As filed with the Securities and Exchange Commission
on
- -----------------------------------------------------------------------
November 14, 1996
- -----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.Commission File Number 0-17440
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered
instrumentality 52-1578738
of the United
States
---------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
919 18th Street, N.W., Suite
200, 20006
Washington, D.C.
---------------------------------- ---------------------------------
(Address of principal executive (Zip code)
offices)
(202) 872-7700
(Registrant's telephone number, including
area code)
----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
As of November 14, 1996, there were 990,000 shares of Class A Voting
Common Stock, 593,401 shares of Class B Voting Common Stock, and 1,221,397
shares of Class C Non-Voting Common Stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The following interim consolidated financial statements of the Federal
Agricultural Mortgage Corporation (the "Corporation" or "Farmer Mac") have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Such interim consolidated financial statements reflect
all normal and recurring adjustments that are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented.
Certain information and footnote disclosures normally included in annual
consolidated financial statements have been condensed or omitted as permitted by
such rules and regulations. Management believes that the disclosures are
adequate to present fairly the consolidated financial position, consolidated
results of operations and consolidated cash flows at the dates and for the
periods presented. These condensed financial statements should be read in
conjunction with the audited 1995 financial statements of Farmer Mac. Results
for interim periods are not necessarily indicative of those to be expected for
the fiscal year.
The following information concerning Farmer Mac's financial statements is
included herein.
Consolidated Balance Sheets at September 30, 1996 and
December31, 1995................................................ 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1996 and 1995.........................4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995......................................5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
1996 1995
------------------ ------------------
(unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 37,613 $ 8,336
Interest receivable 11,412 15,572
Guarantee fees receivable 533 573
Loans held for securitization 5,331 -
Investment securities:
Held-to-maturity 2,447 7,419
Available-for-sale 70,030 55,862
Farmer Mac I and II Securities, net 407,412 417,169
Farmer Mac I and II payments receivable 11,663 4,939
Other investments 5,711 2,340
Office equipment, net 81 65
Prepaid expenses and other assets 511 189
================= ==================
TOTAL ASSETS $ 552,744 $ 512,464
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Debentures, notes and bonds, net:
Due within one year $ 260,819 $ 207,422
Due after one year 268,868 284,084
Accrued interest payable 6,231 8,394
Accounts payable and accrued expenses 1,392 740
Allowance for sold Farmer Mac I & II Securities 269 112
----------------- ------------------
TOTAL LIABILITIES 537,579 500,752
----------------- ------------------
STOCKHOLDERS' EQUITY Common stock:
Class A Voting, $1 par value, 2,000,000 shares
authorized, 990,000 and 670,000 shares issued
and outstanding at September 30, 1996 and
December 31, 1995 990 670
Class B Voting, $1 par value, 2,000,000 shares
authorized, 593,401 and 500,301 shares issued
and outstanding at September 30, 1996 and
December 31, 1995 593 500
Class C Non-Voting, $1 par value, 4,000,000
shares authorized, 1,221,397 and 1,170,301
shares issued and outstanding at
September 30, 1996 and December 31, 1995 1,221 1,170
Additional paid in capital 22,035 19,331
Note receivable for purchase of stock (557) -
Unrealized gain on securities available-for-sale 221 140
Accumulated deficit (9,338) (10,099)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 15,165 11,712
----------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 552,744 $ 512,464
================= ==================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended September Nine Months Ended September
30 30
------------------------------ -------------------------------
1996 1995 1996 1995
------------------------------ -------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
INTEREST INCOME:
<S> <C> <C> <C> <C>
Investments and cash equivalents..... $ 1,348 $ 2,356 $ 4,813 $ 5,179
Farmer Mac I and II Securities........ 7,398 7,550 22,210 21,364
Loans held for securitization......... 15 - 468 -
------------------------------ ------------------------------
