stock and Class C Non-Voting Common Stock), Mr.
Tubbs may be deemed a beneficial owner of such shares. Mr. Tubbs
disclaims such beneficial ownership.
</FN>
</TABLE>
<PAGE>
Executive Officers
The executive officers of Farmer Mac are as follows:
<TABLE>
<CAPTION>
Name Age Capacity in which Served and Five-Year History
<S> <C> <C>
Henry D. Edelman 46 President and Chief Executive Officer of the Corporation since June 1,
1989. From November 1986 until he joined Farmer Mac, Mr. Edelman was
First Vice President for Federal Government Finance of PaineWebber
Incorporated, New York, New York. From March 1986 until November 1986,
Mr. Edelman was Vice President for Government Finance at Citibank N.A.,
New York, New York. Previously, Mr. Edelman was Director of Financing,
Investments and Capital Planning at General Motors Corporation in New
York, New York, where he served in various capacities on the Legal
Staff and Financial Staff from 1976 to 1986.
Michael T. Bennett 37 Vice President - General Counsel and Secretary of the Corporation since
November 1, 1991. Mr. Bennett was an associate in the law firm of
Brown & Wood, Washington, D.C., from September 1983 until he joined
Farmer Mac.
Thomas R. Clark 47 Vice President - Corporate Relations of the Corporation since June 26,
1989. From April 1987 until joining Farmer Mac, Mr. Clark was Minority
Counsel to the U.S. Senate Committee on Agriculture, Nutrition and
Forestry. From April 1984 until April 1987, he was Deputy Director of
the Fruit and Vegetable Division, Agricultural Marketing Service, U.S.
Department of Agriculture.
Nancy E. Corsiglia 39 Vice President - Business Development of the Corporation since June 1,
1989 and Treasurer of the Corporation since December 8, 1989. From
June 1988 until she joined Farmer Mac, Ms. Corsiglia was Vice President
for Federal Government Finance at PaineWebber Incorporated, New York,
New York. From 1984 to 1988, she served as a Senior Financial Analyst
and a Manager on the Financial Staff of General Motors Corporation, New
York, New York.
Christopher A. Dunn 37 Vice President - Mortgage-Backed Securities of the Corporation since
April 5, 1993. From November 1991 until he joined Farmer Mac, Mr. Dunn
was a Senior Manager in the Asset Securitization Group at KPMG Peat
Marwick, Washington, D.C. From May 1988 to November 1991, he was a
Manager-Structured Finance of the Federal Home Loan Mortgage
Corporation (Freddie Mac).
Charles M. Lewis 69 Vice President - Agricultural Finance of the Corporation since May 2,
1994. From January 1992 until he joined Farmer Mac, Mr. Lewis was a
consultant to Farmer Mac and to Feather River State Bank, Yuba City,
California, as well as a state lobbyist for the Independent Bankers
Association of America. From October 1976 through December 1991, Mr.
Lewis was President of Feather River State Bank.
</TABLE>
<PAGE>
Compensation of Directors and Executive Officers
The Compensation Committee determines, subject to Board of Directors'
approval, the salaries, benefit plans and other compensation of directors and
officers of the Corporation. The current members of that committee are Messrs.
Southern (Chairman), Holthus, Raines and Wheeler. No member of the Committee is
an officer or employee of the Corporation and no such member is eligible to
participate in any of the compensation plans of the Corporation they administer.
Since the last annual meeting, the Compensation Committee has met two times.
- Compensation of Directors
The directors are required to spend a considerable amount of time
preparing for, as well as participating in, Board and Committee meetings. In
addition, they are often called upon for their counsel between meeting dates.
For those services, they receive the following compensation: (a) all members of
the Board of Directors receive an annual retainer of $10,000, except the
Chairman who receives a $15,000 annual retainer;7 (b) each director receives
$500 per day, plus expenses, for each meeting of the Board and each Committee
meeting (if on a day other than that of the Board meeting) attended; and (c)
with the prior approval of the President, members of the Board are compensated
at the same daily rate for certain other meetings and conferences of borrowers,
lenders or other groups interested in the Farmer Mac program in which they
participate. The total compensation received by all members of the Board of
Directors in 1994 was approximately $180,200.
________________________
7 Mr. Dean has waived his right to receive an annual retainer.
- Compensation of Executive Officers
General
This section includes: (i) a report from the Compensation Committee of
the Board of Directors on executive compensation; (ii) a summary description in
tabular form of executive compensation; (iii) a summary of aggregate option
holdings; (iv) a description of the executive officers' employment agreements;
(v) a discussion of certain relationships and related transactions with
Directors; (vi) a comparison of stock performance to market indices; and (vii) a
description of the Corporation's benefit plans, including the pension and stock
option plans.
Notwithstanding anything to the contrary set forth in any of Farmer
Mac's documents with respect to the offer or sale of securities ("Offering
Circular") or any previous corporate filings under the Securities Act of 1933 or
Securities Exchange Act of 1934, neither the Compensation Committee Report on
Executive Compensation nor the Performance Graph shall be deemed to be
incorporated by reference into any Offering Circular or any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent Farmer Mac specifically incorporates such information by reference, and
shall not otherwise be deemed to have been or to be filed under such Acts.
Compensation Committee Report on Executive Compensation
Farmer Mac's Compensation Policies. Farmer Mac was created by Congress
to establish a secondary market for agricultural and rural housing mortgages
much like the secondary market established by the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac") for housing mortgages. The missions defined for Farmer Mac by
Congress are to provide an arrangement to facilitate long- and intermediate-term
agricultural loan funding, including funds at fixed rates of interest; to
increase the availability of long-term credit for agricultural producers at
stable interest rates; and to provide greater liquidity and lending capacity for
agricultural and rural housing lenders. In short, Farmer Mac was created to
provide the farmers, ranchers and rural homeowners of this nation with the same
opportunities Fannie Mae and Freddie Mac have provided to homeowners throughout
the country -- a balanced combination of economic and public policy missions.
From the outset, the Board of Directors and its Compensation Committee
recognized that the accomplishment of those missions would require that Farmer
Mac attract and retain highly qualified personnel, and commit itself to
compensate them commensurately with what they might earn in comparable positions
at similar companies. In this regard, it was recognized that the task of
establishing a new secondary market for agriculture would be difficult.
Agricultural lending is an industry with a widely dispersed network of primary
lenders divided into at least three distinct sectors with dissimilar operating
techniques and goals. The common historic thread among the participants in each
of those industry sectors has been portfolio lending, and the transition toward
securitization could not be expected to be rapid or abrupt. In addition, Farmer
Mac was created with certain statutory restraints on its operations that were
not in the charters of Fannie Mae or Freddie Mac, in that it could not directly
purchase loans and that it could only place its guarantee on securities backed
by pools of loans enhanced by a subordinated interest or a reserve fund. Under
those circumstances, the challenge facing the Farmer Mac Board was to attract
and motivate talented personnel capable of addressing the formidable tasks
necessary to accomplish the Corporation's missions, and to encourage them to
persevere in their efforts through what would likely be a number of difficult
and uncertain years.
The solution devised by Farmer Mac's Board of Directors and
Compensation Committee in connection with the hiring of the Chief Executive
Officer ("CEO") and other senior members of management beginning in June 1989
and continuing (with modifications) to date, was to adopt an approach to
executive compensation relying upon both subjective (qualitative) and objective
(quantitative) evaluation criteria. That approach relies primarily on measures
of performance based on management's accomplishments in implementing business
strategies designed to achieve the annual and long-term objectives defined in
the Corporation's annual business plan, as approved each year by the Board of
Directors. Those strategies have generally included: establishing an efficient
loan pricing mechanism through Farmer Mac capable of supporting loan products
with competitive rates; establishing an active pooler network that commences and
operates ongoing pooling programs; establishing and maintaining internal
controls; managing capital; and retaining a highly qualified and motivated
management team. The achievement of those strategies, no one of which is given
more or less weight than any other, does not necessarily have an immediate or
direct effect on the trading price of Farmer Mac's stock. The more subjective
approach chosen by the Compensation Committee was preferred over more objective
but short-term measures of performance such as profit, return on equity or stock
performance, because the Corporation was then and continues to be in the
developmental stage of establishing a secondary market for agricultural and
rural housing mortgages. In general, there is no specific relationship between
Farmer Mac's short-term financial performance and the compensation of any member
of senior management. Nor is there any intent to relate compensation to Farmer
Mac's stock price performance.
Consistent with the Corporation's general approach to measuring
management performance for compensation purposes with reference to subjective
criteria, the annual compensation packages include so called "incentive
compensation" -- compensation that rewards individual performance in connection
with the achievement of non-quantitative goals. The payment of incentive
compensation is based upon the Compensation Committee's judgment of the
contribution of each member of management in implementing the strategies
designed to achieve business plan objectives. The Compensation Committee has
been disinclined to set volume targets as a basis for determining incentive
compensation because Farmer Mac has little, if any, control over the ultimate
decision of poolers to sell loans into the secondary market and because of a
concern that such targets could lead to an emphasis on volume at the risk of
diminished quality. Nevertheless, limited volume targets (intended to reflect
the effectiveness of management's efforts to implement the secondary market)
have been established and included as conditions for payment to management of a
portion of incentive compensation. The Compensation Committee does not, however,
prioritize the achievement of quantitative over qualitative goals in setting
total compensation because the Committee recognizes that many of the
Corporation's objectives are long-term in nature.
Method of Determining Management Compensation Historically and for the
1993-94 Plan Year. In determining an individual's initial compensation, the
Compensation Committee considers the level of compensation necessary to attract
and retain a person with the required qualifications. Factors considered include
the individual's experience, education, accomplishments, reputation and prior
compensation, as well as the level of responsibility to be assumed at Farmer
Mac. When appropriate, the cost of obtaining comparable services from outside
consultants is also taken into account. The Corporation's method of determining
annual management compensation has been essentially the same from year to year.
In May of each year, at the end of the 12-month business plan cycle ("plan
year"), the Compensation Committee, composed entirely of outside directors (as
is the entire Board) and including the Chairman of the Board, reviews
management's performance in terms of the effectiveness in executing the
strategies designed to achieve the objectives defined in the business plan,
taking into account the business conditions that prevailed during the preceding
plan year.
Detailed written performance evaluations are made of the members of
senior management other than the CEO, distributed to the Compensation Committee
members in advance, and discussed among the members in executive session. The
CEO participates in the evaluations of each other senior member of management,
but not in his own. As a benchmark for compensation decisions, the Compensation
Committee compares the Corporation's compensation practices for its CEO and
other senior management with those applicable to middle management at Fannie
Mae, Freddie Mac and comparable financial services companies. This comparison is
made on both an annual and a multi-year basis, in order to take into account pay
levels and rates of increase at Farmer Mac and similar companies. Both Fannie
Mae and Freddie Mac are included in the group of companies whose stock
performance is reflected in the S&P Financial Index, which is shown in the
Performance Graph on page 24.
The Compensation Committee considers the total compensation of the CEO
in executive session, and then includes the CEO in its consideration of the
total compensation of each of the other members of senior management. Based on
those deliberations, the Compensation Committee makes compensation decisions
(subject to the approval of the Board of Directors) consistent with the
Corporation's compensation policies, the terms of the contracts under which the
CEO and other senior management are employed, and its ability to attract and
retain a management team with the skills and talent necessary to achieve the
Corporation's missions.
The Compensation Committee evaluated the performance of the CEO and
other senior management for the 1993-94 plan year (June 1, 1993 to May 31, 1994)
by reviewing the contribution of each member of senior management to the
accomplishment of the strategies and objectives under the 1993-94 business plan.
Although no guarantee transactions in Farmer Mac I were closed within that plan
year, Farmer Mac II volume doubled during the year. The Compensation Committee
also evaluated the Corporation's non-financial achievements during the plan
year, recognizing that a significant aspect of the development of Farmer Mac
involves the establishment of programs that facilitate participation by poolers
and provide effective access to the secondary market for stockholders who are
loan originators. In that regard, the Compensation Committee considered the
importance of the commencement of agricultural loan pooling activities by two
institutions, Prudential Securities Incorporated and The Travelers Realty
Investment Company, as "open window" programs, i.e., accessible to all Farmer
Mac stockholders regardless of industry affiliation. The lender networks
established by those poolers, as well as the competitive rates available to
lenders and borrowers in those programs and the dollar volume of loans acquired
under the programs were given significant consideration. Likewise, the
negotiation with AgFirst, Farm Credit Bank ("AgFirst") of a new rural housing
loan securitization initiative and the possible implementation of the initiative
as a three-party arrangement among Farmer Mac, AgFirst and Fannie Mae, were also
viewed as highly significant, though non-financial, accomplishments from a
stockholder perspective during the 1993-94 plan year. Those business
developments, together with financial results demonstrating stability in the
financial condition of Farmer Mac from 1993 to 1994 and management's
effectiveness in implementing strategies to minimize the financial impact of
loan prepayments, in limiting expenses through cost control measures, and in
maximizing revenue through sophisticated investment techniques, were weighed
carefully against the lack of guarantee activity from poolers, with no one
factor given more or less weight than any other. On that basis, the Compensation
Committee recommended for approval by the Board the compensation to the CEO and
other senior management disclosed herein.
The proportion of the total cash compensation package representing
incentive compensation for the 1993-94 plan year was 25% for the CEO and ranged
between 14% and 24% for other senior management.8 The basis for determining that
compensation was the Compensation Committee's assessment of each individual's
performance based on subjective standards including professional competence,
motivation, and effectiveness, as well as the individual's contribution to the
implementation of strategies designed to achieve the objectives set forth in the
business plan for the 1993-94 plan year. After careful deliberation and at the
initiative of the Compensation Committee, the Board determined to waive a
minimum volume target and grant a portion of the incentive compensation that
would otherwise have been dependent on the achievement thereof. Several
considerations led to this decision, particularly the establishment of the two
agricultural loan securitization programs and the negotiation of a rural housing
loan pooling arrangement. The Board and Compensation Committee were also
disinclined to reduce compensation significantly below prior year levels, which
otherwise would have occurred, inasmuch as no year-to-year salary raises or
stock options were granted.
________________________
8 Commencing with the 1993-94 plan year, the portion of incentive
compensation payable to senior management for satisfactory performance
was reallocated to each such person's base salary. The percentages of
incentive compensation relative to total compensation were calculated
after the reallocation. Notwithstanding these reallocations, total
compensation (base salary and incentive compensation) decreased from
the 1992-93 plan year to the 1993-94 plan year for each member of
senior management other than the CEO, whose total compensation remained
unchanged from the prior plan year.
<PAGE>
Basis for Determining Chief Executive Officer's Compensation. Farmer
Mac's CEO was hired in June 1989, after having served as financial advisor to
the Corporation's interim Board of Directors in connection with Farmer Mac's
initial public offering of common stock. The initial compensation package of the
CEO was based on his years of experience as a successful investment banker,
financial advisor to federal government agencies, corporate finance executive
and attorney, his prior levels of compensation, his experience with Farmer Mac,
the level of responsibilities he would assume at a start-up company and the
general level of compensation necessary to attract and retain a person with a
comparable background. For the 1993-94 plan year, the Compensation Committee
awarded Mr. Edelman incentive compensation of $85,000 (representing 25% of his
total cash compensation package). As a result of the reallocation to Mr.
Edelman's base salary of the portion of incentive compensation payable for
satisfactory performance ($50,000), Mr. Edelman's base salary was increased to
$250,000 from $200,000.9 Notwithstanding this reallocation, Mr. Edelman's total
cash compensation (base salary plus incentive compensation) did not increase
from the 1992-93 plan year to the 1993-94 plan year. The incentive compensation
awarded to Mr. Edelman was based on the Compensation Committee's assessment of
his role in the achievements of Farmer Mac during the 1993-94 plan year.10
The Compensation Committee members believe that both the design of
Farmer Mac's compensation structure and the actual total compensation levels
described in this proxy statement reflect careful consideration about what has
been fair from both management and stockholder perspectives. Moreover, the
Compensation Committee believes that the level of compensation paid to senior
management is consistent with the levels paid to middle management at Fannie
Mae, Freddie Mac and comparable financial services companies, but at the low end
of the range relative to the management functions, difficult responsibilities
and uncertainties at Farmer Mac.
Compensation Committee 11
G. Clyde Southern, Chairman C.G. Holthus
J.D. Raines C.A. Wheeler
__________________
9 Because compensation decisions are made on a plan year basis (June 1 to
May 31), only a prorated portion of this increase appears in the
Summary Compensation Table, since the table is prepared on the basis of
compensation earned during Farmer Mac's fiscal (calendar) year.
10 Mr. Edelman has declined to be considered for or to be paid any cash
incentive compensation for the 1994-95 plan year (June 1, 1994 to May
31, 1995), although compensation decisions have not yet been made with
respect to that plan year.
11 Messrs. Southern and Wheeler became members of the Compensation
Committee following the termination by President Clinton of the
services of John R. Dahl as Chairman and a member of the Board and the
resignation of Neil D. Levin from the Board upon his appointment as
Superintendent of Banks of the State of New York, respectively, both of
which events occurred after the determination of management
compensation for the 1993-94 plan year.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long -Term
Annual Compensation Compensation
Awards
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary 12 Bonus Options Compensation 13
---------------------------- ------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Henry D. Edelman, President and 1994 250,000 85,000 -- 32,923
Chief Executive Officer 1993 230,000 135,000 20,000 35,996
1992 200,000 125,000 20,000 35,701
Michael T. Bennett, Vice President 1994 150,000 25,000 -- 28,350
- - --General Counsel and Secretary 1993 155,000 25,000 10,000 22,883
1992 135,000 34,583 10,000 21,711
Thomas R. Clark, Vice President -- 1994 145,000 40,000 -- 28,152
Corporate Relations 1993 140,000 65,000 10,000 22,093
1992 120,769 60,000 10,000 21,305
Nancy Corsiglia, Vice President -- 1994 145,000 40,000 -- 26,950
Business Development and Treasurer 1993 140,000 65,000 10,000 21,062
1992 120,769 60,000 10,000 20,332
Christopher A. Dunn, Vice President 1994 137,500 42,500 -- 25,253
- - --
Mortgage-Backed Securities14 1993 98,913 9,200 5,000 13,659
1992 -- -- -- --
<FN>
_______________________
12 Effective June 1, 1993, the portion of incentive compensation payable
to senior management for satisfactory performance was reallocated to
each such person's base salary. For each member of senior management
(with the exceptions of Mr. Dunn and Mr. Bennett), payment of those
amounts was deferred until January 1994.