TOTAL INTEREST INCOME........... 8,761 9,906 27,491 26,543
INTEREST EXPENSE...................... 8,125 9,493 25,546 25,498
------------------------------ ------------------------------
NET INTEREST INCOME............ 636 413 1,945 1,045
OTHER INCOME:
Guarantee fees........................ 478 317 1,130 962
Gain on issuance of issuance of
mortgage-backed securities, net..... - - 913 -
Miscellaneous......................... 4 64 55 135
---------------------------- ------------------------------
TOTAL OTHER INCOME.............. 482 381 2,098 1,097
------------------------------ ---------------------------
OTHER EXPENSES:
Compensation and employee benefits.... 543 455 1,703 1,431
Professional fees..................... 277 160 618 343
Marketing and advertising............. 71 11 96 19
Insurance............................. 56 54 161 162
Rent.................................. 47 41 123 125
Regulatory fees....................... 71 33 214 217
Board of Directors fees and
meeting expenses...................... 68 60 236 235
Administrative........................ 138 90 312 262
Provision for losses.................. 60 24 202 75
------------------------------ ------------------------------
TOTAL OTHER EXPENSES............ 1,331 928 3,665 2,869
INCOME/(LOSS) BEFORE EXTRAORDINARY ITEM. (213) (134) 378 (727)
Extraordinary gain from early
extinguishment of debt.................. 384 - 384 -
============================== ==============================
NET INCOME/(LOSS) $ 171 (134) 762 (727)
============================== ==============================
PER COMMON SHARE:
Earnings/(loss) before
extraordinary item $ (0.08) $ (0.06) $ 0.14 $ (0.31)
Net earnings/(loss) $ 0.06 $ (0.06) $ 0.29 $ (0.31)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended
------------------------------------
September 30, September 30,
1996 1995
---------------- ----------------
(unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C>
Income (loss) from Operations $ 762 $ (727)
Adjustments to reconcile net loss to
cash provided by operating activities:
Amortization of premium on Farmer Mac I and II
Securities.................................... 2,648 3,648
Discount Note amortization ..................... 7,898 6,745
Decrease in guarantee fees receivable........... 40 22
Decrease in interest receivable................. 4,160 3,059
Increase in Farmer Mac I and II payments receivable (6,724) (3,171)
Increase in prepaid expenses and other assets... (322) (193)
Amortization and depreciation................... 72 117
Increase (decrease) in accounts payable and
accrued expenses.............................. 652 (334)
Increase in loans held for securitization....... (5,331) -
Extraordinary gain on extinguishment of debt.... (384) -
Decrease in accrued interest payable on
Medium-Term Notes............................. (2,163) (610)
Provision for losses on Farmer Mac I Program.... 202 76
---------------- ----------------
Net cash provided by operating activities....... 1,510 8,632
---------------- ----------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Farmer Mac I and II purchases................... (59,270) (83,624)
Purchases of investments........................ (39,488) (76,285)
Proceeds from maturity of investments........... 27,005 14,461
Proceeds from Farmer Mac I and II principal
repayments.................................... 66,334 39,121
Purchases of office equipment................... (43) (8)
---------------- ----------------
Net cash used by investing activities........... (5,462) (106,335)
---------------- ----------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance of Medium-Term Notes..... 19,945 48,584
Payments to redeem Medium-Term Notes............ (73,860) (30,395)
Proceeds from issuance of Discount Notes........ 1,319,598 2,255,637
Discount Notes redeemed......................... (1,235,065) (2,137,750)
Proceeds from issuance of common stock.......... 2,611 -
---------------- ----------------
Net cash provided by financing activities....... 33,229 136,076
---------------- ----------------
Net increase in cash and cash equivalents....... 29,277 38,373
Cash and cash equivalents at beginning of period 8,336 73,129
================ ================
Cash and cash equivalents at end of period...... 37,613 $ 111,502
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the nine-month period for:
Interest......................... $ 19,758 $ 19,293
---------------- ----------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies.
(a) Principles of Consolidation
......Financial information at and for the nine and three months ended
September 30, 1996 is consolidated to include the accounts of Farmer Mac and its
two wholly owned subsidiaries, Farmer Mac Mortgage Securities Corporation and
Farmer Mac Acceptance Corporation. All material intercompany transactions have
been eliminated in consolidation.