13 Represents amounts contributed to the defined contribution plan on
behalf of the officers named in the table, as well as disability and
life insurance premium payments paid on behalf of the officers. See
"Defined Contribution Pension Plan" and "Employment Agreements."
14 Mr. Dunn began employment with the Corporation in April 1993.
</FN>
</TABLE>
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year-End In-the-Money Options
at Year-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
---- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Henry D. Edelman -- $ -- 40,000/0 $ 0/0
Michael T. Bennett -- -- 20,000/0 0/0
Thomas R. Clark -- -- 20,000/0 0/0
Nancy E. Corsiglia -- -- 20,000/0 0/0
Christopher A. Dunn -- -- 5,000/0 0/0
</TABLE>
Employment Agreements
The Corporation has entered into employment agreements (the
"Agreements") with the six members of senior management ("officers") in order to
provide them with a reasonable level of job security, while limiting the
Corporation's ultimate financial exposure. Significant terms of the Agreements
address each officer's scope of authority and employment, base salary and
incentive compensation (shown as "bonus" in the Summary Compensation Table),
benefits, conditions of employment, termination of employment and the term of
employment. Although the Agreements expire on dates approximately one to three
years from the present,15 the Corporation's exposure to severance pay and other
costs of termination are capped on the basis of the lesser of two years
(eighteen months in the case of dissolution) or the remaining term of the
Agreement.
____________________
15 The Agreements with each of the executive officers expire June 1 of the
following years: H.D. Edelman, 1998; T.R. Clark, N.E. Corsiglia, C.A.
Dunn, 1997 and M.T. Bennett, 1996.
Under the Agreements, executive compensation includes base salary and
incentive compensation for various levels of performance. Base compensation for
all officers is paid bi-weekly over the course of each year. Possible awards of
incentive compensation are considered annually at the end of the "plan year"
(June 1 to May 31) and are determined and payable under the circumstances
discussed above in "Compensation Committee Report on Executive Compensation."
The Agreements provide that each officer is entitled to certain
benefits, such as disability insurance, health, dental and vision insurance and
additional life insurance which are, in some cases, above the levels provided to
employees generally. See the "Summary Compensation Table" for information on
other benefits extended to the officers.
The Agreements also provide that an officer's employment may be
terminated "without cause" upon payment of severance pay consisting of all base
salary scheduled to be paid over the lesser of the remaining term of the
Agreement or two years, plus specified percentages of the incentive compensation
that would have been paid if the performance goals had been met. If the Board of
Directors adopts a resolution authorizing a dissolution of the Corporation, the
Agreements also may be terminated upon payment of severance pay consisting of
all base salary scheduled to be paid until the later of final dissolution or one
and one-half years, plus specified percentages of the incentive compensation
that would have been paid if the performance objectives had been met during the
period. An officer's death or disability would permit termination on the same
basis as "without cause," but the Corporation's obligations in such instances
are substantially covered by insurance. The Agreements may be terminated by
Farmer Mac for "cause," as defined in the Agreements, in which event the officer
will be paid only accrued compensation to the date of termination.
Certain Relationships and Related Transactions With Directors
Mr. Brown is President and Chief Operating Officer of Equitable
Agri-Business, Inc. ("Equitable"), a pooler and a central servicer in the Farmer
Mac Program. As a central servicer, Equitable has entered into an agreement with
Farmer Mac pursuant to which Farmer Mac has agreed to provide Equitable with
funds necessary to make advances, if any, with respect to loans pooled in any
transaction under the open window pooling program operated by Prudential
Securities Incorporated, which has announced its withdrawal from that program.
Any funds so obtained from Farmer Mac are to be repaid with interest out of
recoveries on the related loan. To date, Farmer Mac has not advanced any funds
to Equitable under this arrangement.
Equitable has announced its intention to continue the program
previously operated with Prudential Securities, subject to obtaining a
commitment from a bank or other institution to qualify as pooler, serve as its
funding source and agree to sell any subordinated securities issued in
connection with any guarantee transactions that are consummated thereunder. For
purposes of determining Equitable's compliance with the 1994 minimum volume
thresholds imposed on all existing poolers as a condition of retaining their
pooler status in the Farmer Mac I Program, Prudential Securities and Equitable
have agreed, with the concurrence of Farmer Mac, that Equitable shall be
credited with the aggregate principal balance of loans acquired by Prudential
Securities under its program, which enabled Equitable to retain its pooler
status.
Mr. Cirona is President and Chief Executive Officer of Western Farm
Credit Bank ("Western"), a Pooler in the Farmer Mac I Program. In November 1994,
Farmer Mac and Western entered into a five-year strategic alliance agreement
pursuant to which Western has agreed to establish and operate an agricultural
loan pooling program open to all Farmer Mac stockholders. As part of its
commitment to establish and operate the program, Western has agreed to purchase
Class C Non-Voting Stock to be issued by Farmer Mac in amounts equal to the
costs and expenses incurred (or expected to be incurred) in establishing and
operating the program, up to a maximum amount of $1.5 million. Farmer Mac has
agreed to provide technical and financial assistance to the program, including
purchasing interest-bearing obligations issued by Western in principal amounts
corresponding to the cost of purchasing the Class C Stock. The Notes are
repayable, but only out of the segregated assets and property (including
profits) of the program and not the assets and property of Western. As part of
its commitment to Farmer Mac, Western also agreed to submit at least $50 million
of loans to Farmer Mac for guarantee in a "swap transaction," in return for
which it would receive warrants to purchase additional Class C Stock in an
amount based on the amount by which the original aggregate principal balance of
the loans in the swap transaction exceeded $50 million. The swap transaction
closed on February 22, 1995, with a pool containing approximately $71.3 million
principal balance of loans. Warrants to purchase 20,871 shares of Class C Stock
will be issued to Western at $7.67 per share, expiring March 1, 2005.
During 1994, Farmer Mac purchased Guaranteed Portions of loans under
the Farmer Mac II Program in transactions with institutions related to nominees
for election as directors. These transactions were done in the ordinary course
of business, with terms and conditions substantially the same as those
prevailing for comparable transactions with other persons. They represent an
insignificant portion of Farmer Mac's business.
Performance Graph
Farmer Mac has three classes of Common Stock, Class A and Class B
Voting Common Stock and Class C Non-Voting Common Stock (collectively, the
"Common Stock"). The Common Stock was issued in Units and, until November 23,
1993, traded as such. A "Class A Unit" consisted of one share of Class A Voting
Common Stock and one share of Class C Non-Voting Common Stock. A "Class B Unit"
consisted of one share of Class B Voting Common Stock and one share of Class C
Non-Voting Common Stock. In accordance with the terms of the initial public
offering, the Class C Non-Voting Common Stock separated from the Class A and
Class B Units on November 23, 1993 (the "Separation Date"). Since January 1994,
the Class A and Class C Common Stock have been quoted separately on the NASDAQ
Small Cap Market, but have traded at a level approximately one-half the price of
a Class A Unit prior to the Separation Date. As a result of the limited market
for Class B Common Stock and the infrequency of trades therein, the Class B
Common Stock does not trade on any market or exchange nor is Farmer Mac aware of
any publicly available quotations or prices with respect to Class B Common
Stock.
The following graph compares the performance of Farmer Mac's Common
Stock (initially as a Class A Unit and then, after the Separation Date, as
separate Class A and Class C Common Stock) with the performance of the NASDAQ US
Stock Market Index ("NASDAQ US Index") and the Standards & Poor's Financial
Index ("S & P Financial Index") over the period from December 31, 1990 to
December 31, 1994. The graph assumes that $100 was invested on December 31, 1990
in each of Farmer Mac Class A Common Stock; the NASDAQ US Index; and the S & P
Financial Index; and that all dividends were reinvested. From December 31, 1990
until the Separation Date, the graph reflects the per unit price of a Class A
Unit. Since the Separation Date, the graph reflects the separation-adjusted per
share prices of the Class A and Class C Common Stock, each of which has traded
at the same per share price (approximately one-half the trading price of a Class
A Unit prior to the Separation Date). No assurance can be given that the Class A
and Class C Common Stock will continue to trade in that manner in the future.
[GRAPHIC OMITTED]
NASDAQ US FM S&P-Fin
1990 100.0 100.0 100.0
1991 160.5 42.7 158.6
1992 186.7 44.0 184.6
1993 213.1 48.0 224.1
1994 208.3 48.0 221.6
Stock Option Plan
In 1992, the Board adopted a Stock Option Plan (the "Plan"). The
purpose of the Plan is to encourage stock ownership by key management employees
and directors, to provide an incentive for such individuals to expand and
improve the business of Farmer Mac and to assist Farmer Mac in attracting and
retaining key personnel. The use of stock options is an attempt to align more
closely the long-term interests of employees and directors with those of Farmer
Mac's stockholders by providing those individuals with the opportunity to
acquire an equity interest in Farmer Mac. No options to purchase Class C
Non-Voting Common Stock were granted to officers in 1994, nor to directors since
inception of the Plan.
<PAGE>
The Plan is administered by the Compensation Committee of the Board.
Because individuals are prohibited by law from owning shares of Voting Common
Stock, the Corporation uses unrestricted Class C Non-Voting Common Stock for the
purpose of granting options under the Plan. The Plan provides for the issuance
of "nonqualified" stock options on Class C Non-Voting Common Stock at an option
price of $15 per share with a term of 10 years from the date of grant. The Plan
was amended in 1993 to increase the maximum number of shares of Class C
Non-Voting Common Stock that may be optioned and sold to 115,000. Both the
aggregate number of shares of Class C Non-Voting Common Stock available for
options under the Plan and the price per share are subject to adjustment to
reflect subdivisions or consolidations of shares or any other capital
adjustment, payment of a stock dividend or any other increase or decrease in the
number of shares outstanding. The option price is payable in cash, and no
participant has any rights as a stockholder with respect to shares subject to an
option until the option price has been paid and the shares are issued to the
participant. If a participant leaves Farmer Mac for any reason, including
retirement, all of the participant's rights to exercise any option terminate on
the earlier of the option expiration date or 30 days after termination of
employment, unless termination was for "cause," in which case the options expire
immediately.
Defined Contribution Pension Plan
Farmer Mac annually contributes a percentage of each employee's base
salary to the Corporation's Defined Contribution Pension Plan (the "Pension
Plan"). The percentage is equal to the sum of (a) 13.2% of each employee's base
salary and (b) 5.7% of the amount equal to the employee's base salary (not to
exceed $150,000) less the Social Security Taxable Wage Base (which, for 1995, is
$61,200).
All persons employed by Farmer Mac are eligible to participate in the
Pension Plan. The vesting period for the Pension Plan is two years, there is no
requirement for a matching contribution by the employee, and there is no defined
annual benefit to the employee upon retirement. The "Summary Compensation Table"
includes amounts contributed by the Corporation pursuant to the Pension Plan on
behalf of the executive officers who are named therein.
<PAGE>
401(k) Savings Plan
Pursuant to the Corporation's 401(k) Savings Plan (the "Savings Plan"),
which is intended to be qualified under Section 401(k) of the Internal Revenue
Code of 1986, participants may increase their retirement savings through
tax-deferred contributions. All persons employed by Farmer Mac are eligible to
participate. Participants may defer up to 15% of their annual eligible
compensation up to the maximum deferral permitted under Federal law ($9,240 for
the 1994 plan year). The Corporation does not contribute any amounts to the
Savings Plan.
Item No. 2: Selection of Independent Auditors
The By-Laws of the Corporation provide that the Audit Committee shall
select the Corporation's independent auditors "annually in advance of the annual
meeting of stockholders and that selection shall be submitted for ratification
or rejection at such meeting." In addition, the Audit Committee reviews the
scope and results of the audits, the accounting principles being applied, and
the effectiveness of internal controls. The Audit Committee also ensures that
management fulfills its responsibilities in the preparation of the Corporation's
financial statements. Since the last annual meeting, the Audit Committee,
composed of Messrs. Cirona (Chairman), Tubbs and Wheeler, met three times.
In accordance with the By-Laws, the Audit Committee has unanimously
recommended KPMG Peat Marwick as the Corporation's independent auditors for the
fiscal year ending December 31, 1995. This proposal is put before the
stockholders in conformity with the current practice of seeking stockholder
approval of the selection of independent auditors. A majority of votes from the
Class A Holders and a majority of votes from the Class B Holders, cast in favor,
will ratify the selection.
KPMG Peat Marwick acted as the Corporation's independent auditors in
connection with the Corporation's audited financial statements for the fiscal
years ended December 31, 1989, 1990, 1991, 1992, 1993 and 1994. In addition to
auditing the Corporation's financial statements, KPMG Peat Marwick also renders
related services, such as reviewing the Corporation's quarterly reports to
stockholders and other periodic reports required to be filed with the Securities
and Exchange Commission. KPMG Peat Marwick also assists the Corporation on
various tax and financial matters unrelated to the audits and performs various
loan review procedures in connection with the Corporation's guarantee
transactions under the Farmer Mac I Program. All such services have been
provided at usual and customary rates for similar services.
Representatives of KPMG Peat Marwick are expected to attend the
Meeting. They will have the opportunity to make a statement if they desire to do
so, and will be available to answer appropriate questions from stockholders
present at the Meeting.
The Board of Directors recommends a vote FOR the proposal to ratify the
selection of KPMG Peat Marwick as independent auditors for the Federal
Agricultural Mortgage Corporation for 1995. Proxies solicited by the Board of
Directors will be so voted unless holders of the Corporation's Voting Common
Stock specify to the contrary on their proxies, or unless authority to vote is
withheld. Other
Other Matters
The enclosed proxy confers on the Proxy Committee discretionary
authority to vote the shares represented thereby in accordance with their best
judgment with respect to all matters that may be brought before the Meeting or
any adjournment thereof, in addition to the scheduled items of business, and
matters incident to the Meeting. The Board of Directors does not know of any
other matter that may properly be presented for action at the Meeting. If any
other matters should properly come before the Meeting or any adjournment
thereof, the persons named in the accompanying proxy intend to vote such proxy
in accord with their best judgment.
Principal Stockholders of Voting Common Stock
It is believed that, as of the date of this proxy statement, the
following institutions are the beneficial owners of either 5% or more of the
total outstanding shares of Voting Common Stock or 5% or more of the outstanding
Voting Common Stock held by any class.
<PAGE>
<TABLE>
<CAPTION>
Estimated Number Percent of Total Percent of Total
of Shares Voting Shares Shares Held
Name and Address Beneficially Owned Outstanding* By Class**
---------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Norwest Bank of Minnesota, N.A. 38,000 shares of 3.25% 5.67%
8th St. & Marquette Ave. Class A Voting
Minneapolis, MN 55479 Common Stock
The Prudential 38,700 shares of 3.31% 5.78%
Insurance Company of America Class A Voting
751 Broad Street Common Stock
Prudential Plaza
Newark, NJ 07102-3777
Merrill Lynch & Co., Inc. 40,600 shares of 3.38% 5.91%
Merrill Lynch, Pierce, Class A Voting
Fenner & Smith Incorporated Common Stock
250 Vesey Street
New York, NY 10281
John Hancock Mutual 40,000 shares of 3.42% 5.97%
Life Insurance Company Class A Voting
John Hancock Place Common Stock
P.O. Box 111
Boston, MA 02117
AgFirst, Farm Credit Bank 16 86,524 shares of 7.39% 17.29%
P.O. Box 1499 Class B Voting
Columbia, SC 29202 Common Stock
AgriBank, FCB17 148,441 shares of 12.69% 29.67%
P.O. Box 504 Class B Voting
St. Louis, MO 63166-0504 Common Stock
Farm Credit Bank of 45,223 shares of 3.86% 9.04%
Wichita18 Class B Voting
P.O. Box 2940 Common Stock
Wichita, KS 67201
Farm Credit Bank of 38,503 shares of 3.29% 7.70%
Texas19 Class B Voting
P.O. Box 15919 Common Stock
Austin, TX 78761
Western Farm Credit Bank 20 57,500 shares of 4.91% 11.49%
P.O. Box 13106 Class B Voting
Sacramento, CA 95813 Common Stock
AgAmerica, FCB 86,274 shares of 7.37% 17.24%
601 West First Avenue Class B Voting
Spokane, WA 99220 Common Stock
<FN>
_____________________
* The percentage is determined by dividing the number of shares of Voting
Common Stock owned by the total of the number of shares of Voting
Common Stock outstanding.
** The percentage is determined by dividing the number of shares of the
class of Voting Common Stock owned by the number of shares of that
class of Voting Common Stock outstanding.
16 John Dan Raines, Jr., currently a member of the Board of Directors and
a Class B Nominee, is a member of the Board of Directors of AgFirst,
Farm Credit Bank (formerly, the Farm Credit Bank of Columbia, South
Carolina).
17 Bill Mainer, currently a member of the Board of Directors and a Class B
Nominee, is a member of the Board Directors of AgriBank, FCB.
18 Darryl W. Rhodes, a Class B Nominee, is a Senior Vice President of the
Farm Credit Bank of Wichita.
19 James A. McCarthy, currently a member of the Board of Directors and a
Class B Nominee, is a member of the Board of Directors of the Farm
Credit Bank of Texas.
20 James M. Cirona, currently a member of the Board of Directors and a
Class B Nominee, is the President and Chief Executive Officer of the
Western Farm Credit Bank.
</TABLE>
<PAGE>
Non-Voting Common Stock
The Corporation's Common Stock was initially issued in units consisting
of one share of either Class A or Class B Voting Common Stock, and one share of
Class C Non-Voting Common Stock. On November 23, 1993, pursuant to the terms of
the 1988 initial public offering of the stock of the Corporation, the units
separated into their component classes and each holder of a unit became the
holder of an equal number of shares each of the relevant class of Voting Common
Stock and the Class C Non-Voting Common Stock. At the close of business on the
record date, April 20 1995, there were issued and outstanding 1,170,301 shares
of Class C Non-Voting Common Stock.