(b) Reclassifications
Certain reclassifications of the 1995 information were made
to conform with the 1996 presentation.
Note 2. Off-Balance Sheet Farmer Mac Guaranteed Securities.
Farmer Mac issues guarantees in the normal course of business to
fulfill its statutory purpose of increasing liquidity for agricultural mortgage
lenders. Farmer Mac guarantees the timely payment of principal and interest on
securities issued under the Farmer Mac I and Farmer Mac II Programs. The
following table sets forth the outstanding principal balances of Farmer Mac
Guaranteed Securities issued under the Farmer Mac I and Farmer Mac II Programs
and not held in its portfolio.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
----------------------- ---------------------
(In Thousands)
<S> <C> <C>
Farmer Mac I............... $ 191,872 $ 94,763
Farmer Mac II.............. $ 10,563 $ 4,810
</TABLE>
At September 30, 1996, the $191.9 million of Farmer Mac I Securities included
$120.6 million of agricultural mortgage-backed securities (the "AMBS") issued
under Farmer Mac's expanded legislative authorities for which Farmer Mac bears
the risk of first loss.
Note 3 Income Taxes
Note 4 Commitments
At September 30, 1996, Farmer Mac had committed to purchase $17.1 million
of Qualified Loans through the Farmer Mac I cash window and had committed to
sell forward $22.4 million of AMBS for settlements in October, November and
December 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Farmer Mac's primary sources of liquidity are issuances of debt
obligations, and principal and interest payments received on mortgages
underlying securities purchased by Farmer Mac under the Farmer Mac I and Farmer
Mac II Programs. Farmer Mac issues Discount Notes and Medium-Term Notes to cover
transaction costs, guarantee payments and the costs of purchasing Guaranteed
Portions, Qualified Loans and securities (including Farmer Mac Guaranteed
Securities backed by Guaranteed Portions and/or Qualified Loans). Funds from the
borrowings also may be used to retire existing Notes and for liquidity purposes.
At September 30, 1996, Farmer Mac had $529.7 million of Discount Notes and
Medium-Term Notes (net of unamortized debt issuance costs, discounts and
premiums) outstanding, a $38.2 million increase from December 31, 1995. During
the first nine months of 1996, Farmer Mac issued $1.3 billion of Discount Notes
and $20.0 million of Medium-Term Notes and redeemed $1.2 billion of Discount
Notes and $73.9 million of Medium-Term Notes.
The $41.8 million increase in cash and cash equivalents, investment
securities and other investments from December 31, 1995 to September 30, 1996
primarily resulted from an increase in the liquidity portfolio, comprised of
floating rate mortgage-backed securities and other short-term investments, which
were funded by Discount Notes with similar terms to maturity. The $9.8 million
net decrease in Farmer Mac I and II Securities was largely attributable to the
$66.3 million in principal payments and prepayments received on the underlying
Qualified Loans since December 31, 1995, and was partially offset by the
purchase of $59.3 million of Farmer Mac II Securities.
Loans held for securitization totaled $5.3 million at September 30, 1996
and represented those loans that Farmer Mac had purchased through its newly
implemented Farmer Mac I cash window program and was holding for securitization
in October 1996.
Farmer Mac I and II payments receivable represents repayments on Qualified
Loans underlying the Farmer Mac I and II Securities, which have been reported by
the Central Servicer, but not yet remitted to Farmer Mac. The $6.7 million
increase in Farmer Mac I and II payments receivable from December 31, 1995 to
September 30, 1996 represents the difference in the amount of those prepayments
outstanding at the end of each of the respective reporting periods.
Accounts payable and accrued expenses increased $652 thousand from December
31, 1995 to September 30, 1996. A significant portion of that increase was
attributable to accrued expenses related to a legal action commenced against
Western Farm Credit Bank ("WFCB"). See "Results of Operations -- Litigation."
At September 30, 1996, a total of eleven loans aggregating $7.4 million
were 90 days or more past due; one loan for $858 thousand was 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. In the aggregate, the
loans represent 3.09% of the principal amount of those outstanding Farmer Mac I
Securities supported by 10% subordinated interests at September 30, 1996.
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 since the Farmer
Mac I Securities backed by those loans are supported by 10% subordinated
interests that were created in connection with the issuance of the Farmer Mac I
Securities.
At September 30, 1996, Farmer Mac's total loss allowance was $594
thousand. The Farmer Mac I and II Securities are shown net of their applicable
allowance of $325 thousand at September 30, 1996, representing an increase of
$45 thousand from year-end 1995; the allowance for Farmer Mac Guaranteed
Securities not held by Farmer Mac was $269 thousand at September 30, 1996,
representing an increase of $157 thousand from year-end 1995. This $157 thousand
increase was attributable to the issuance of $120.7 million of AMBS (as to which
Farmer Mac bears the risk of first loss). Farmer Mac maintains an allowance for
loan losses to cover anticipated losses under the Farmer Mac I Program. No loss
allowance has been made 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 exposed to credit losses.
Management evaluates the adequacy of the allowance for loan losses on a
quarterly basis and considers a number of factors, including: historical
charge-off and recovery activity (noting any particular trends in preceding
periods); trends in delinquencies, bankruptcies and non-performing loans; trends
in loan volume and size of credit risks; current and anticipated economic
conditions; the condition of agricultural segments and geographic areas
experiencing or expected to experience particular economic adversities,
particularly areas where Farmer Mac may have a geographic or commodity
concentration; the degree of risk inherent in the composition of the guaranteed
portfolio; quality control reviews; and underwriting standards. 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.
At September 30, 1996, Farmer Mac's regulatory required minimum capital
was $6.4 million and its actual capital level was $15.2 million. At December 31,
1995, Farmer Mac's regulatory required minimum capital was $4.7 million, and its
actual capital level was $11.7 million. As previously reported, the 1996 Act
phases in higher capital requirements over a three-year transition period
following the enactment of the 1996 Act. Certain levels of enforcement are
available to the FCA depending upon Farmer Mac's compliance with these capital
levels. See "Recent Legislative Revisions to Farmer Mac's Statutory Charter --
Summary of Statutory Changes -- Capital" and "Government Regulation of Farmer
Mac -- Regulation -- Capital Standards" in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995. If the fully phased-in (highest)
standard under the 1996 Act had been in effect at September 30, 1996, Farmer
Mac's actual capital would have been less than the total minimum capital
required by $1.6 million. The 1996 Act also requires the Corporation to increase
its core capital to at least $25 million by February 1998 or sooner if business
volume increases substantially. If this $25 million capitalization requirement
had been in effect at September 30, 1996, Farmer Mac's actual capital would have
been less than the required capital level by $9.8 million. In order to satisfy
the capitalization requirements, Farmer Mac may undertake to issue stock or
other forms of equity securities.
In the opinion of management, Farmer Mac has sufficient liquidity and
capital for the next twelve months.
Results of Operations
Overview. During the third quarter of 1996, Farmer Mac continued the
implementation of its expanded legislative authorities with the opening of its
cash window for the direct purchase of individual loans or groups of loans in
mid-July. In October, Farmer Mac completed its second guarantee transaction
under those expanded authorities, selling approximately $12.7 million of AMBS,
backed by loans acquired through the cash window, to capital markets investors
with a gain on sale proportionate to that realized in the June 1996 transaction.
See "Results of Operations -- General". Future sales of AMBS are planned for
November and December and monthly thereafter.
To date, Farmer Mac has approved and authorized 81 sellers to submit loans
for possible sale through the cash window and another 10 applicants are
currently under review. Over $110 million of loans have been submitted to Farmer
Mac for approval, of which approximately 80% are in various stages of the
pipeline, with the remainder either denied by Farmer Mac or withdrawn by the
seller/servicer. Loans are first submitted to Farmer Mac for preliminary credit
approval, after which they may be approved, denied, or deferred for further
information. Once the loan has been preliminarily approved, the seller/servicer
can obtain a commitment to purchase (a "rate-lock") with a mandatory delivery
obligation.