Expenses of Solicitation
The Corporation will pay the cost of the Meeting and the costs of
soliciting proxies, including the cost of mailing the proxy material. The
Corporation has retained D.F. King & Co., Inc. to act as the Corporation's proxy
solicitation firm for a fee of approximately $10,000. In addition to
solicitation by mail, employees of D.F. King & Co., Inc. may solicit proxies by
telephone, telegram or personal interview. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
material to the beneficial owners for shares held of record by them, and will be
reimbursed for their expenses by the Corporation.
-----------------------------
The giving of your proxy will not affect your right to vote your shares
personally if you do attend the Meeting. In any event, it is important that you
complete, sign and return the enclosed proxy card promptly to ensure that your
shares are voted.
By order of the
Board of Directors,
/s/ MICHAEL T. BENNETT
--------------------------
Michael T. Bennett
Corporate Secretary
April 28, 1995
Washington, D.C.
<PAGE>
APPENDIX A
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, JUNE 8, 1995
The undersigned hereby appoints Henry D. Edelman, Michael T. Bennett, and Thomas
R. Clark, and any of them, as Proxies for the undersigned and to vote all of the
shares of the Class A Voting Common Stock of the FEDERAL AGRICULTURAL MORTGAGE
CORPORATION (the "Corporation") that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Coporation to be held on June 8, 1995, and
any and all adjournments thereof.
The Board of Directors unanimously recommends
a vote FOR the proposals.
In their decision, the Proxies are authorized to vote on such other matters as
may properly come before the meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS and, when properly executed, will be voted as instructed
herein. If no instructions are given, this proxy will be voted FOR proposals 1
and 2.
PLEASE COMPLETE, SIGN, DATE, AND MAIL IN THE ENCLOSED ENVELOPE.
[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE
For Withhold For all Except
1. Election of Directors. [ ] [ ] [ ]
Class A Nominees
William H. Brandon, Jr., E.J. Brown, John C Dean,
C.G. Holthus and Michael C. Nolan
If you do not wish your shares voted ''FOR'' a particular nominee, mark the
''For All Except'' box and strike a line through the nominee(s) name in the list
above. Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
2. Proposal to approve the appointment For Against Abstain
of KPMG Peat Marwick as independent [ ] [ ] [ ]
auditors for the Corporation for
the fiscal year ending December 31,
1995.
Please be sure to sign and date this Proxy. Date _____________________________
Stockholder sign here ___________________ Co-owner sign here __________________
<PAGE>
APPENDIX B
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, JUNE 8, 1995
The undersigned hereby appoints Henry D. Edelman, Michael T. Bennett, and Thomas
R. Clark, and any of them, as Proxies for the undersigned and to vote all of the
shares of the Class B Voting Common Stock of the FEDERAL AGRICULTURAL MORTGAGE
CORPORATION (the "Corporation") that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Coporation to be held on June 8, 1995, and
any and all adjournments thereof.
The Board of Directors unanimously recommends
a vote FOR the proposals.
In their decision, the Proxies are authorized to vote on such other matters as
may properly come before the meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS and, when properly executed, will be voted as instructed
herein. If no instructions are given, this proxy will be voted FOR proposals 1
and 2.
PLEASE COMPLETE, SIGN, DATE, AND MAIL IN THE ENCLOSED ENVELOPE.
[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE
For Withhold For all Except
1. Election of Directors. [ ] [ ] [ ]
Class B Nominees
James M. Cirona, Bill Mainer, James A. McCarthy,
J. Dan Raines, Jr., and Darryl W. Rhodes
If you do not wish your shares voted ''FOR'' a particular nominee, mark the
''For All Except'' box and strike a line through the nominee(s) name in the list
above. Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
2. Proposal to approve the appointment For Against Abstain
of KPMG Peat Marwick as independent [ ] [ ] [ ]
auditors for the Corporation for
the fiscal year ending December 31,
1995.
Please be sure to sign and date this Proxy. Date _____________________________
Stockholder sign here ___________________ Co-owner sign here __________________
<PAGE>
APPENDIX C
Table of Contents
Corporate Profile 2
Selected Financial Data 3
Letter from the Chairman and President 4
Business Review and Outlook 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Board of Directors and Corporate Officers 22
Corporate Information 23
Report of Management 24
Independent Auditors' Report 25
Financial Statements 26
Notes to Financial Statements 29
Farmer Mac Stock 43
The Cover - The Farmer Mac Annual Report cover focuses on images of American
agriculture which is served by the Corporation's programs. Featured in front of
their Jasper County, Indiana farm house are Kendell and Tammy Culp along with
children Kayla and Brandon; photograph provided courtesy of the Indiana Farm
Bureau Inc., Indianapolis, Indiana.
<PAGE>
Corporate Profile
The Federal Agricultural Mortgage Corporation ("Farmer Mac") is a federally
chartered instrumentality of the United States. It was created by Title VIII of
the Farm Credit Act of 1971, as amended (the "Act"), to attract new capital for
the long-term financing of agricultural real estate and rural housing and to
provide greater liquidity to agricultural lenders.
Farmer Mac is intended to aid in the development of a secondary market for
mortgage loans secured by first liens on agricultural real estate or rural
housing by guaranteeing the timely payment of principal and interest on
securities representing interests in, or obligations backed by, such loans (the
"Farmer Mac I Program"). Farmer Mac also guarantees the timely payment of
principal and interest on securities backed by portions ("Guaranteed Portions")
of farm ownership and operating loans, rural business and community development
loans, and certain other loans guaranteed by the United States Department of
Agriculture (the "Farmer Mac II Program").
All securities guaranteed by Farmer Mac are backed by qualified loans (as
defined by the Act) secured by agricultural real estate or rural housing or
guaranteed by the United States Department of Agriculture.
Agricultural real estate loans are secured by land (which may include buildings
and other improvements) used for the production of one or more agricultural
products or commodities consisting of a minimum of five acres or producing
minimum annual receipts of $5,000. The principal amount of an agricultural real
estate loan cannot exceed $3,241,175, as adjusted for inflation as of December
31, 1994, unless the land securing the loan is 1,000 acres or less.
A rural housing loan is secured by a single-family home which is the principal
residence of the owner and has a purchase price or current appraised value of
not more than $129,647, as adjusted for inflation as of December 31, 1994,
located in a rural area or community of no more than 2,500 inhabitants.
Please see the Letter from the Chairman and President and Note 1 to the
Consolidated Financial Statements in this Annual Report for a more complete
description of Farmer Mac and its programs.
<PAGE>
Selected Financial Data
The following table should be read in conjunction with the Financial Statements
of Farmer Mac and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere in this
report.
<TABLE>
<CAPTION>
Summary of Financial Condition
December 31,
(dollars in thousands)
1994 1993 1992 1991 1990
(consolidated) (consolidated) (consolidated)
<S> <C> <C> <C> <C> <C>
Investments ......................... $ 78,218 $ 100,482 $ 35,742 $ 61,324 $ 18,412
Mortgage Portfolio .................. 382,833 406,958 459,375 2,276 --
Total assets ........................ 477,238 525,254 514,257 66,169 18,757
Debentures, notes and
bonds, net:
Due within one year .............. 168,307 172,350 87,454 49,924 --
Due after one year ............... 288,209 330,190 403,086 -- --
Total liabilities ................... 465,019 511,703 500,030 50,595 43
Stockholders' equity ................ 12,219 13,551 14,227 15,574 18,324
Selected Financial Ratios:
Return on average assets ............ (0.27%) (0.14%) (0.44%) (5.04%) (11.00%)
Return on equity .................... (10.34%) (4.99%) (9.46%) (16.44%) (11.22%)
Average equity to assets ............ 2.57% 2.71% 4.63% 30.64% 98.04%
</TABLE>
<TABLE>
<CAPTION>
Summary of Operations
Year Ended December 31,
(dollars in thousands, except per share amounts)
1994 1993 1992 1991 1990
(consolidated) (consolidated) (consolidated)
<S> <C> <C> <C> <C> <C>
Interest income ............................... $ 31,712 $ 32,642 $ 20,154 $ 2,886 $ 1,558
Interest expense .............................. 30,303 30,848 18,413 1,854 --
Net interest income ........................... 1,409 1,794 1,741 1,032 1,558
Guarantee fee income .......................... 1,050 1,203 932 28 --
Other expenses ................................ 3,968 3,976 4,151 3,828 3,750
Loss before extraordinary item ................ (1,332) (803) (1,347) (2,750) (2,156)
Extraordinary gain ............................ -- 127 -- -- --
Net loss ...................................... (1,332) (676) (1,347) (2,750) (2,156)
Loss per share before
extraordinary item ............................ -- (0.34) -- -- --
Net loss per share ............................ $ (0.57) $ (0.28) $ (0.58) $ (1.18) $ (0.92)
</TABLE>
<PAGE>
Letter from the Chairman and President
To the Stockholders of Farmer Mac:
1994 was a year of assessment and redirection at Farmer Mac.
Throughout 1994, two poolers were operating Farmer Mac I "Open Window"
agricultural loan pooling programs, accessible to participants from all sectors
of agricultural lending. One moved forward with its network of originators and
"mini-poolers," offering loans to farmers and ranchers throughout the country.
The other reconsidered its role and decided to retain Farmer Mac eligible loans
in its own portfolio. While the combined loan volume generated by these two
poolers was in excess of $100 million, the preponderance of the business was
done by the pooler who decided to retain the loans. Those and other developments
led management and the Board to reconsider the direction of the Corporation's
business and, with the adoption of the 1994-95 Business Plan in August 1994,
chart a new course for Farmer Mac. The new Business Plan included three
important initiatives: to set annual volume thresholds for poolers; to seek
closer, more cooperative relationships with surviving poolers, called "strategic
alliances"; and to seek legislation eliminating the requirement of subordinated
interests in Farmer Mac transactions, granting the Corporation the right to act
as a pooler, and delaying statutory minimum capital requirements for several
years.
The new Business Plan and the strategic alliance opportunity were announced in
August 1994. Several encouraging developments took place during that and the
remaining months of the year. A $38 million agricultural mortgage loan pool was
submitted by Prudential Securities and Equitable Agri-Business and guaranteed by
Farmer Mac. An agricultural loan strategic alliance agreement was consummated in
November 1994 with Western Farm Credit Bank of Sacramento, California. The
Farmer Mac rural housing secondary market initiative that had been suspended due
to a February 1994 announcement by the Federal National Mortgage Association
("Fannie Mae") that it would intensify its efforts in that sector was
dramatically reactivated as a three-way arrangement among the Farm Credit Bank
of Columbia, Farmer Mac and Fannie Mae by year-end. In addition to the Farmer
Mac I developments, by year-end Farmer Mac II had reached a $120 million
cumulative volume level.
Perhaps most important, activities are now under way by Farmer Mac, its
stockholders and several interest groups that could lead to the enactment of
legislation granting the Corporation the legislative changes identified in its
Business Plan. While the outcome cannot be predicted this soon, this process
signals mutual recognition among Farmer Mac's Board, management and stockholders
that "business as usual," or even more intensified business development efforts,
cannot be assumed to be the answer to the problems facing this new secondary
market.
Farmer Mac's Board and management firmly believe that successful implementation
of the 1994-95 Business Plan will produce the best possible outcome for your
Corporation and for you as program participants and stockholders. With your
support and that of the Congress, we are confident that Farmer Mac will be able
to achieve its statutory mission to provide a stable source of competitively
priced credit to finance mortgage loans for farmers, ranchers and rural
homeowners throughout the nation.
/s/ G. CLYDE SOUTHERN /s/ HENRY D. EDELMAN
- - ---------------------- ----------------------
G. Clyde Southern Henry D. Edelman
Vice Chairman of the Board President and Chief Executive Officer
<PAGE>
Business Review and Outlook
Overview
Events during 1994 were of mixed relevance for Farmer Mac -- they fell in both
the "plus" and "minus" columns, which is a useful way of comparing them.
Plus
* Operation of two "open window" pooling programs originating Farmer
Mac-eligible loans for securitization;
* Closing of the first guarantee transaction under one of the open window
programs;
* First strategic alliance agreement with a pooler, the Western Farm Credit
Bank;
* Agreement in principle among the Farm Credit Bank of Columbia (AgFirst Farm
Credit Bank as of April 1995), Federal National Mortgage Association
(Fannie Mae) and Farmer Mac to establish a joint initiative to originate
and securitize rural housing loans; and
* Significant expansion of Farmer Mac II program participation.
Minus
* Slower than anticipated accumulation of loans in the open window programs,
due to inefficient pricing;
* Withdrawal of one open window pooler's commitment to securitize Farmer
Mac-eligible loans;
* Announcement by Fannie Mae of initiative to expand its presence in the
rural housing loan market;
* Continued lack of profit in Farmer Mac's core business activities; and
* A dramatic rise in short- and long-term interest rates during the year.
Despite the encouraging "pluses," the significant "minuses" continued to
frustrate the development of Farmer Mac's business. In August 1994, the Board
and management responded with a 1994-95 Business Plan that represented a
radical departure from business plans of prior years. In the words of one of
your directors, it was a "bold and decisive plan," intended as a dynamic new
approach to achieving increased participation in the Farmer Mac programs
through economic and legislative measures. Key objectives of the plan targeted
profitable operations and accomplishment of Farmer Mac's important mission of
improving the competitive availability of intermediateand long-term mortgage
credit at stable rates to the farmers, ranchers and rural homeowners of this
nation.
On June 17, 1994, John R. Dahl stepped down as Farmer Mac Chairman at the
request of President Clinton, to accommodate the nomination of a successor
chairman. Mr. Dahl led your Corporation's early development efforts with great
skill and devotion. Almost six years to the day from his appointment as
Chairman of the Farmer Mac Interim Board on June 16, 1988, Mr. Dahl's
departure resulted in a temporary transition in Board leadership to its Vice
Chairman, Gordan Clyde Southern, pending the nomination by President Clinton
and confirmation by the United States Senate of a new Chairman.
<PAGE>
Turning to the financial results for 1994, Farmer Mac reported a net loss of
$1.3 million, compared to a $676 thousand net loss for the same period in
1993. That increase in loss was, however, due largely to a reduced level of
yield maintenance income relative to the levels of premium amortization for
the comparable periods. In that regard, Farmer Mac recognized $1.9 million of
interest income from yield maintenance payments in 1994, as compared to $3.6
million in 1993, and increased the level of premium amortization by $1.7
million in 1994, as compared to $2.2 million in 1993. Thus, what was a $1.4
million excess of income recognized from yield maintenance payments over the
increased level of premium amortization in 1993 was only a $200 thousand
excess in 1994.
Yield maintenance income is based on loan prepayments and represents
compensation to Farmer Mac for future interest expense on indebtedness that
would have been matched by interest income from the mortgage-backed securities
had the loans underlying those securities not prepaid. This yield maintenance
income must be reinvested in order to generate incremental future cash flows
needed to satisfy future maturities of debt issued in connection with the
purchase of the Farmer Mac-guaranteed securities. The year-to-year reduction
in yield maintenance income corresponds to reduced prepayments during the
corresponding periods and, therefore, lesser new requirements for future cash
flows to satisfy future maturities of debt, and to higher interest rates.
Business Conditions During 1994
Business conditions for the Farmer Mac programs deteriorated somewhat during
1994, compared to 1993 and 1992, due primarily to rising interest rates and
continued excess liquidity in the lending sector.
Short- and long-term interest rates increased significantly during the year.
Federal Reserve monetary policy sharply increased rates from 3% to 4.75% to
member banks by year-end. The Wall Street Journal Prime Rate followed suit,
increasing from 6% to 8.5% by year-end. Interest rates on outstanding
agricultural real estate loans reported by the Economic Research Service of
the USDA for all lender categories increased 0.22% in 1994 compared with the
decline of 0.69% in 1993. This reversed the previous trend of continuously
declining interest rates on outstanding agricultural real estate debt since
1990.
Rates available on long-term loans through the Farmer Mac "open window"
pooling programs were comparable to the rates being offered to farm borrowers
by many lenders in each sector of the lending industry not relying on Farmer
Mac. They reached levels as low as 7.775% on 10-year and 7.875% on 15-year
loan products at the low point in the beginning of the year. By year-end,
these rates had jumped to 10.10% on the 10-year product and 10.25% on the
15-year.
Agricultural lenders and borrowers continued to rely on short-term, variable
rate products for the majority of loans made. This reflected borrower
expectations of a return to the lower rates of 1993, as well as the continued
predisposition of many borrowers toward lower short-term rates over safer but
higher intermediate- or long-term rates. Further, with adequate funds to meet
lending demand, lenders in general continued to favor making short-term,
variable rate loans which can be held in portfolio without significant
interest rate risk over intermediate- or long-term loans destined for sale
into the secondary market.
Agricultural real estate loan volume increased slightly to approximately $77.2
billion, up from about $76 billion in 1993 and $75 billion in 1992. Total farm
lending, including non-real estate and real estate loans, rose about 4.3% from
the 1993 level to an estimated $148.1 billion. These figures continue to lag
far behind the 1984 peak period for agricultural loans, when total farm
lending approximated $193.8 billion and farm real estate lending was $106.7
billion. Consistent with the trends of recent years, lenders continued to
emphasize higher quality standards for agricultural borrowers.
In the commercial banking sector, overall agricultural lending expanded by
about 8.7% over 1993 levels. Total bank farm real estate loans increased 7.4%
to approximately $21 billion, or about 27.2% of the total market.
Loan-to-deposit ratios at agricultural banks increased slightly to an average
64.0% in September 1994, compared to 60.0% in September 1993. Although
somewhat improved, this ratio still remained below the 1968 record high
average for agricultural banks of 68% and compared unfavorably to the average
loan-to-deposit ratio for all banks in mid-1993 of 78%. Excess liquidity
combined with moderate loan demand from farm borrowers and opportunities for
higher spreads with short-term loan products, compared to long-term products,
continued to discourage agricultural banks from making and selling
intermediate- and long-term fixed rate agricultural loans.