Beyond the $12.7 million of loans backing the October transaction,
approximately $74.1 million of loans pending acquisition through the cash window
are in various stages of the pipeline, with the largest portion of the loans in
the stage at which a preliminary credit approval has been provided on the loan,
but the seller/servicer has not yet sought a rate-lock. No assurance can be
given that the entire $74.1 million will be sold to Farmer Mac.
In addition to its program for purchasing loans through the cash window,
Farmer Mac is pursuing the acquisition of loans through purchases and swap
transactions with portfolio holders of agricultural loans, although there can be
no assurance that any such transactions actually will be consummated.
Farmer Mac has hired three employees, two of whom will work in the loan
underwriting and credit analysis area while the third will assist Farmer Mac
with the development of the seller network and will provide on-site
seller/servicer assistance with the implementation of the program. Farmer Mac
also has contracted with Equitable Agri-Business to provide contract
underwriting and central servicing for the cash window and is currently
reviewing the qualifications of one other entity for the provision of these
services.
Litigation. During the third quarter, Farmer Mac continued discussions with
WFCB regarding issues pertaining to their mutual obligations under the 1994
strategic alliance agreement. When efforts to settle those issues proved
unsuccessful in late September, Farmer Mac commenced a legal action to enforce
its rights under the agreement. WFCB has not yet filed a responsive pleading. At
this time, Farmer Mac is unable to predict the outcome of this dispute.
General. Farmer Mac reported net income for the nine months ended
September 30, 1996 of $762 thousand, an increase of $1.5 million from the $727
thousand loss reported for the nine months ended September 30, 1995. The
increase in income was attributable to the following factors: (a) a $900
thousand increase in net interest income, primarily the result of an increase in
the average balance of interest-earning assets due to purchases of Farmer Mac II
Securities and loans held for securitization; (b) a $913 thousand increase in
the net gain realized on the issuance of mortgage-backed securities, the result
of the issuance and sale of $120.7 million of AMBS in June 1996, the first
transaction under Farmer Mac's expanded authorities; and (c) the $384 thousand
extraordinary gain from the early extinguishment of $7.6 million of debt. The
increase in income was partially offset by an increase in other expenses, a
result of the implementation of the Farmer Mac I cash window program. Farmer
Mac's operating income before the extraordinary gain increased $1.1 million from
a $727 thousand loss for the nine months ended September 30, 1995 to income of
$378 thousand for the nine months ended September 30, 1996, largely the result
of the gain on the issuance of mortgage-backed securities.
For the three months ended September 30, 1996, Farmer Mac reported income
of $171 thousand, which represents a $305 thousand increase in Farmer Mac's
income, as compared to the $134 thousand loss incurred for the three months
ended September 30, 1995. The increase in income is largely attributable to the
extraordinary gain from the early extinguishment of debt. Farmer Mac's operating
loss before the extraordinary gain increased $79 thousand from $134 thousand for
the three months ended September 30, 1995 to $213 thousand for the three months
ended September 30, 1996, largely a result of increased expenses due to the
implementation of Farmer Mac's expanded authorities.
Notwithstanding Farmer Mac's improved financial performance for the nine
months ended September 30, 1996, there is no assurance that Farmer Mac will be
able to sustain such performance in the future. Although Farmer Mac's new
authorities give it the statutory flexibility to devise programs that operate
under guidelines similar to those of Fannie Mae and Freddie Mac, that
flexibility does not ensure the success of Farmer Mac's programs. Farmer Mac
continues to face the difficult challenge of implementing its new authorities in
the very competitive market for agricultural and rural housing mortgage loans.
As previously reported, a number of factors have constrained (and appear to
continue to constrain) participation in Farmer Mac's programs. Those factors
have included: the excess liquidity of many agricultural lenders; the
attractiveness of loans (otherwise qualified under the Farmer Mac programs) as
investments for their originators; the disinclination of many lenders to offer
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; and the lack of borrower demand for intermediate-term and long-term
loans due to the lower interest rates generally associated with shorter term
loans. If those factors persist, they will affect Farmer Mac's ability to
generate the volume of business necessary to achieve consistent profitability
and ultimately comply with the requirement to raise capital to higher levels by
February 1998.
Farmer Mac's ability to generate sufficient volume will depend upon the
active participation of agricultural lenders in its programs, which, in turn,
will depend upon its ability to convince lenders of the benefits of selling
loans into the Farmer Mac secondary market. Although the number of agricultural
lenders approved to participate in Farmer Mac's programs and the volume of
agricultural mortgage loans purchased under the Farmer Mac I program have both
increased since the enactment of the 1996 Act, no assurance can be given that
such lenders will be willing to sell agricultural mortgage loans to Farmer Mac
in the future on terms and in sufficient volume to ensure Farmer Mac's long-term
success. Farmer Mac's ability to operate profitably or to sustain profitability
in the future remains uncertain.
<PAGE>
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>
Nine Months Ended September 30,
---------------------------------------------------------
1996 1995
---------------------------------------------------------
(Dollars in Thousands)
Average Income/ Average Average Income/ Average
Balances Expense Rate Balances Expense Rate
---------------------------------------------------------
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Farmer Mac I and II Securities.... $ 410,069 $ 22,210 7.22% $391,067 $21,364 7.28%
Investments and cash equivalents.. 110,183 4,813 5.82% 120,624 5,179 5.72%
Loans held for securitization.... 7,769 468 8.03% - - -
---------------------------------------------------------
Total interest-earning assets..... 528,021 27,491 6.94% 511,691 26,543 6.92%
Other assets...................... 13,014 11,724
---------------------------------------------------------
$ 541,035 $523,415
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Debentures, notes and bonds, net.. $ 520,633 $ 25,546 6.54% $504,834 $25,458 6.73%
Other liabilities................... 6,924 6,764
Stockholders' equity................. $ 13,478 11,817
---------------------------------------------------------
$ 541,035 $523,415
=========================================================
Net interest income/spread.... $ 1,945 .40% $ 1,045 0.19%
Net yield on interest-earning assets... .49% 0.27%
</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>
Nine Months Ended September 30, 1996
Compared to Nine Months Ended September 30,
1995
---------------------------------------------
Increase or (Decrease) Due to
Rate Volume Total
------------ -------------- ------------
(in thousands)
Income from interest-earning assets:
<S> <C> <C> <C>
Farmer Mac I and II Securities... $ (182) $ 1,028 $ 846
Investments................. 93 (459) (366)
Loans held for securitization - 468 468
------------ -------------- ------------
Total income from
interest-earning assets...... (89) 1,037 948
Expense on interest-bearing
liabilities................ (495) 543 48
------------ -------------- ------------
Change in net interest income $ 406 $ 494 $ 900
============ ============== ============
</TABLE>
Net Interest Income. Net interest income totaled $1.9 million for the nine
months ended September 30, 1996, a $900 thousand increase from the nine months
ended September 30, 1995. The increase in net interest income was attributable
to an increase in the average balance of interest-earning assets, a result of
purchases of Farmer Mac II Securities and loans held for securitization. The
increase in the average balance of interest-bearing liabilities was largely
offset by a decline in the average cost of Farmer Mac's outstanding
interest-bearing liabilities, resulting in a minimal reduction in net interest
income.
Net interest income totaled $636 thousand for the three months ended
September 30, 1996, a $223 thousand increase from the three months ended
September 30, 1995. The increase in net interest income resulted from a decline
in the average cost and the average balance of outstanding interest-bearing
liabilities, which more than offset the decline in the average rate and average
balances of Farmer Mac's interest-earning assets. The average cost of the
interest-bearing liabilities has decreased as Farmer Mac has refunded existing
higher coupon Medium-Term Notes with lower coupon Medium-Term Notes and the
average balance of interest-bearing liabilities has decreased as the liquidity
portfolio, funded with debt of similar maturity, has also decreased.