<PAGE>
The Farm Credit System continued its trend of profitable lending during 1994
with net income of $770 million for the year. With System total at-risk
capital at 18.9% and the quality of loans in portfolio continuing to improve,
the System concluded 1994 in strong financial condition. Total System farm
lending increased by 2.6% to $36.3 billion in 1994, from $35.4 billion in 1993
reversing a 9 year decline in farm lending. System agricultural real estate
loans still represented about 32% of the market after a 1% decrease from the
1993 level to approximately $24.6 billion. System lenders also continued to
shift the composition of their loan portfolios from short- and long-term loans
to cooperative loans. The 1994 mix of long-term, short-term and cooperative
loans was 52%, 23% and 25%, respectively, compared to 66%, 27% and 13% in
1986. Significant restructuring of System banks and associations continued
throughout 1994, with several mergers finalized or announced to take place in
the future. With strong operating results, continued favorable pricing of
capital market funds as a government-sponsored enterprise, and a willingness
to assume and manage credit and interest rate risk, most System lenders chose
to operate without securitizing farm or rural housing mortgage loans in the
Farmer Mac programs.
At the end of 1994, USDA's Economic Research Service reported that seven life
insurance companies remained active in the agricultural lending market and
that they had access to adequate funds to meet the borrowing needs of
qualified agricultural applicants. The companies actively involved in
agricultural lending during 1994 tended to be large firms with significant
portfolios of farm loans held primarily for investment purposes. Most lending
by these companies involved large loans and was focused in relatively few
states (California, Florida, Oregon, Texas and Washington). Aggressive
competition and emphasis on very high quality loans by the life insurance
lenders contributed to the continued decline of the agricultural real estate
market share held by this sector.
Agricultural real estate loan volume for 1994 attributed to insurance company
lenders topped $9.0 billion, up less than 1% from the previous year, and
represented approximately 11.7% of the total market for agricultural real
estate credit. Two insurance companies were actively involved in the
development of Farmer Mac "open window" pools throughout most of the year, but
the effort produced mixed results. (See, "Significant Business Developments,"
below.) Most insurance company lenders, however, continued to prioritize the
generation of high quality agricultural mortgage loan assets to meet the needs
of their parent companies to invest insurance premium income. In addition,
these lenders have typically offered long-term, fixed interest rate loans to
their borrowers. To the extent they favor portfolio lending over mortgage
banking (earning origination, servicing and Farmer Mac pooling fees and
reducing risk-based capital requirements), they have found Farmer Mac programs
to be in direct competition with their own portfolio-oriented products.
Significant Business Developments During 1994
The open window pooling program operated by Prudential Securities, as pooler,
and Equitable Agri-Business, Inc. ("Equitable"), as central servicer,
generated $38 million in Farmer Mac-qualified loans by September 1994. Those
loans, originated by a nationwide network of community banks and Farm Credit
Associations, were securitized in the fall through a swap transaction in which
Prudential Securities exchanged the pool for Farmer Mac-guaranteed senior
securities and unguaranteed subordinated securities. Since that date,
approximately $12 million in additional Farmer Mac-eligible loans have been
acquired by Prudential Securities under the program, which are expected to be
added to the existing pool and securitized through Farmer Mac. Notwithstanding
the nationwide network of aggregators and originators in the program,
Prudential Securities recently advised Farmer Mac and Equitable that it would
no longer act as the pooler for the program. Equitable informed Farmer Mac and
the program's participants of its intention to continue the program, subject
to obtaining a commitment from an investment bank or other financial
institution to qualify as pooler, serve as its funding source and sell any
subordinated securities issued in connection with any guarantee transactions
that occur thereunder. Farmer Mac has been informed by Equitable that, as a
result of extensive but unproductive discussions with a number of prospective
pooling partners, it has determined to temporarily channel loans originated by
program participants into its own portfolio. Even if Equitable obtains the
commitment it seeks, there is no assurance that its program will generate
sufficient volume to result in any Farmer Mac guarantee transactions in the
future.
<PAGE>
The second open window pooling program, operated by Travelers Realty
Investment Company ("TRIC"), grew out of a successful 1992 transaction in
which TRIC securitized approximately $230 million of agricultural mortgages
through Chemical Securities, Inc. as pooler. With cooperation from Farmer Mac,
TRIC developed an extensive, nationwide network of bank-originators and is
believed to have generated a significant volume of Farmer Mac-eligible loans
during 1994. However, due to internal decisions to build its agricultural loan
portfolio, TRIC has not submitted these loans for securitization and Farmer
Mac's management has no reason to believe that TRIC intends to do so.
Throughout 1994 and into early 1995, significant steps were made in the
establishment of a joint arrangement with Fannie Mae and the Farm Credit Bank
of Columbia (now known as "AgFirst") to pool rural housing loans under the
Farmer Mac I Program. After months of discussion, the parties agreed in
mid-March 1995 on the principal terms of an initiative, which Fannie Mae has
characterized as "an important new partnership that will increase home
ownership in rural America." (Letter from Fannie Mae's Vice President for
Housing Initiatives to Farmer Mac and AgFirst, dated February 8, 1995).
Documentation for the program is being developed and management believes that
the program can be operational during the second quarter of 1995. While Farmer
Mac's Board and management are encouraged by the turnaround of this situation
relative to February 1994, there still can be no certainty that the program
will result in Farmer Mac guarantee transactions or, if it does, that they
will have a material impact on Farmer Mac's efforts to achieve profitability.
Volume in the Farmer Mac II Program grew to more than $120 million by December
31, 1994, with over 150 lenders from 30 states participating in the program.
Despite these positive business developments, continued unprofitable
operations and general slowness in the development of Farmer Mac's programs
led the Farmer Mac management to propose and the Board to adopt, in August
1994, the business plan mentioned earlier. It was designed to stimulate and
dramatically expand participation in Farmer Mac's programs, and to address
well identified hurdles to the expansion of needed business volume. Key
aspects of the plan include developing closer alliances with performing
poolers, setting annual volume thresholds for poolers to maintain their
certification, eliminating non-productive poolers and seeking legislative
reforms to Farmer Mac's charter.
With respect to the development of closer alliances with performing poolers,
Farmer Mac offered all poolers the opportunity to enter into a limited number
of strategic alliances pursuant to which Farmer Mac would commit personnel,
financial and technical resources to the development of on-going pooling
programs in return for a commitment from the pooler to securitize loans in
Farmer Mac guarantee transactions. As a result of the response of Western Farm
Credit Bank ("Western") to Farmer Mac's offer, Farmer Mac and Western
negotiated and entered into a five-year strategic alliance agreement in
November 1994. The alliance will be staffed and supported by Western, but will
operate as an independent business unit committed to the formation of a
nationwide network of originators and sellers from whom Western will purchase
qualified loans for accumulation into pools that will be submitted
periodically to Farmer Mac for guarantee. The Western program will be open to
all Farmer Mac stockholders, without regard to industry affiliation.
<PAGE>
In addition to developing a pooling program under its alliance, Western also
entered into a swap transaction with Farmer Mac in the first quarter of 1995
involving the exchange of $71.3 million aggregate principal amount of
agricultural real estate loans for Farmer Mac I guaranteed securities and
unguaranteed subordinate securities.
As part of its commitment to establish and operate the program, Western has
agreed to purchase Class C Non-Voting Common Stock to be issued by Farmer Mac
in amounts equal to the costs and expenses incurred (or expected to be
incurred) in establishing and operating the program, up to a maximum amount of
$1.5 million. The financial assistance Farmer Mac has agreed to provide to the
program includes purchasing interest-bearing obligations ("Notes") issued by
Western in principal amounts corresponding to the cost of purchasing the Class
C Stock. The Notes are repayable, but only out of the segregated assets and
property (including profits) of the program and not the assets and property of
Western. As of the date hereof, no Class C Stock has been issued by Farmer Mac
or purchased by Western as contemplated in the alliance agreement. As part of
its commitment to Farmer Mac, Western also agreed to submit at least $50
million of loans to Farmer Mac for guarantee in a swap transaction, in return
for which it would receive warrants to purchase additional Class C Stock in an
amount based on the amount by which the original aggregate principal balance
of the loans in the swap transaction exceeded $50 million. The swap
transaction closed on February 22, 1995 at $71.3 million.
As of the end of 1994, the Prudential Securities/Equitable Agri-Business joint
pooling program, Western Farm Credit Bank and the Farm Credit Bank of
Columbia, were the only poolers that had either met or made commitments to
meet Farmer Mac's minimum volume threshold for 1994. As a result, Farmer Mac
took actions to terminate the certifications of the other five
non-participating poolers (Chemical Securities, Goldman Sachs, John Hancock,
Prudential Agricultural Credit and Travelers Realty Investment Company) and
focus its resources on the three active and genuine pooling initiatives having
prospects for success.
With respect to legislative reforms to your Corporation's statutory charter,
the Board evaluated several options and resolved in March 1995 to pursue
actively the enactment of a carefully defined legislative package during the
current session of Congress to:
* seek authority for the Corporation to pool loans directly from originators;
* eliminate the minimum 10% subordinated participation interest requirement
associated with each Farmer Mac pool;
* delay the imposition of increased capital requirements for the Corporation
for three years; require the Corporation to increase its capital base to at
least $25 million within three years; and
* make several additional adjustments in the charter intended to eliminate
ambiguous language and contribute to increased operating efficiency of your
Corporation's programs.
At this time, proposed legislation has been drafted and an intensive effort is
underway to identify Congressional sponsors in both the House of
Representatives and the Senate. It is the view of your Board and management
that the proposed legislative reforms address elements of the charter that
have clearly restrained Farmer Mac's business development efforts during the
last several years and that your Corporation's future success is uncertain
unless Congressional action on the proposed reforms is taken during 1995.
<PAGE>
1994 Business Performance
New securities issued in the Farmer Mac I program during 1994 were limited to
the $38 million swap transaction with Prudential Securities during the third
quarter of the year. Farmer Mac II program activity continued to expand, with
total purchases of $50 million of guaranteed portions during the year.
Cumulative total Farmer Mac II volume since inception of the program was
approximately $120 million as of December 31, 1994.
Income from guarantee fees was approximately $1.1 million for 1994, off $153
thousand from 1993, due to the low volume of new guarantee transactions during
1994 and amortization of the principal balance of loans backing securities
guaranteed during previous years. At year-end 1994, Farmer Mac's income from
guarantee fees and miscellaneous sources, primarily transaction fees, totaled
$1.2 million, down from $1.4 million for 1993. Guarantee fees of 0.25% are
earned on the total portfolio of outstanding guaranteed securities. An
additional 0.125% subsidiary fee is earned on Linked Portfolio Strategy (LPS)
transactions, which represent the majority of the pooling business conducted
to date.
Net interest income totaled approximately $1.4 million, down $385 thousand
from the 1993 figure. The decrease in net interest income reported for 1994
was largely the result of the $35.8 million or 8% decline in the average
balance of the mortgage portfolio. Although the average balance of investments
and the average rate of investments increased $28.6 million and 0.76%,
respectively, from 1993 to 1994, these increases were not enough to offset the
effects of the decline in the average balances of the mortgage portfolio.
Unless there is an increase in new mortgage portfolio volume, Farmer Mac's
interest expense is likely to exceed its interest income over time, as the
composition of its debt portfolio shifts from shorter-term, lower costing debt
to longer-term, higher costing debt while the earnings from its mortgage
portfolio continue to be recognized on a level yield basis. The purchase of
the mortgage portfolio was funded with a series of callable and non-callable
debt issues, at an initial weighted average interest rate below the level
yield of the interest earning assets. However, as the shorter-term, lower
costing debt matures, the longer-term, higher costing debt will remain, thus
increasing the weighted average interest rate of Farmer Mac's debt portfolio
and decreasing net interest income.
Other expenses decreased $8 thousand from the $4.0 million reported in 1993,
attributable to the decrease in professional fees, which is largely offset by
the increase in compensation and employee benefits. Professional fees,
consisting primarily of legal, accounting and consulting fees, decreased $150
thousand from 1993 to 1994, mainly as a result of the elimination of outside
legal services related to the Farmer Mac II Program. From 1993 through January
1994, Farmer Mac utilized the services of outside counsel to assist with the
issuance of securities under the Farmer Mac II Program. Beginning February 1,
1994, all of these services were performed by internal legal personnel.
Compensation and employee benefits increased $119 thousand from 1993 to 1994,
a result of increases in staffing for the Farmer Mac II Program. During the
latter half of 1993, Farmer Mac added two employees and, in the first quarter
of 1994, added one employee.
For 1994, your Corporation reported a net loss of $1.3 million, an increase of
$656 thousand or 97% from the $676 thousand loss reported in 1993. The
increase in loss from 1993 to 1994 primarily results from the reduction of
yield maintenance income relative to the increased level of premium
amortization, as previously discussed (See "Overview," above.)
Lack of profitabilty has continued to require Farmer Mac to use its capital to
fund operations. This has reduced Farmer Mac's stockholders' equity $1.3
million from December 31, 1993 to December 31, 1994.
<PAGE>
Looking into 1995, the rural housing initiative being developed with Fannie
Mae and AgFirst, and the Western strategic alliance agricultural mortgage
pooling program, are potential sources of revenue before the end of the year.
Further, as discussed in greater length in the paragraphs that follow, under
the heading of "Government Regulation of Farmer Mac," your Corporation's
proposed legislative reforms, if enacted, could increase the potential for
additional business volume before the end of 1995. In any event, the future
profitability of your Corporation will depend on the continued and
significantly increased use of its programs by its Class A and Class B
stockholders.
Government Regulation of Farmer Mac
Regulation. Public offerings of Farmer Mac Guaranteed Securities must be
registered with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "1933 Act"). Farmer
Mac is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and, accordingly, files reports with the
Commission pursuant thereto.
As an institution of the Farm Credit System, Farmer Mac is subject to the
regulatory authority of the Farm Credit Administration ("FCA"). Through the
Office of Secondary Market Oversight ("OSMO"), the FCA has general regulatory
and enforcement authority over Farmer Mac. OSMO is headed by a director (the
"Director") who was selected by and reports to the FCA Board. The Director is
responsible for the examination of Farmer Mac and the general supervision of
the safe and sound performance by Farmer Mac of the powers and duties vested
in it by the Farm Credit Act of 1971, as amended (the "Act" or the "Charter").
The Act requires an annual examination of the financial transactions of your
Corporation and authorizes the FCA to assess Farmer Mac for the cost of its
regulatory activities, including the cost of any examination. Farmer Mac is
required to file quarterly reports of condition with the FCA, as well as
copies of all documents filed with the Commission under the 1933 and 1934
Acts.
The Act also requires the Comptroller General of the United States to perform
a financial audit of Farmer Mac on whatever basis the Comptroller determines
to be necessary.
Capital standards setting forth three levels of capital for Farmer Mac were
added to the Charter in 1991. The minimum capital and critical capital levels
are each based upon a percentage of on-balance sheet assets and a lower
percentage of outstanding Farmer Mac-guaranteed securities and of assets
acquired pursuant to the Linked Portfolio Strategy. See Footnote 3 to the
Financial Statements for a specific discussion of the capital standards and
Farmer Mac's current regulatory minimum capital position. The Director was
also required to establish a risk-based capital test for Farmer Mac which, as
of April 15, 1995, had not been established. The Act specifies the parameters
of the credit and interest rate risks and the factors to be considered by the
Director in establishing the required capital levels. At December 31, 1994,
Farmer Mac's minimum and critical capital requirements were $4.8 million and
$2.4 million, respectively, and its actual capital level was $12.2 million.
The Act provides that Farmer Mac is to be classified at least quarterly within
one of four enforcement levels based on its compliance with risk-based,
minimum and critical capital regulatory requirements. If Farmer Mac maintains
sufficient capital to satisfy the risk-based and minimum capital levels, it
will be classified as within level I, in which case Farmer Mac would be
considered adequately capitalized. The failure to maintain those levels of
capital would result in Farmer Mac being classified as within level II (below
the risk-based standard but above the minimum capital level), level III (below
the minimum capital but above the critical capital levels) or level IV (below
the critical capital level). In the event that Farmer Mac is classified as
within any level other than level I, the Act requires the Director to take a
number of mandatory supervisory measures and provides the Director with
discretionary authority to take various optional supervisory measures
depending on the level in which Farmer Mac is classified.
<PAGE>
Notwithstanding the enforcement level within which Farmer Mac may be
classified, the Director has the discretion to reclassify Farmer Mac to a
level that is one level below its then current level if the Director
determines that Farmer Mac is engaging in any action not approved by the
Director that could result in a rapid depletion of core capital or if the
value of property subject to mortgages backing Farmer Mac-guaranteed
securities has decreased significantly. Fannie Mae and Freddie Mac are subject
to similar capital classification standards and potential supervisory action
by the director of the Office of Federal Housing Enterprise Oversight, the
office within the Department of Housing and Urban Development created by
Congress to monitor the capitalization levels and operations of those two
government-sponsored enterprises.
Farmer Mac's current capital exceeds both the minimum and critical levels
required in the Act. Because the FCA has not yet promulgated a risk-based
capital regulation for Farmer Mac, however, the Director has not definitively
classified Farmer Mac as within level I (although Farmer Mac has not been
classified as within any level other than level I). If the FCA were to
promulgate a risk-based capital regulation, as it is required by the Act to
do, it is possible that the capital requirement thereunder could be at a level
that Farmer Mac would not meet, in which case Farmer Mac would be classified
as within level II.
Beginning in December 1996, higher statutory minimum capital requirements are
scheduled to become effective, significantly increasing the required amount of
Farmer Mac's regulatory capital. If those requirements had been in effect at
December 31, 1994, Farmer Mac's actual capital would have been $156,000 less
than the total minimum capital required. Based upon Farmer Mac's business
results and prospects to date, management believes that compliance with those
requirements when they become effective in December 1996 would be unlikely
without potentially diseconomic action. Accordingly, Farmer Mac's management
and Board have been evaluating possible alternatives that would enable Farmer
Mac to comply with these minimum (and any future risk-based) capital
requirements when they become effective. In that regard, your Corporation's
Board has directed management to seek legislative revisions to the Act that
would delay beyond 1996 the implementation of the higher minimum and critical
capital requirements and the promulgation by the FCA of any risk-based capital
regulation. No assurance can be given that any legislation, if enacted, would
result in Farmer Mac being in a position to comply with the higher capital
requirements whenever they become effective. Farmer Mac's ability to comply
with those requirements will depend, in large part, upon: action by the FCA
with regard to the promulgation of a risk-based capital regulation for Farmer
Mac; whether there is a significant increase in the volume of guarantee
business over historical levels; the competitiveness of the agricultural
lending environment; and Farmer Mac's ability to raise capital on favorable
terms. If Farmer Mac were unable to satisfy the higher capital requirements,
the Director would be required to take the mandatory supervisory measures
referenced previously and authorized to take one or more optional supervisory
measures, depending on the level in which Farmer Mac is then classified.
The imposition of supervisory measures could have a material adverse impact on
Farmer Mac's results of operations and its ability to raise capital, borrow or
engage in transactions with third parties; thus, such measures could, in
effect, preclude Farmer Mac from complying with higher capital standards.
Ultimately, if Farmer Mac were classified as within level III or IV and
certain supervisory measures were taken, such as the appointment of a
conservator, stockholders could lose some or all of the value of their equity
investment in Farmer Mac, and creditors could experience a reduced level of
recovery on their claims.
Legislative Initiative. The Farmer Mac Board has determined that it is in the
best interest of Farmer Mac and its stockholders to seek legislative revisions
to the Act. Management has discussed such revisions with the Director who
agrees that the development of the secondary market for agricultural and rural
housing loans has been constrained by certain statutory restrictions on Farmer
Mac's operations. Accordingly, the Board has directed management to seek the
legislative amendments to Farmer Mac's Charter discussed in "Significant
Business Developments During 1994", above.
<PAGE>
There can be no assurance that such legislation, if introduced, will be
enacted by Congress, or that, if enacted, such legislation will include any or
all of the revisions and not include revisions adverse to Farmer Mac's
business. In addition, there can be no assurance that, if legislation is
enacted, the volume of any business generated under a revised charter will
result in profitability for Farmer Mac or that Farmer Mac will be able to
raise capital, either from retained earnings or from external financing
sources such as an offering of common or preferred stock, sufficient to allow
Farmer Mac to comply with future capital requirements.
Outlook
Your Corporation is in a critical period of its development and, depending on
the outcome of the several initiatives currently underway, will be more or
less likely to achieve the guarantee volume necessary to produce future
corporate profitability. Your Board has concluded that the lack of guarantee
transactions generated by the intense business development and marketing
efforts undertaken during the last few years is in large measure the direct
result of the failure of the original statutory structure which has
effectively precluded your Corporation from making adjustments necessary to
respond to market signals. While your Board and management will continue to
work closely with the active Farmer Mac poolers to produce as much business
volume as possible, it appears clear that statutory changes are necessary to
avoid a capital deficiency condition at the end of 1996 and the regulatory
measures likely to be imposed in connection therewith.
Despite the extraordinary efforts made by Farmer Mac during 1994 to support
the development of the open window pooling programs offered by Prudential
Securities and TRIC, total securitized volume attributable to those programs
during the year was only $38 million. The Farmer Mac II program made good
progress during 1994 but, even so, the combined guarantee volume of the two
programs was not sufficient to support your Corporation's operations during
the year. Even if the statutory changes are enacted, they must be followed by
aggressive business development efforts, and supported by all sectors of the
agricultural and rural housing mortgage lending industry if the profit outlook
for your Corporation is to be meaningfully enhanced.
At this time, your Board and management have received positive signals from a
number of members of the Congress regarding introduction of the proposed
reform legislation, and we are encouraged by the enthusiastic support of
several active program participants, as well as groups representing them and
agricultural borrowers. We remain committed to the success of Farmer Mac's
programs and will continue to persevere in our efforts to achieve that
outcome. Your Corporation's potential for success in all of these business
development and legislative initiatives would be dramatically increased by the
widespread support and active participation of Farmer Mac stockholders and
potential agricultural and rural housing mortgage borrowers.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial information at and for the twelve months ended December 31, 1994 and
1993 is consolidated to include the accounts of Farmer Mac and its two wholly
owned subsidiaries, Farmer Mac Mortgage Securities Corporation ("FMMSC") and
Farmer Mac Acceptance Corporation ("FMAC"). All material intercompany
transactions have been eliminated in consolidation.
Liquidity and Capital Resources
Farmer Mac's primary sources of liquidity are issuances of debt obligations,
and principal and interest payments on mortgages underlying securities
purchased by Farmer Mac under the Farmer Mac I and Farmer Mac II Programs.
Farmer Mac's Board has authorized the issuance of up to $1.5 billion of
Discount Notes and Medium-Term Notes. Funds from the borrowings may be used in
the Farmer Mac I and Farmer Mac II Programs to cover transaction costs,
guarantee payments and the costs of purchasing Farmer Mac Guaranteed
Securities and Guaranteed Portions issued in the Farmer Mac I and Farmer Mac
II Programs and to retire existing Notes. Funds from the borrowings also may
be used for liquidity purposes. At December 31, 1994, Farmer Mac had $456.5
million of Discount Notes and Medium-Term Notes (net of unamortized debt
issuance costs, discounts and premiums) outstanding, a decrease of $46.0
million over 1993.
The following table presents, for the periods indicated, certain information
regarding Farmer Mac's short term borrowings by type of borrowing. The Current
Portion of Medium-Term Notes refers to those Medium-Term Notes maturing within
the next twelve months, and includes $1.9 million of Medium-Term Notes with
optional redemption provisions.
<TABLE>
<CAPTION>
Maximum Average
Effective Amount Amount Amount
Interest Rate Outstanding Outstanding Outstanding
Balance at at end of during the during the during the
end of period period period period period
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Discount Notes $124,337 5.81% $124,337 $112,150 4.32%
Current Portion of
Medium-Term Notes 43,970 5.94% 63,938 51,746 5.63%
Total $168,307
December 31, 1993
Discount Notes $102,593 3.29% $102,593 $ 40,661 3.15%
Current Portion of
Medium-Term Notes 69,757 5.50% 70,959 66,261 4.93%
Total $172,350
</TABLE>
Farmer Mac also maintains an investment portfolio of highly liquid assets to
draw upon as necessary. At December 31, 1994 and 1993, Farmer Mac's investment
portfolio was $78.2 million and $100.5 million, respectively, the bulk of
which was held in short-term commercial paper and U.S. agency securities.
Investments are primarily funded through the issuance of debt with comparable
maturities.
<PAGE>
The following table sets forth the amortized cost of Farmer Mac's mortgage
portfolio and investments by type for 1994 and 1993.
<TABLE>
<CAPTION>
Amortized Cost
-------------------------------------
December 31, 1994 December 31, 1993
(dollars in thousands)
<S> <C> <C>
Security Name
U.S. agency securities $ 4,000 $ 5,503
Commercial paper 72,928 74,687
Cash investment in guaranteed investment contract 1,290 20,292
Total investments $ 78,218 $100,482
Mortgage Portfolio $382,833 $406,958
</TABLE>
The amortized cost and weighted average interest rates of debt securities at
December 31, 1994, by contractual maturity, were as set forth in the table
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
Amortized Cost Weighted Average
Interest Rate
(dollars in thousands)
<S> <C> <C>
Investment Maturity
Due within 1 year $ 76,218 6.19%
Due after 1 year through 5 years 2,000 6.15%
Total $ 78,218
Mortgage Portfolio, maturing between 1 and 30 years $382,833 6.82%
</TABLE>
The Board has established a loss reserve policy for Farmer Mac, stipulating
that ten percent (10%) of the guarantee fees earned from transactions in which
Farmer Mac's guarantee is provided in the Farmer Mac I Program be set aside as
a loss allowance. No loss allowance has been made specifically for the Farmer
Mac II Program because the Guaranteed Portions are backed by the full faith
and credit of the United States and are not materially exposed to credit
losses. As of December 31, 1994, Farmer Mac's total loss allowance was $295
thousand, an increase of $94 thousand from December 31, 1993. This increase in
the allowance for losses is attributable to the volume of guarantee fees
received in 1994, as compared to 1993. See Note 6 to the Financial Statements.
Future additions to this allowance will be charged to earnings and the amounts
in the allowance account will be used to cover payments of any claims made
under Farmer Mac guarantees. Farmer Mac considers the amounts in the allowance
account to be adequate to cover its exposure to guarantee payments in the
Farmer Mac I Program. Before Farmer Mac is required to make a guarantee
payment on Farmer Mac I Securities, full recourse must be taken against a
reserve or subordinated interest initially established in an amount equal to
at least ten percent (10%) of the initial pool balance. The main risk Farmer
Mac bears is that this unguaranteed reserve or subordinated interest will be
insufficient ultimately to cover timely payment of principal and interest to
holders of Farmer Mac I Securities. To mitigate this risk, Farmer Mac requires
all loans in a pool to meet standards with respect to loan-to-value ratios,
other financial ratios, and diversification among crops and geographic
locations represented. Farmer Mac subjects each pool submitted for guarantee
under the Farmer Mac I Program to a "stress test" designed to analyze the
pool's diversification and the sufficiency of the reserve or subordinated
interest under simulated conditions of greatly increased foreclosures and
losses. Farmer Mac only provides its guarantee on securities backed by pools
that pass its stress test. As of December 31, 1994, the subordinated interests
represented 10.3% of the outstanding balance of all Farmer Mac I Securities,
indicating that the subordinated interests have absorbed certain cashflow
deficiencies resulting from delinquencies, which have increased the level of
the subordinated interests; any losses incurred as a result of foreclosures
may reduce the outstanding balance of the subordinated interests.
<PAGE>
At December 31, 1994, a total of five loans aggregating $2.2 million were 90
days or more past due, three loans totaling $1.5 million were in foreclosure
and title to one loan with an outstanding principal balance of $613 thousand
had been acquired by the trust in the Farmer Mac I Program. The nine loans
combined represent 1.1% of the aggregate principal amount of outstanding
Farmer Mac I Securities at December 31, 1994 (or less than 1% of the total
outstanding pool balances). Management believes that no losses will be
incurred by Farmer Mac as a result of the loans in foreclosure or the real
estate owned by the trust.
The Act established capital requirements for Farmer Mac. Certain types of
assets and guarantees are required to be supported by specific amounts of
"core capital." The Act further defines capital levels as "minimum" or
"critical." Certain levels of enforcement are given to the FCA depending upon
Farmer Mac's compliance with these capital levels. As of December 31, 1994,
Farmer Mac's minimum capital requirement was $4.8 million and its actual
capital level was $12.2 million. At December 31, 1993, Farmer Mac's minimum
capital requirement was $5.5 million, and its actual capital level was $13.6
million. Beginning in December 1996, higher statutory minimum capital
requirements are scheduled to become effective, significantly increasing the
required amount of Farmer Mac's regulatory capital. If those requirements had
been in effect at December 31, 1994, Farmer Mac's actual capital would have
been $156,000 less than the total minimum capital required. Based upon Farmer
Mac's business results and prospects to date, management believes that
compliance with those requirements when they become effective would be
unlikely without potentially diseconomic action. Accordingly, Farmer Mac's
management and Board have been evaluating possible alternatives that would
enable Farmer Mac to comply with these minimum (and any future risk-based)
capital requirements when they become effective. See Note 3 to the Financial
Statements.
In the opinion of management, Farmer Mac has sufficient liquidity and capital
for the next twelve months.
Results of Operations
General. Farmer Mac reported a net loss in 1994 of $1.3 million, an increase
of $656 thousand or 97% from the loss reported in 1993. The increase in loss
from 1993 to 1994 primarily results from the reduction of yield maintenance
income relative to the increased level of premium amortization, both of which
occurred as a result of prepayments on the mortgage loans underlying the
mortgage-backed securities held by Farmer Mac and the higher interest rate
environment in 1994 as compared to 1993. Farmer Mac recognized $1.9 million of
interest income from yield maintenance payments in 1994, as compared to $3.6
million in 1993, and increased the level of premium amortization by $1.7
million in 1994, as compared to $2.2 million in 1993.
The $676 thousand net loss reported in 1993 represents a $671 thousand
reduction in loss from 1992. The reduction in loss from 1992 to 1993 is
primarily attributable to the $1.4 million excess of income recognized from
yield maintenance payments over the increased level of premium amortization.
A number of factors have constrained participation in Farmer Mac's programs,
and caused its core business activities to be unprofitable. Those factors
include: the excess liquidity of many agricultural lenders; the attractiveness
of loans (otherwise qualified under the Farmer Mac programs) as investments;
the disinclination of lenders to offer, and the lack of borrower demand for,
intermediate-term adjustable rate and long-term fixed rate agricultural real
estate loans, as a result of the higher profitability associated with
short-term lending; Farmer Mac's inability to control the pooling process,
particularly the pooler's mix of loan products and rates, marketing
activities, and loan securitization decisions; and the unfavorable regulatory
capital treatment afforded banks and System Institutions holding subordinated
securities created in Farmer Mac transactions.
<PAGE>
Improvements in Farmer Mac's operating results will depend upon the volume of
new guarantee transactions. While the Agricultural Real Estate and Farmer Mac
II Programs have generated interest income and guarantee fee income, the
volume of guarantee transactions has not been sufficient to generate income in
excess of operating expenses, which has required Farmer Mac to continue to use
its capital to fund operations. The use of capital to fund operations has
continued to reduce Farmer Mac's stockholders' equity, which decreased $1.3
million from December 31, 1993 to December 31, 1994. Farmer Mac's future
profitability will be affected not only by guarantee volume but also by any
payments Farmer Mac must make on its guarantees; payments it must make on its
Notes; the income it earns on its investment securities, its mortgage
portfolio and other funds it is holding; and its administrative expenses.
Losses, if any, on guarantees will be affected by many circumstances,
including agricultural growing conditions, agricultural market conditions,
changes in government agricultural support policies and the general economy.
The primary sources of funding for the payment of claims made under guarantees
are the fees Farmer Mac charges for providing its guarantees, together with
Farmer Mac's loss allowance, invested capital and the proceeds of any other
debt issuance.
Even if Farmer Mac's legislative initiative is successful and Congress revises
the Farmer Mac charter, Farmer Mac's future will still be dependent upon
continued and significantly increased utilization of its programs by its Class
A and Class B stockholders.
Average Balances, Income and Expense, Yields and Rates. The following table
presents, for the periods indicated, information regarding interest income on
average interest earning assets and related yields, as well as interest
expense on average interest bearing liabilities and related rates paid. The
average balances were calculated by averaging month-end balances.
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------------------
Average Income/ Average
Balances Expense Rate
-----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Assets
Earning assets:
Mortgage portfolio $ 388,615 $ 27,095 6.97%
Investments and cash equivalents 93,531 4,617 4.94%
Total earning assets 482,146 31,712 6.58%
Other assets 11,403
$ 493,549
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Debentures, notes and bonds, net $ 473,387 $ 30,303 6.40%
Other liabilities 7,286
Stockholders' equity 12,876
$ 493,549
Net interest income/spread $ 1,409 .18%
Net yield on interest earning assets .29%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
----------------------------------------
Average Income/ Average
Balances Expense Rate
-----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Assets
Earning assets:
Mortgage portfolio $ 424,457 $ 29,923 7.05%
Investments and cash equivalents 64,962 2,719 4.18%
Total earning assets 489,419 32,642 6.67%
Other assets $ 10,731
$ 500,150
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Debentures, notes and bonds, net $ 478,679 $ 30,848 6.44%
Other liabilities 7,915
Stockholders' equity 13,556
$ 500,150
Net interest income/spread $ 1,794 0.23%
Net yield on interest earning assets 0.37%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1992
----------------------------------------
Average Income/ Average
Balances Expense Rate
-----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Assets
Earning assets:
Mortgage portfolio $ 265,322 $ 18,730 7.06%
Investments and cash equivalents 35,352 1,424 4.03%
Total earning assets 300,674 230,154 6.70%
Other assets 7,058
$ 307,732
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Debentures, notes and bonds, net $ 289,462 $ 18,413 6.36%
Other liabilities 4,034
Stockholders' equity 14,236
$ 307,732
Net interest income/spread $ 1,741 0.34%
Net yield on interest earning assets 0.58%
</TABLE>
<PAGE>
Rate/Volume Analysis. The table below sets forth certain information regarding
the changes in the components of Farmer Mac's net interest income for the
periods indicated. For each category, information is provided on changes
attributable to (a) changes in volume (change in volume multiplied by old
rate); (b) changes in rate (change in rate multiplied by old volume); and (c)
the total. Combined rate/volume variances, a third element of the calculation,
are allocated based on their relative size.
<TABLE>
<CAPTION>
1994 vs. 1993
--------------------------------------
Increase or (Decrease) Due to
--------------------------------------
Rate Volume Total
--------------------------------------
(in thousands)
<S> ` <C> <C> <C>
Income from interest-earning assets:
Mortgage portfolio $ (326) $ (2,502) $ (2,828)
Investments 551 1,347 1,898
Total income from interest-earning assets 225 (1,155) (930)
Expense on interest-bearing liabilities (205) (340) (545)
Change in net interest income $ 430 $ (815) $ (385)
</TABLE>
<TABLE>
<CAPTION>
1993 vs. 1994
--------------------------------------
Increase or (Decrease) Due to
--------------------------------------
Rate Volume Total
--------------------------------------
(in thousands)
<S> ` <C> <C> <C>
Income from interest-earning assets:
Mortgage portfolio $ (41) $ 11,234 $ 11,193
Investments 55 1,240 1,295
Total income from interest-earning assets 14 12,474 12,295
Expense on interest-bearing liabilities 244 12,191 12,488
Change in net interest income $ (230) $ 283 $ 53
</TABLE>
Net Interest Income. Net interest income decreased $385 thousand from 1993 to
1994, and increased $53 thousand from 1992 to 1993. The decrease in 1994 is
largely the result of the $35.8 million or 8% decline in the average balance
of the mortgage portfolio. Although the average balance of investments and the
average rate of investments increased $28.6 million and 0.76%, respectively,
from 1993 to 1994, these increases were not enough to offset the effects of
the decline in the average balances of the mortgage portfolio.
The $53 thousand increase in net interest income from 1992 to 1993 resulted
from the $188.8 million increase in the average balances of Farmer Mac's
interest earning assets, which was partially offset by the 11 basis point
reduction in net interest spread on interest earning assets.
In the absence of increased volume, Farmer Mac's interest expense, over time,
is likely to exceed its interest income as the composition of its debt
portfolio shifts from shorter-term, lower costing debt to longer-term, higher
costing debt while the earnings from its mortgage portfolio continue to be
recognized on a level yield basis. The purchase of the mortgage portfolio was
funded with a series of callable and non-callable debt issues, at an initial
weighted average interest rate below the level yield of the interest earning
assets. However, as the shorter-term, lower costing debt matures, the
longer-term, higher costing debt will remain, thus increasing the weighted
average interest rate of Farmer Mac's debt portfolio and decreasing net
interest income.
<PAGE>
Interest Income. Interest income totaled $31.7 million, $32.6 million and
$20.2 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The $930 thousand decrease in interest income from 1993 to 1994
is attributable to the $35.8 million decrease in the average balance of the
mortgage portfolio, a result of principal repayments on the mortgages and the
$1.2 million reduction in interest income from the excess of yield maintenance
income over the increased level of premium amortization.
Interest income increased $12.5 million from 1992 to 1993, largely as a result
of the $159.5 million increase in the average balance of the mortgage
portfolio. The significant increase in the average balance of the mortgage
portfolio resulted from a full year of guarantee volume, particularly Farmer
Mac I Securities. The other significant component of the increase was the $1.4
million net increase in interest income, resulting from the excess of yield
maintenance income over the increased level of premium amortization.
Interest Expense. Interest expense for the years ended December 31, 1994, 1993
and 1992 totaled $30.3 million, $30.8 million, and $18.4 million,
respectively. The $545 thousand decrease in interest expense from 1993 to 1994
is attributable to the decline in the average balance of interest bearing
liabilities and the 4 basis point (0.04%) decline in the average cost of
interest bearing liabilities. The greater concentration of shorter term, lower
costing debt during 1994 lowered the overall cost of the total debt portfolio.
The $12.4 million increase in interest expense from 1992 to 1993 resulted from
the significant increase in the average balances of interest bearing
liabilities for the comparable periods. The 8 basis point (0.08%) increase in
the average cost of the interest bearing liabilities was largely attributable
to the maturity of shorter term, lower costing debt resulting in a higher
weighted average cost of outstanding debt.
Other Income. Other income totaled $1.2 million, $1.4 million, and $1.1
million for the years ended December 31, 1994, 1993 and 1992, respectively, a
decrease of $152 thousand from 1993 to 1994 and an increase of $316 thousand
from 1992 to 1993. Guarantee fee income, the principal component of other
income, decreased $153 thousand from 1993 to 1994 and increased $271 thousand
from 1992 to 1993. The changes in guarantee fee income for the comparable
periods were attributable to the volume of guarantee transactions outstanding
in each of the comparable periods.
Miscellaneous income, the other component of other income, consisted primarily
of transaction fees generated from the Farmer Mac II Program. Miscellaneous
income increased $1 thousand from 1993 to 1994 and $45 thousand from 1992 to
1993, the result of the level of issuances of Farmer Mac II Securities and
purchases of Guaranteed Portions under the Farmer Mac II Program for the
comparable periods. Total volume under the Farmer Mac II Program totaled $46.9
million in 1994, as compared to $49.9 million in 1993.
Other Expenses. Other expenses totaled $4.0 million, $4.0 million and $4.2
million for the years ended December 31, 1994, 1993 and 1992, respectively, a
decrease of $8 thousand from 1993 to 1994, and a decrease of $175 thousand
from 1992 to 1993. The $8 thousand decline in other expenses from 1993 to 1994
is largely attributable to the decrease in professional fees, which is offset
by the increase in compensation and employee benefits. Professional fees,
consisting primarily of legal, accounting and consulting fees, decreased $150
thousand from 1993 to 1994, primarily as a result of the elimination of
outside legal services related to the Farmer Mac II Program. From 1993 through
January 1994, Farmer Mac utilized the services of outside counsel to assist
with the issuance of securities under the Farmer Mac II Program; however,
beginning February 1, 1994, all of these services were performed by internal
legal personnel.
Compensation and employee benefits increased $119 thousand from 1993 to 1994,
a result of increases in staffing, attributable mainly to greater internal
staffing of the Farmer Mac II Program. During the latter half of 1993, Farmer
Mac added two employees and, in the first quarter of 1994, added one employee.
<PAGE>
The $175 thousand decrease in other expenses from 1992 to 1993 resulted from a
reduction in professional fees and administrative expenses. Professional fees
decreased $137 thousand or 16% from 1992 to 1993 because of the absence of
volume of Farmer Mac I transactions in 1993. Administrative expenses declined
$119 thousand or 22% from 1992 to 1993, largely as a result of the
implementation of various cost cutting measures intended to reduce Farmer
Mac's operating expenses, and the decreased business volume. These decreases
were partially offset by the $72 thousand increase in compensation and
employee benefits, a result of increased staffing levels in 1993 as compared
to 1992.
Extraordinary Gain. In 1993, the Corporation recognized an extraordinary gain
of $127 thousand or $0.06 per share from the early extinguishment of $14.9
million of debt.
Dividends. Farmer Mac has not paid and does not expect to pay dividends on its
common stock in the near future. Dividends on the common stock are subject to
determination and declaration by the Board. In February 1992, the Board
adopted a policy stating that no dividends would be paid on Farmer Mac Voting
or Non-Voting Common Stock until such time as Farmer Mac's stockholders'
equity is at least equal to $22 million (the amount of gross proceeds raised
by Farmer Mac in its initial common stock offering). Thereafter, up to 50% of
accumulated net earnings may be paid out as dividends, provided that
stockholders' equity remains at least equal to $22 million. No preference
between holders of the Voting Common Stock and Class C Non-Voting Common Stock
has been established relating to dividends. The ratio of dividends paid on
each share of Class C Non-Voting Common Stock to each share of Voting Common
Stock, however, will be three-to-one. If dividends are to be paid to holders
of the Voting Common Stock, such per share dividends to holders of Class A and
Class B Voting Common Stock will be equal.
Accounting Standards. In May 1993, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan." This statement requires
valuation of impaired loans based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value of
the underlying collateral if the loan is collateral-dependent.
In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosures." This statement
amends SFAS No. 114 and allows the entity to use existing methods for
recognition of interest income on impaired loans.
These statements will be effective January 1, 1995. Management does not
believe that either of these statements will have a material impact on Farmer
Mac's financial results.
<PAGE>
Board of Directors (as of April 15, 1995)
Gordon Clyde Southern1
(Vice-Chairman)
President, Southern Farm Co., Inc.
Steele, Missouri
E. J. Brown2
Executive Vice President
Equitable Agri-Business, Inc.
St. Louis, Missouri
James M. Cirona3
President and CEO
Western Farm Credit Bank
Sacramento, California
John C. Dean2
President and CEO
Glenwood State Bank
Glenwood, Iowa
Robert E. Egerton, Jr.3
President and Chief Executive Officer
Farm Credit of North Central New York
Morrisville, New York
C. G. Holthus2
President and Chief Executive Officer
First National Bank
York, Nebraska
Bill Mainer3
Farmer
Branch, Arkansas
James A McCarthy3
Farmer
Rio Hondo, Texas
Marilyn Peters1
Farmer
Britton, South Dakota
John Dan Raines, Jr.3
Raines Insurance Co., Inc.
Ashburn, Georgia
Alan R. Tubbs2
President, Maquoketa State Bank
Maquoketa, Iowa
Edward Charles Williamson, Jr.1
Manager, Director and Vice President
James Lee Adams Farms
Camilla, Georgia
Clyde A. Wheeler, Jr.1
Clear Creek Ranch
Laverne, Oklahoma
1 Presidential Appointee
2 Class A Stockholder Director
3 Class B Stockholder Director
Corporate Officers (as of April 15, 1995)
<TABLE>
<S> <C>
Henry D. Edelman Nancy E. Corsiglia
President & Chief Executive Officer Vice President - Business Development
and Treasurer
Michael T. Bennett Christopher A. Dunn
Vice President - General Counsel and Secretary Vice President - Mortgage-Backed Securities
Thomas R. Clark Charles M. Lewis
Vice President - Corporate Relations Vice President - Agricultural Finance
</TABLE>
<PAGE>
Corporate Information
Corporate Headquarters
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
(202) 872-7700
Transfer Agent and Registrar
Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, MA 02171
Annual Meeting
The Annual Meeting of Stockholders will be held on Thursday, June 8, 1995, at
9:00 a.m. at the Embassy Suites Hotel, 1250 22nd Street, N.W. 20037.
Formal notice of the meeting, the proxy statement and the proxy card are being
mailed to each stockholder of record entitled to vote at the meeting
simultaneously with the mailing of this Annual Report.
Independent Auditors
KPMG Peat Marwick LLP
2001 M Street, N.W.
Washington, D.C. 20036
Counsel
Brown & Wood
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
Form 10-K
Farmer Mac's annual report on Form 10-K for the year ended December 31, 1994,
as filed with the Securities and Exchange Commission, may be obtained from
Farmer Mac without charge upon written request to Michael T. Bennett,
Secretary, Farmer Mac, 919 18th Street, N.W., Suite 200, Washington, D.C.
20006.
<PAGE>
Report of Management
To the Stockholders of Farmer Mac:
The management of Farmer Mac is responsible for the accompanying audited
financial statements and unaudited financial and other information appearing
elsewhere in this report. In our opinion, the financial statements have been
prepared in conformity with generally accepted accounting principles
appropriate in the circumstances, and the other financial information in this
report is consistent with such statements. In preparing the financial
statements and in developing the other financial information, it was necessary
to make informed judgments and estimates of the effects of business events and
transactions. We believe that these judgments and estimates are reasonable,
that the financial information contained in this report reflects, in all
material respects, the substance of all business events and transactions to
which Farmer Mac was a party, and that all material uncertainties have been
appropriately accounted for or disclosed.
Farmer Mac utilizes a system of internal accounting controls that, in our
opinion, is adequate and provides reasonable assurance that transactions are
executed in accordance with appropriate authorization, permits preparation of
financial statements in conformity with generally accepted accounting
principles, and establishes accountability for the assets of Farmer Mac.
The Board of Directors of Farmer Mac exercises its oversight of the accounting
system through the Audit Committee, which is composed solely of directors who
are not officers or employees of Farmer Mac. The Audit Committee meets with
management to evaluate the effectiveness with which it discharges its
responsibilities. In addition, the Audit Committee meets periodically with the
independent auditors for Farmer Mac, KPMG Peat Marwick LLP, who have free
access to the Board of Directors and the Audit Committee, to discuss internal
accounting controls, the quality of financial reporting, and other matters
related to their examination of Farmer Mac's financial statements. The
appointment of the independent auditors is made annually by the Audit
Committee subject to ratification by the stockholders. KPMG Peat Marwick LLP
has been selected by the Audit Committee to serve as Farmer Mac's independent
auditors for fiscal year 1995, subject to ratification by the stockholders.
/s/ HENRY D. EDELMAN /s/ NANCY E. CORSIGLIA
------------------------- -------------------------------------
Henry D. Edelman Nancy E. Corsiglia
President and Vice President - Business Development
Chief Executive Officer and Treasurer
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Federal Agricultural Mortgage Corporation
We have audited the accompanying consolidated balance sheets of the Federal
Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations and of cash flows for each of the years in the three-year period
ended December 31, 1994. These consolidated financial statements are the
responsibility of Farmer Mac's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 3, Farmer Mac has been unable to generate sufficient
business volume to achieve profitability and therefore has reduced its capital
by $9.5 million since its inception in 1988. As of December 31, 1994 Farmer
Mac was in compliance with all currently applicable regulatory capital
requirements. Starting December 13, 1996, however, higher minimum capital
standards will become effective. Farmer Mac's regulator has certain
enforcement powers if Farmer Mac is unable to meet its capital standards,
including requiring a capital restoration plan, restriction or prohibition on
payments of dividends, limitations on growth, restriction of activities, and
appointment of a conservator.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Farmer Mac
and subsidiaries at as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
---------------------------
KPMG Peat Marwick LLP
Washington, D.C.
February 22, 1995
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993
-------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 200 $ 1,081
Interest receivable 14,023 15,507
Guarantee fees receivable 454 520
Investments at amortized cost, market values of $78,188
and $100,492 in 1994 and 1993, respectively (Note 4) 78,218 100,482
Mortgage portfolio, net (Note 5) 382,833 406,958
Mortgage payments receivable 1,196 506
Office equipment, net (Note 7) 98 111
Prepaid expenses and other assets 216 89
TOTAL ASSETS $ 477,238 $ 525,254
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Allowance for mortgage-backed securities sold (Note 6) $ 81 $ 59
Accounts payable and accrued expenses 972 772
Accrued interest payable 7,450 8,332
Debentures, notes and bonds, net: (Note 8)
Due within one year 168,307 172,350
Due after one year 288,209 330,190
TOTAL LIABILITIES: 465,019 511,703
STOCKHOLDERS' EQUITY (Note 9):
Common stock:
Class A Voting, $1 par value, no maximum authorization,
670,000 shares issued and outstanding 670 670
Class B Voting, $1 par value, no maximum authorization,
500,301 shares issued and outstanding 500 500
Class C Non-Voting, $1 par value, no maximum authorization,
1,170,301 shares issued and outstanding 1,170 1,170
Additional paid in capital 19,331 19,331
Accumulated deficit (9,452) (8,120)
TOTAL STOCKHOLDERS' EQUITY 12,219 13,551
Commitments (Note 10)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 477,238 $ 525,254
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Investments and cash equivalents $ 4,617 $ 2,719 $ 1,424
Mortgage portfolio 27,095 29,923 18,730
TOTAL INTEREST INCOME 31,712 32,642 20,154
INTEREST EXPENSE 30,303 30,848 18,413
NET INTEREST INCOME 1,409 1,794 1,741
OTHER INCOME:
Guarantee fees 1,050 1,203 932
Miscellaneous 177 176 131
TOTAL OTHER INCOME 1,227 1,379 1,063
OTHER EXPENSES:
Compensation and employee benefits 2,034 1,915 1,843
Professional fees 567 717 854
Insurance 141 141 151
Rent 179 162 167
Regulatory fees 302 306 304
Board of Directors fees
and meeting expenses 297 301 279
Administrative 448 434 553
TOTAL OTHER EXPENSES 3,968 3,976 4,151
LOSS BEFORE EXTRAORDINARY ITEM (1,332) (803) (1,347)
Extraordinary gain from early
extinguishment of debt -- 127 --
NET LOSS $ (1,332) $ (676) $ (1,347)
LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM $ -- $ (0.34) $ --
NET LOSS PER SHARE $ (0.57) $ (0.28) $ (0.58)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from Operations $ (1,332) $ (676) $ (1,347)
Adjustments to reconcile loss to
net cash provided (used) by operating activities
Amortization of premium on mortgage portfolio 6,554 11,074 3,664
Depreciation and amortization 1,838 463 991
Decrease (increase) in guarantee fees receivable 66 (285) (404)
Decrease (increase) in interest receivable 1,484 1,567 (15,029)
(Increase) decrease in mortgage payments receivable (690) 2,631 (3,137)
(Increase) decrease in prepaid expenses
and other assets (127) 79 (47)
Amortization of debt issuance costs 245 313 191
Increase (decrease) in accounts payable and
accrued expenses 200 311 (168)
(Decrease) increase in accrued interest payable (882) (670) 9,001
Provision for losses on Farmer Mac I Program 93 115 84
(Gain) on early extinguishment of debt --- (127) ---
Other --- 2 (39)
Net cash provided (used) by operating activities 7,449 14,797 (6,240)
CASH FLOWS FROM INVESTING ACTIVITIES:
Mortgage purchases (47,712) (38,730) (485,815)
Purchases of investments (594,277) (214,051) (65,877)
Proceeds from maturity of investments 619,465 149,753 76,293
Proceeds from mortgage principal repayments 65,212 76,852 43,279
Purchases of office equipment (40) (44) (51)
Net cash provided (used) by investing activities 42,648 (26,220) (432,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Medium-Term Notes --- 11,718 465,398
Payments to redeem Medium-Term Notes (67,915) (77,395) --
Proceeds from issuance of Discount Notes 775,437 153,425 79,114
Discount notes redeemed (758,500) (77,000) (105,000)
Net cash (used) provided by financing activities (50,978) 10,748 439,512
Net (decrease) increase in cash and
cash equivalents (881) (675) 1,101
Cash and cash equivalents at beginning of period 1,081 1,756 655
Cash and cash equivalents at end of period $ 200 $ 1,081 $ 1,756
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 26,229 $ 31,012 $ 6,927
Income Taxes -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. Organization
Description
The Federal Agricultural Mortgage Corporation ("Farmer Mac" or the "Company"),
a federally chartered instrumentality of the United States, was established
pursuant to Title VIII of the Farm Credit Act of 1971, as amended (the "Act"),
to attract new capital for the financing of agricultural real estate and rural
housing loans and to provide liquidity to agricultural and rural housing
lenders.
Farmer Mac is intended to aid the development of a secondary market for
certain loans secured by a first lien on agricultural real estate or rural
housing ("Qualified Loans") by providing guarantees for securities
representing interests in, or obligations backed by, pools of such loans. This
program is known as the "Farmer Mac I Program."
The Food, Agriculture, Conservation and Trade Act of 1990 (the "1990 Act")
authorized Farmer Mac to purchase portions ("Guaranteed Portions") of loans
guaranteed by the Farmers Home Administration (the "FmHA") and to issue and
guarantee securities backed by such Guaranteed Portions. This program is known
as the "Farmer Mac II Program." Eligible sellers are any participating lenders
in FmHA's guaranteed loan program or subsequent holders of Guaranteed
Portions. There is no Farmer Mac stock ownership requirement for participation
in the Farmer Mac II Program as there is in the Farmer Mac I Program.
The Food, Agriculture, Conservation and Trade Act Amendments of 1991 (the
"1991 Act") clarified Farmer Mac's authority to issue debt obligations for the
purpose of purchasing Guaranteed Portions and guaranteed securities issued
under the Farmer Mac I and Farmer Mac II Programs ("Securities") and
maintaining reasonable amounts for business operations (including liquidity)
relating to its activities. This is known as the Linked Portfolio Strategy.
In structuring Farmer Mac I Securities, certified facilities (each, a
"Certified Facility" or "Pooler") are required to establish a reserve account
for, or a subordinated participation interest in, the pool of Qualified Loans,
equal to at least 10% of the aggregate principal balance of the loans in the
pool. The reserve or subordinated interest initially may be retained by
originators or Poolers or shared between the two. Full recourse must be taken
against the reserve or subordinated interest prior to any payment by Farmer
Mac under its guarantee. No such reserve or subordinated interest is required
for Farmer Mac II Securities due to the full faith and credit of the United
States backing the Guaranteed Portions.
Operations
Farmer Mac has issued common stock, set minimum ownership requirements of
Farmer Mac common stock for Farmer Mac I Program participants, elected a
permanent board of directors, hired a full time staff and developed Loan
Underwriting, Appraisal, Diversification and Certified Facility Eligibility
standards, the Farmer Mac Securities Guide for the Farmer Mac I Program and
the Farmer Mac Loan Purchase Plan for the Farmer Mac II Program. Securities
were first issued under the Farmer Mac I and Farmer Mac II Programs during
1991.
<PAGE>
Farmer Mac's future operations are expected to be funded primarily through the
guarantee fees charged to Poolers in the Farmer Mac I Program and to sellers
in the Farmer Mac II Program, as well as through net interest income. In 1991,
Farmer Mac's Board authorized the implementation of a borrowing program. Funds
from the borrowings may be used to cover operating expenses and the
acquisition of Farmer Mac I and Farmer Mac II Securities and Guaranteed
Portions. Excess funds from any borrowings will be invested in accordance
withinvestment policies established by the Board.
On December 23, 1991, Farmer Mac formed Farmer Mac Mortgage Securities
Corporation, a wholly owned subsidiary incorporated under the laws of the
State of Delaware. The principal activities of the subsidiary are (i) to deal
in Farmer Mac I and Farmer Mac II Securities and issue securities representing
interests in, or obligations backed by, Farmer Mac I and Farmer Mac II
Securities and Guaranteed Portions; and (ii) to incur indebtedness in
connection with its activities. Farmer Mac Mortgage Securities Corporation
commenced business on January 8, 1992. On May 22, 1992, Farmer Mac formed
Farmer Mac Acceptance Corporation, a wholly owned subsidiary incorporated
under the laws of the State of Delaware. The principal purpose of the
subsidiary is to act as the registrant under registration statements to be
filed with the Securities and Exchange Commission in connection with the
registration of Securities under the Federal securities laws. Farmer Mac
Acceptance Corporation commenced business on May 22, 1992.
2. Summary of Significant Accounting Policies
The following comprises the significant accounting policies which Farmer Mac
follows in preparing and presenting its financial statements:
(a) Principles of Consolidation - Effective December 31, 1992, Farmer Mac's
financial statements are presented on a consolidated basis. The
consolidated financial statements include the accounts of Farmer Mac and
its wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation.
(b) Mortgage Portfolio and Investments - The mortgage portfolio is comprised of
mortgage-backed securities, and portions of loans guaranteed by the
Secretary of the U.S. Department of Agriculture. The Company has both the
positive intent and the ability to hold these mortgage-related assets until
maturity and as such, they are carried at cost, adjusted for amortization
of premiums and accretion of discounts using the level yield method over
the contractual life of the investment. Amortization of premiums on
mortgage-backed securities and mortgages is accelerated from time to time
to reflect actual prepayment experience.
Investments are classified as held-to-maturity and are carried at their
historical cost adjusted for unamortized discount or premium. The Company has
both the positive intent and the ability to hold these investments until
maturity.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires that debt and
equity securities that are classified as either trading securities or
securities available for sale be reported at fair value. Those securities
which are classified as held-to-maturity securities should be reported at
amortized cost. Farmer Mac adopted SFAS No. 115 beginning January 1, 1994.
The adoption of SFAS No. 115 had no effect on Farmer Mac's financial position
or results of operations.
(c) Yield Maintenance Income - Farmer Mac receives yield maintenance payments
when mortgage loans underlying certain mortgage-backed securities prepay.
These payments are designed to minimize Farmer Mac's exposure to
reinvestment risk and are calculated such that, when reinvested with the
prepaid principal, they should generate substantially the same cashflows
that would have been generated by the mortgage-backed securities had the
underlying mortgage loans not prepaid. Income from yield maintenance
payments is recognized when the mortgage loans prepay and is classified as
interest income in the statements of operations. Farmer Mac recognized $1.9
million, $3.6 million and $2.1 million in yield maintenance income in 1994,
1993 and 1992, respectively.
<PAGE>
During the fourth quarter of 1993, Farmer Mac received the information
necessary to calculate yield maintenance payments on partial prepayments of
certain mortgage loans, which resulted in the recognition of $1.6 million in
yield maintenance income.
(d) Loss Per Share - The actual number of Class A, Class B and Class C shares
outstanding at December 31, 1994, 1993 and 1992 was 2,340,602. Loss per
share is calculated using the actual number of common shares outstanding
for the year.
(e) Office Equipment - Office equipment is stated at cost less accumulated
depreciation. Depreciation is computed on a straight line basis over the
estimated useful lives of the related assets as follows:
Estimated Lives
Furniture and fixtures 10 Years
Computer equipment and software 3 Years
Other equipment 5 Years
(f) Cash Equivalents - Farmer Mac considers interest bearing deposits that are
overnight funds to be cash equivalents. Cash equivalents are carried at
amortized cost which approximates market value.
(g) Income Taxes - In 1993, Farmer Mac adopted SFAS No. 109, "Accounting for
Income Taxes," which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and the tax basis of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The adoption of SFAS 109 had
no effect on Farmer Mac's financial statements.
(h) Guarantee Fees - Farmer Mac recognizes guarantee fees as income when
earned. Farmer Mac recognizes the portion of guarantee fees generated by
mortgage-backed securities held in portfolio as guarantee fee income
(rather than interest income) in its statements of operations.
Approximately $905 thousand and $971 thousand of guarantee fees in 1994 and
1993, respectively, relate to mortgage-backed securities held in portfolio.
(i) Allowance for Losses - An allowance has been established for potential
losses under the Farmer Mac I Program equal to a percentage of guarantee
fees earned. Farmer Mac considers the amount of the allowance adequate to
cover its exposure to guarantee payments in the Farmer Mac I Program.
Before Farmer Mac is required to make a guarantee payment, full recourse
must be taken against a reserve or subordinated interest equal to at least
ten percent (10%) of the original Pool balance. Farmer Mac has not
established an allowance for the Farmer Mac II Program because Farmer Mac's
credit exposure on Farmer Mac II Securities is covered by the "full faith
and credit" of the United States by virtue of the FmHA guarantee of the
principal and interest thereon.
(j) Debt Issuance Costs - Debt issuance costs are deferred and amortized over
the estimated life of the related debt.
(k) Reclassifications - Certain reclassifications of prior year information
were made to conform with the 1994 presentation.
<PAGE>
3. Regulatory Capital
Since its inception in 1988, Farmer Mac has not generated sufficient business
volume to achieve profitability, resulting in net losses that have reduced its
capital. Farmer Mac's stockholders' equity has decreased $9.5 million since
its inception in 1988, including $1.3 million, $676 thousand and $1.3 million
during the years ended December 31, 1994, 1993 and 1992, respectively.
The 1991 Act established capital requirements for Farmer Mac. Certain types of
assets and guarantee obligations are required to be supported by specific
amounts of "core capital." The legislation further defines capital levels as
"minimum" or "critical." The Farm Credit Administration ("FCA") has been given
certain enforcement powers if Farmer Mac is unable to meet its minimum capital
requirements. These include requiring a capital restoration plan, restriction
or prohibition on payment of dividends, limitations on growth, restriction of
activities, and appointment of a conservator.
At December 31, 1994, Farmer Mac was in compliance with all currently
applicable regulatory requirements. However, Farmer Mac will be subject to
higher regulatory capital standards for Linked Portfolio Assets (discussed
more fully below) after the expiration of the five-year transition period,
effective December 13, 1996. If these standards had been in effect at December
31, 1994, Farmer Mac's actual capital would have been less than the total
minimum capital required by $156 thousand.
Management and the Board of Directors have been evaluating possible
alternatives that would enable Farmer Mac to comply with these minimum (and
any future risk-based) capital requirements when they become effective. The
Farmer Mac Board has directed management to seek legislative revisions to the
Act (which serves as Farmer Mac's charter) that would delay beyond 1996 the
implementation of the higher minimum and critical capital requirements and the
promulgation by the FCA of any risk-based capital regulation. No assurance can
be given that any legislation, if enacted, would enable Farmer Mac to be in a
position to comply with the higher capital requirements whenever they become
effective. If Farmer Mac were unable to satisfy the higher capital
requirements, some or all of the regulatory sanctions referred to above could
be imposed.
Current Regulatory Requirements
The minimum capital level for Farmer Mac is the amount of capital equal to the
sum of (1) 2.50% of the aggregate on-balance sheet assets of Farmer Mac, other
than assets acquired under the Linked Portfolio Strategy, as determined in
accordance with generally accepted accounting principles; (2) 0.45% of the
unpaid principal balance of outstanding securities guaranteed by Farmer Mac
and backed by pools of Qualified Loans and substantially equivalent
instruments issued or guaranteed by Farmer Mac and other off-balance sheet
obligations of Farmer Mac; and (3) a percentage of any aggregate assets of
Farmer Mac acquired pursuant to the Linked Portfolio Strategy, which shall be
(A) during the 5-year period beginning on December 13, 1991, varying
percentages of the aggregate value of such assets, depending on the amount
thereof, ranging from 0.45% to 2.50%, and (B) after the expiration of such
5-year period, 2.50% of the aggregate value of such assets.
The 1991 Act also required that risk-based capital measures were to be
established by the FCA. As of December 31, 1994, the FCA had not established
these levels.
<PAGE>
The following is an analysis of Farmer Mac's minimum capital requirements at
December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Required Required
Minimum Minimum
Capital Capital
December 31, December 31, December 31, December 31,
1994 1994 1993 1993
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
On-balance sheet assets $ 109,244 $ 2,731 $ 126,874 $ 3,172
Off-balance sheet assets 98,610 444 112,917 508
Assets acquired
under the Linked
Portfolio Strategy 367,993 1,656 398,380 1,792
TOTAL MINIMUM
CAPITAL REQUIRED 4,831 5,472
ACTUAL CAPITAL 12,219 13,551
EXCESS CAPITAL $ 7,388 $ 8,079
</TABLE>
Critical capital levels are approximately one half of the minimum capital
levels for comparable assets.
4. Investments
The amortized cost of short-term investments approximates market value since
such investments mature in 90 days or less. The market value of longer-term
investments is estimated based on bid quotations received from securities
dealers. As of December 31, 1994 and 1993, investments consisted of the
following:
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Agency Debt Securities $ 4,000 $ 2 $ 22 $ 3,980
Commercial Paper 72,928 -- -- 72,928
Cash Investment in Guaranteed
Investment Contract 1,290 -- 10 1,280
Total Investments $ 78,218 $ 2 $ 32 $ 78,188
December 31, 1993
U.S. Agency Debt Securities $ 5,503 $ 2 $ 1 $ 5,504
Commercial Paper 74,687 9 -- 74,696
Cash Investment in Guaranteed
Investment Contract 20,292 -- -- 20,292
Total Investments $ 100,482 $ 11 $ 1 $ 100,492
</TABLE>
<PAGE>
The amortized cost and estimated market value of investments by remaining
maturity at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Remaining maturity
at December 31:
Due within 1 year $ 76,218 $ 76,186 $ 96,482 $ 96,490
Due after 1 year through 5 years 2,000 2,002 4,000 4,002
TOTAL $ 78,218 $ 78,188 $ 100,482 $ 100,492
</TABLE>
5. Mortgage Portfolio
The mortgage portfolio is comprised of mortgage-backed securities (Federal
Home Loan Mortgage Corporation Participation Certificates, Farmer Mac I
Securities and Farmer Mac II Securities) and Guaranteed Portions. The table
sets forth the amortized costs and estimated market values of the
mortgage-backed securities and the outstanding balances of the guaranteed
portions held by Farmer Mac at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Market
Security Name Cost Gain Loss Value
-------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1994
Federal Home Loan Mortgage
Corporation Multiclass Participation
Certificates $ 5,438 -- $ 737 $ 4,701
Farmer Mac I Securities 282,498 -- 6,595 275,903
Farmer Mac II Securities 85,496 -- 3,376 82,120
Total Mortgage-Backed
Securities 373,432 -- $ 10,708 $ 362,724
Guaranteed Portions 9,401
Total Mortgage Portfolio, net $ 382,833
December 31, 1993
Federal Home Loan Mortgage
Corporation Multiclass Participation
Certificates $ 9,084 $ 104 $ 14 $ 9,174
Farmer Mac I and II Securities 397,874 16,864 381 414,357
Total Mortgage-Backed
Securities $ 406,958 $ 16,968 $ 395 $ 423,531
Guaranteed Portions --
Total Mortgage Portfolio, net $ 406,958
</TABLE>
There were no sales of mortgage-backed securities or guaranteed portions held
in portfolio during 1994, 1993 or 1992.
<PAGE>
Farmer Mac I and II Securities and Guaranteed Portions
Securities and Guaranteed Portions purchased under the Farmer Mac I and Farmer
Mac II Programs are funded with corporate debt under Farmer Mac's "Linked
Portfolio Strategy" and at December 31, 1994 and 1993, were composed of the
following:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------
Farmer Farmer Farmer Farmer
Mac I Mac II Mac I Mac II
--------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Outstanding Principal Balance $ 265,831 $ 94,891 $ 317,176 $ 57,438
Unamortized premium and
deferred fees, net 16,881 6 23,402 --
Less:
Allowance for Losses (214) -- (142) --
$ 282,498 $ 94,897 $ 340,436 $ 57,438
</TABLE>
6. Allowance For Losses
Changes in the allowance for losses for 1994, 1993 and 1992 are summarized
below:
<TABLE>
On-Balance Off- Balance
Sheet Sheet
MBS MBS Total
-------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
December 31, 1992 $ 58 $ 28 $ 86
Provision 84 31 115
December 31, 1993 142 59 201
Provision 72 22 94
December 31, 1994 $ 214 $ 81 $ 295
</TABLE>
Farmer Mac has not incurred any losses to date.
At December 31, 1994, $214 thousand of the allowance for losses related to
Securities issued under the Farmer Mac I Program and held in portfolio.
Accordingly, the allowance is recorded as a component of "Mortgage Portfolio"
in the Consolidated Balance Sheets.
7. Office Equipment
Office equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
---------------------------------
(in thousands)
<S> <C> <C>
Furniture and fixtures $ 60 $ 59
Computer equipment and software 204 209
Other equipment 44 45
SUBTOTAL 308 313
Less accumulated depreciation (210) (202)
TOTAL $ 98 $ 111
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1993 and 1992
totaled $53 thousand, $62 thousand and $61 thousand, respectively.
<PAGE>
8. Debentures, Notes and Bonds, Net
Total debt outstanding at December 31, 1994 and 1993 amounted to $456.5 and
$502.5 million, net of unamortized discounts, premiums and issuance costs. The
effective interest rate of total debt outstanding was 6.74% and 6.09% at
December 31, 1994 and 1993, respectively. The average maturity of all debt
outstanding at December 31, 1994 and 1993 was 2.88 years and 3.51 years,
respectively.
Borrowings Due Within One Year As of December 31, 1994 and 1993, Farmer Mac's
borrowings due within one year were as follows:
<TABLE>
<CAPTION>
Maximum Average Weighted
Amount Amount Amount
Effective Outstanding Outstanding Interest Rate
Interest during the during the during the
Balance Rate period period period
----------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1994
Discount Notes $ 124,337 5.81% $ 124,337 $ 112,150 4.32%
Current Portion of
Medium-Term Notes 43,970 5.94% 63,938 51,746 5.63%
Total $ 168,307
December 31, 1993
Discount Notes 102,593 3.29% 102,593 40,661 3.15%
Current Portion of
Medium-Term Notes 69,757 5.50% $ 70,959 $ 66,261 4.93%
Total $ 172,350
</TABLE>
The Current Portion of Medium-Term Notes refers to those Medium-Term Notes
maturing within the next twelve months, and includes $1.9 million of
Medium-Term Notes with optional redemption provisions.
During 1993, Farmer Mac called $14.9 million of debt, resulting in an
extraordinary gain of $127 thousand.
Borrowings Due After One Year
Borrowings due after one year are comprised of Medium-Term Notes. In
accordance with its Medium-Term Note program, Farmer Mac issues, from time to
time, unsecured notes with maturities from 9 months to 30 years from date of
issue. The average cost of all Medium-Term Notes outstanding with maturities
in excess of one year at December 31, 1994 and 1993 was 7.26% and 7.09%,
respectively, with an average effective maturity of 3.94 and 5.21 years,
respectively.
<PAGE>
The following table sets forth the outstanding balances (net of any
unamortized discounts, or premiums and debt issuance costs), and effective
interest rates of Farmer Mac's Medium-Term Notes due after one year at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------------
Effective Effective
Interest Interest
Balance Rate Balance Rate
------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
1995 -- -- $ 42,049 5.94%
1996 $ 68,399 6.70% 59,903 6.49%
1997 27,657 6.83% 27,639 6.83%
1998 35,425 7.11% 35,404 7.11%
1999 38,107 7.27% 38,085 7.27%
2000 42,672 7.50% 42,649 7.50%
Thereafter 75,949 7.84% 84,461 7.88%
TOTAL $ 288,209 $ 330,190
</TABLE>
Authority to Borrow from the Treasury of the United States
The Act authorizes, under certain conditions, Farmer Mac to borrow up to
$1,500,000,000 from the Secretary of the Treasury, if necessary, to fulfill
the obligations of Farmer Mac under any guarantee. The debt would bear
interest at a rate determined by the Secretary of the Treasury based on the
then current cost of funds to the United States. The debt is required to be
repaid within a reasonable time. As of December 31, 1994, Farmer Mac had no
such debt outstanding.
9. Stockholders' Equity
Common Stock
Farmer Mac has three classes of common stock outstanding. Class A Voting
Common Stock may be held only by banks, insurance companies and other
financial institutions or entities that are not institutions of the Farm
Credit System. Class B Voting Common Stock may be held only by institutions of
the Farm Credit System. There are no ownership restrictions on the Class C
Non-Voting Common Stock.
In December, 1988, Farmer Mac received $22,820,870, before expenses, in a sale
of its common stock at $19.50 per unit, net of underwriting discount, in a
unit offering of Class A Units and Class B Units. A Class A Unit consisted of
one share of Class A Voting Common Stock and one share of Class C Non-Voting
Common Stock. A Class B Unit consisted of one share of Class B Voting Common
Stock and one share of Class C Non-Voting Common Stock. The rights of the
Class A and Class B Voting Common Stock are identical, except with respect to
election of directors. Pursuant to the terms of the offering, the Voting
Common Stock and the Class C Non-Voting Common Stock included in the units
separated on November 23, 1993.
No holder of Class A Voting Common Stock may directly or indirectly be a
beneficial owner of more than ten percent of the outstanding shares of Class A
Voting Common Stock. There are no restrictions on the maximum purchase or
holdings of Class B Voting Common Stock. In February 1991, the Board adopted a
policy stating that no dividends would be paid on Farmer Mac Voting or
Non-Voting Common Stock until such time as Farmer Mac's stockholders' equity
is at least $22,000,000. Thereafter, no more than 50% of accumulated net
earnings will be paid out as dividends.
There is no preference established relating to dividends paid to holders of
Voting Common Stock and Class C Non-Voting Common Stock. The ratio of any
dividends paid on each share of Class C Non-Voting Common Stock to each share
of Voting Common Stock will be three-to-one. Farmer Mac does not expect to pay
dividends in the near future.
<PAGE>
In the event of liquidation of Farmer Mac, the ratio of any distributions to
holders of Non-Voting Common Stock and holders of Voting Common Stock will be
three-to-one.
In November 1994, Farmer Mac and Western Farm Credit Bank ("Western") entered
into a five- year strategic alliance agreement pursuant to which Western has
agreed to establish and operate an agricultural loan pooling program open to
all Farmer Mac stockholders. As part of its commitment to establish and
operate the program, Western has agreed to purchase Class C Non-Voting Stock
to be issued by Farmer Mac in amounts equal to the costs and expense incurred
(or expected to be incurred) in establishing and operating the program, up to
a maximum amount of $1.5 million. No Class C Stock has been issued by Farmer
Mac or purchased by Western as contemplated in the alliance agreement. As part
of its commitment to Farmer Mac, Western also agreed to submit at least $50
million of loans to Farmer Mac for guarantee in a "swap transaction," in
return for which it would receive warrants to purchase additional Class C
Stock in an amount based on the amount by which the original aggregate
principal balance of the loans in the swap transaction exceeded $50 million.
The swap transaction closed on February 22, 1995, with a pool containing
approximately $71.3 million principal balance of loans. No warrants to
purchase shares of Class C Non-Voting Common Stock have yet been issued.
Transactions in common stock, additional paid-in-capital and accumulated
deficit accounts for the three years ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
Common Common Common Additional
Stock Stock Stock Paid-in Accumulated
Class A Class B Class C Capital Deficit Total
------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1991 $ 670 $ 500 $ 1,170 $ 19,331 $ (6,097) $ 15,574
Loss for 1992 - - - - (1,347) (1,347)
Balance,
December 31, 1992 670 500 1,170 19,331 (7,444) 14,227
Loss for 1993 - - - - (676) (676)
Balance,
December 31, 1993 670 500 1,170 19,331 (8,120) 13,551
Loss for 1994 - - - - (1,332) (1,332)
Balance,
December 31, 1994 $ 670 $ 500 $ 1,170 $ 19,331 $ (9,452) $12,219
</TABLE>
10. Lease Commitments
Farmer Mac leases its office space under a non-cancelable operating lease
expiring January 6, 2002. Future minimum commitments under leasing
arrangements at December 31, 1994 are as follows (dollars in thousands):
Year ending December 31:
1995 $ 231
1996 231
1997 235
1998 235
1999 235
Thereafter 451
TOTAL $ 1,618
Rent expense for 1994, 1993 and 1992 was $179 thousand, net of $25 thousand of
sublease income, $162 thousand, net of $37 thousand of sublease income and
$167 thousand, net of $26 thousand of sublease income, respectively.
<PAGE>
11. Income Taxes
In 1993, Farmer Mac adopted SFAS No. 109, "Accounting for Income Taxes." SFAS
109 requires a company to recognize deferred tax liabilities and assets for
the expected future tax consequences of events that have been recognized in a
company's financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and the tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. By adopting SFAS 109, Farmer Mac has
recognized a deferred tax asset with a 100% valuation allowance. Accordingly,
the change in the method of accounting for income taxes, as effective January
1, 1993, had no effect on Farmer Mac's financial statements.
Farmer Mac is subject to income taxes at regular corporate statutory rates.
Farmer Mac had book net operating loss carryforwards of approximately $9.4
million and $7.8 million at December 31, 1994 and 1993, respectively. Tax net
operating loss carryforwards of $1.6 million expire in 2009, $1.1 million
expire in 2008, $1.7 million expire in 2007, $3.0 million expire in 2006, and
$2.0 million expire in 2005. Farmer Mac did not pay taxes in 1994, 1993, and
1992.
12. Employee Benefits
Pension Plan
On December 28, 1989, Farmer Mac adopted a defined contribution pension plan
for all of its employees. Beginning January 1, 1994, the Company contributed
13.2% of the lesser of an individual's gross salary and $150,000, plus 5.7% of
the difference between (i) the lesser of the gross salary and $150,000 and
(ii) the Social Security Taxable Wage Base. Prior to 1994, the contributions
were equal to 14.4% of gross salaries. Pension expense for the years ended
December 31, 1994, 1993 and 1992 was $179 thousand, $162 thousand and $150
thousand, respectively.
Stock Option Plan
In 1992, Farmer Mac initiated a Stock Option Plan for key management employees
to acquire shares of Class C Stock. These stock options are exercisable
immediately, and, if not exercised, will expire ten years from the date of
grant. No options have yet been exercised. The following table summarizes
stock option activity for 1994 and 1993:
Number Option
of Options Price
-------------------------------
Balance, January 1, 1993 65,000 $ 15
Granted 60,000 $ 15
Exercised - -
Canceled (10,000) $ 15
Balance, December 31, 1993 115,000 $ 15
Granted - -
Exercised - -
Canceled (10,000) $ 15
Balance, December 31, 1994 105,000 $ 15
13. Financial Instruments with Off-Balance Sheet Risk
Farmer Mac is a party to transactions involving financial instruments with
off-balance sheet risk. These financial instruments include Farmer Mac
Securities and commitments to purchase and guarantee Farmer Mac Securities.
Farmer Mac uses these financial instruments in the normal course of business
to fulfill its statutory purpose of increasing liquidity for agricultural and
rural residential mortgage lenders.
<PAGE>
Farmer Mac guarantees the timely payment of principal and interest on
Securities issued under the Farmer Mac I and Farmer Mac II Programs.
In the Farmer Mac I Program, Poolers are required to establish reserve
accounts or issue subordinated interests equal to at least 10% of the initial
balance of the Qualified Loans in the Pool backing the Securities. Farmer
Mac's guarantee can only be called upon if all amounts then available to be
drawn pursuant to such reserve or subordinated interest for distribution to
the holders of Farmer Mac Securities have been so drawn. The main risk Farmer
Mac bears in such cases is that the reserve or subordinated interest will be
insufficient ultimately to cover timely payment of principal and interest to
security holders. To mitigate this risk, Farmer Mac requires all loans in a
pool to meet standards with respect to loan-to-value ratios, other financial
ratios, and diversification among crops and geographic location. Farmer Mac
subjects each pool submitted for guarantee under the Farmer Mac I Program to a
"stress test" designed to analyze the pool's diversification and the
sufficiency of the reserve or subordinated interest under simulated conditions
of greatly increased foreclosures and losses. Farmer Mac only provides its
guarantee on securities backed by pools that pass its stress test. As of
December 31, 1994, the subordinated interests represented 10.3% of the
outstanding balance of all Farmer Mac I Securities indicating that the
subordinated interests have absorbed certain cashflow deficiencies resulting
from delinquencies, which have increased the level of the subordinated
interests; any losses incurred as a result of foreclosures may reduce the
outstanding balance of the subordinated interests.
As of December 31, 1994 and 1993, the outstanding principal balance of
securities guaranteed under the Farmer Mac I Program and not held in Farmer
Mac's portfolio was $93.0 and $105.8 million, respectively.
At December 31, 1994, a total of five loans aggregating $2.2 million were 90
days or more past due, three loans totaling $1.5 million were in foreclosure
and title to one loan with an outstanding principal balance of $613 thousand
had been acquired by the trust in the Farmer Mac I Program. The nine loans
combined represent 1.1% of the aggregate principal amount of outstanding
Farmer Mac I Securities at December 31, 1994. Management believes that no
losses will be incurred by Farmer Mac as a result of the loans in foreclosure
or the real estate owned by the trust.
Farmer Mac's credit exposure on Farmer Mac II Securities is covered in full by
the "full faith and credit" of the United States by virtue of the FmHA
guarantee of the principal and interest on all Guaranteed Portions. As of
December 31, 1994 and 1993, the outstanding principal balances of securities
guaranteed under the Farmer Mac II Program and not held in Farmer Mac's
portfolio were $5.6 million and $7.2 million, respectively.
As of December 31, 1994, Farmer Mac had commitments to purchase for investment
Farmer Mac I Securities aggregating approximately $50 million and to guarantee
an additional amount of Farmer Mac I Securities aggregating approximately $65
million. The price at which Farmer Mac would purchase the Farmer Mac I
Securities had not been determined at December 31, 1994. No commitments to
guarantee or purchase Farmer Mac Securities were outstanding at December 31,
1993.
As of December 31, 1994 and 1993, Farmer Mac did not hold any derivative
financial instruments.
14. Concentration of Credit Risk
The following tables set forth the geographic and commodity diversification,
as well as the range of loan-to-value ratios, of all Farmer Mac I Securities,
determined as of December 31, 1994 and, with respect to the 1993 information,
as of the date the loans were initially pooled:
<PAGE>
<TABLE>
<CAPTION>
Geographic Diversification
1994 1993
------------------------------------------------------------------
On-balance Off-balance On-balance Off-balance
Sheet Sheet Sheet Sheet
Geographic Region Securities Securities Securities Securities
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Northeast 0.34% 1.77% 0.62% 1.81%
Appalachia 1.03% 1.54% 0.88% 3.18%
Southeast 7.81% 2.83% 7.82% 3.41%
Lake States 6.27% 6.61% 6.31% 6.25%
Corn Belt 8.90% 19.41% 8.87% 21.08%
Delta States 13.88% 4.70% 13.12% 4.30%
Northern Plains 2.12% 13.33% 2.56% 8.10%
Southern Plains 12.20% 4.70% 11.41% 11.65%
Mountain 5.59% 8.68% 6.50% 11.64
Pacific 41.86% 36.43% 41.91% 28.58%
Total 100.00% 100.00% 100.00% 100.00%
</TABLE>
<TABLE>
<CAPTION>
Commodity Diversification
1994 1993
------------------------------------------------------------------
On-balance Off-balance On-balance Off-balance
Sheet Sheet Sheet Sheet
Geographic Region Securities Securities Securities Securities
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food Grains 12.87% 11.13% 12.40% 13.39%
Feed Grains 14.70% 23.64% 14.61% 25.11%
Cotton/Tobacco 10.28% 2.88% 11.28% 3.02%
Oilseeds 12.88% 12.18% 12.09% 11.72%
Potatoes, Tomatoes, and other Veg. 9.95% 5.50% 10.26% 7.63%
Permanent Plantings 21.56% 18.47% 20.59% 14.86%
Sugarbeets, Cane and Other Crops 3.69% 5.58% 4.25% 3.99%
Dairy 3.01% 3.59% 2.57% 0.61%
Cattle and Calves 8.70% 12.42% 9.30% 15.28%
Other 2.36% 4.61% 2.65% 4.39%
Total 100.00% 100.00% 100.00% 100.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Distribution by Loan-to-Value Ratio
1994 1993
------------------------------------------------------------------
On-balance Off-balance On-balance Off-balance
Sheet Sheet Sheet Sheet
Geographic Region Securities Securities Securities Securities
------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.00 - 10.00% 0.08% 0.75% 0.24% 0.86%
10.01 - 20.00% 1.17% 3.81% 2.21% 4.94%
20.01 - 30.00% 3.86% 8.13% 5.60% 12.09%
30.01 - 40.00% 9.37% 16.90% 11.03% 17.56%
40.01 - 50.00% 20.21% 23.47% 21.20% 32.58%
50.01 - 60.00% 29.61% 33.89% 27.555 28.47%
60.01 - 70.00% 31.50% 12.62% 28.58% 3.10%
70.01 - 80.00% 4.20% 0.43% 3.59% 0.40%
Total 100.00% 100.00% 100.00% 100.00%
</TABLE>
Loan-to-Value ratios represent the original loan-to-value ratios. Current
Loan-to-Value ratios may be higher or lower than the original Loan-to-Value
ratios.
15. Fair Value Disclosures
The majority of Farmer Mac's assets and liabilities are financial instruments;
however, most of these financial instruments lack an available trading market.
Significant estimates, assumptions, and present value calculations were
therefore used for purposes of the following disclosure, resulting in a high
degree of subjectivity inherent in the indicated fair values. Accordingly,
these fair value estimates are not necessarily indicative of what Farmer Mac
would realize in an actual sale.
The estimated fair values and carrying values at December 31, 1994 and 1993
are as follows:
1994 1993
------------------------------------------
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
------------------------------------------
(in thousands)
Financial Assets:
Cash and cash equivalents $ 200 $ 200 $ 1,081 $ 1,081
Investments 78,188 78,218 100,492 100,482
Mortgage portfolio 372,096 382,833 423,531 406,958
Financial Liabilities:
Debentures, notes and bonds net:
Due within one year 168,187 168,307 172,814 172,350
Due after one year $283,850 $288,209 $353,108 $330,190
The following methods and assumptions were used to estimate the fair value of
Farmer Mac's financial instruments:
(a) Cash and cash equivalents - For the short-term financial instruments, the
carrying value is a reasonable estimate of fair value.
(b) Investments - The fair values of investments are based on quoted market
prices.
(c) Mortgage Portfolio - The mortgage portfolio consists of Federal Home Loan
Mortgage Corporation (FHLMC) Multiclass Participation Certificates (PCs),
Farmer Mac I and Farmer Mac II Securities and Guaranteed Portions. The
fair values of the FHLMC Multiclass PCs were based on available quoted
market prices.
The fair value of the guaranteed securities issued under the Farmer Mac I
Program and held in portfolio using Farmer Mac's Linked Portfolio Strategy was
estimated by using a model to project each pool's total scheduled cash flows
and its corresponding senior scheduled cash flows, given the original pool
subordination level. Other considerations that were taken into account were
yield maintenance provisions, credit quality, payment characteristics and net
interest rates of the qualified loan collateral. These scheduled cash flows
were then discounted by the corresponding rate imputed from Farmer Mac's debt
yield curve after taking the prior considerations into account.
Since both of the Farmer Mac I Pools held in portfolio have yield maintenance
provisions, the prepayment risk is significantly mitigated.
The fair value of the Securities issued and the Guaranteed Portions purchased
under the Farmer Mac II Program were based on Farmer Mac's net yield quotes
for December 31, 1994.
(d) Debentures, notes and bonds, net - For borrowings with maturities of less
than 90 days, the carrying value approximates the fair value. For
borrowings with maturities exceeding 90 days, the fair values were based
on quoted market prices of the same or similar issues or on the current
rates offered to Farmer Mac for debt of the same approximate remaining
maturity.
<PAGE>
Farmer Mac Stock
Farmer Mac has three classes of common stock outstanding. Class A Voting
Common Stock may be held only by banks, insurance companies and other
financial institutions or similar entities that are not institutions of the
Farm Credit System. Class B Voting Common Stock may be held only by
institutions of the Farm Credit System. There are no ownership restrictions on
the Class C Non-Voting Common Stock. The common stock was issued in Units and,
until November 23, 1993, was traded as such. A Class A Unit consisted of one
share of Class A Voting Common Stock and one share of Class C Non-Voting
Common Stock. A Class B Unit consisted of one share of Class B Voting Common
Stock and one share of Class C Non-Voting Common Stock. In accordance with the
terms of the initial public offering, the Class C Non-Voting Common Stock
separated from the Class A and Class B Units on November 23, 1993.
The Class A Units were quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "FAMCU" from
their initial issuance and sale in December 1988 until November 23, 19934. The
Class B Units were quoted on NASDAQ under the symbol "FAMCL" until September
1991; as a result of the limited market for Class B Voting Common Stock, and
the infrequency of trades therein, the Class B Units were delisted from NASDAQ
in September 1991. Since then, Farmer Mac has been unaware of any publicly
available quotations or prices with respect to the Class B Units or the Class
B Voting Common Stock. The information set forth below with respect to the
Class A Units represents the high and low bid quotations as reported by NASDAQ
for the periods indicated. These quotations are inter-dealer prices without
adjustment for retail mark-ups, mark-downs or commissions and may not
represent actual transactions.
Class A Units High Bid Low Bid
1993
First Quarter $8.25 $7.25
Second Quarter 7.25 6.75
Third Quarter 6.75 6.25
Fourth Quarter (through November 23, 1993) 8.50 6.75
The Class A and Class C Common Stock are quoted separately on the NASDAQ Small
Cap Market under the symbols "FAMCA" and "FAMCK," respectively. As of March
21, 1995, the high and low bid quotations as reported by NASDAQ for Class A
and Class C Common Stock were $4.50. The information set forth below with
respect to the Class A and Class C Common Stock represents the high and low
bid quotations as reported by NASDAQ for the periods indicated. These prices
are inter-dealer prices without adjustment for retail mark-ups, mark-downs, or
commissions and may not represent actual transactions.
Class A Common Stock High Bid Low Bid
1994
First Quarter $4.75 $4.50
Second Quarter $5.00 $4.75
Third Quarter $5.25 $5.00
Fourth Quarter $5.25 $4.50
Class C Common Stock High Bid Low Bid
1994
First Quarter $4.75 $4.50
Second Quarter $5.00 $4.75
Third Quarter $5.00 $5.00
Fourth Quarter $5.00 $4.50
It is estimated that there were approximately 1,643 registered owners of the
Class A Voting Common Stock outstanding, approximately 70 registered owners of
the Class B Voting Common Stock outstanding and approximately 1,687 registered
owners of the Class C Non-Voting Common Stock outstanding as of March 31,
1995.
<PAGE>