Interest Income. Interest income totaled $27.5 million for the nine months
ended September 30, 1996, a $948 thousand increase from the nine months ended
September 30, 1995. The increase was attributable to an increase in the average
balance of interest-earning assets, a result of purchases of Farmer Mac II
Securities and loans held for securitization, which more than offset the
repayments on the Farmer Mac I and II Securities. The marginal increase in the
average rate of interest-earning assets for the comparable periods largely
resulted from a decline in the average rate of the Farmer Mac II Securities,
approximately 40% of which are short-term adjustable rate securities.
Interest income totaled $8.8 million for the three months ended September
30, 1996, a $1.1 million decrease from the three months ended September 30,
1995. The decrease in interest income was largely due to the decrease in the
average balance of investments and cash equivalents outstanding during the
comparable periods.
Interest Expense. Interest expense for the nine months ended September 30,
1996 amounted to $25.5 million, an increase of $48 thousand from the nine months
ended September 30, 1995. The increase in interest expense was attributable to
an increase in the average outstanding balance of interest-bearing liabilities,
which more than offset the decline in the average cost of the interest-bearing
liabilities for the comparable periods. The average balance of interest-bearing
liabilities has increased as Farmer Mac has used such liabilities (primarily
Discount Notes and Medium-Term Notes) to fund the purchases of Farmer Mac II
Securities and loans held for securitization; however, the average cost has
declined since the Discount Notes and Medium-Term Notes bear lower interest
rates than Farmer Mac's existing debt portfolio.
Interest expense for the three months ended September 30, 1996 amounted to
$8.1 million, a decrease of $1.4 million from the three months ended September
30, 1995. The $1.4 million decrease in interest expense was primarily
attributable to the decrease in the amount of debt needed to fund the liquidity
portfolio.
Other Income. Other income totaled $2.1 million and $482 thousand for the
nine and three months ended September 30, 1996, an increase of $1.0 million and
$101 thousand from the nine and three months ended September 30, 1995. Guarantee
fee income, the principal component of other income, increased $168 thousand and
$161 thousand from the nine and three months ended September 30, 1995 to the
nine and three months ended September 30, 1996. The increase in guarantee fee
income was attributable to the increased level of guarantee volume for the
comparable periods. As of September 30, 1996, Farmer Mac had $598.2 million of
guaranteed securities outstanding as compared to $506.7 million as of September
30, 1995.
The gain on issuance of mortgage-backed securities, net of hedging costs
and related expenses, increased $913 thousand from the nine months ended
September 30, 1995 to the nine months ended September 30, 1996, as a result of
the issuance and sale of the first series of AMBS under Farmer Mac's expanded
authorities. No AMBS were issued in the third quarter.
Miscellaneous income, composed primarily of transaction fees generated from
the Farmer Mac II Program, decreased $80 thousand and $60 thousand from the nine
and three months ended September 30, 1995 to the nine and three months ended
September 30, 1996. The decreases resulted from Farmer Mac's decision in May
1996 to eliminate transaction fees on the Farmer Mac II Program to increase
Farmer Mac's competitiveness in the market for Guaranteed Portions.
Other Expenses. Other expenses totaled $3.7 million and $1.3 million for
the nine and three months ended September 30, 1996, an increase of $796 thousand
and $403 thousand from the nine and three months ended September 30, 1995. The
increases in other expenses were attributable to the increases in compensation
and employee benefits, professional fees, marketing and advertising expenses,
administrative expenses and the provision for losses.
Compensation and employee benefits increased $272 thousand and $88
thousand, respectively, from the nine and three months ended September 30, 1995
to the nine and three months ended September 30, 1996 because of an increase in
staffing from the comparable period in 1995 and a change in the officers'
compensation structure. Over the last twelve months, Farmer Mac has hired three
additional employees to assist with the marketing and servicing of the Farmer
Mac II program, portfolio analysis and credit analysis of loans purchased under
the Farmer Mac I program. In addition, the Board of Directors worked with a
compensation consultant to establish a new compensation structure for officers,
which included incorporating the former initial level of targeted annual
incentive compensation into annual base salary, effective January 1, 1996.
Professional fees, comprised of fees for legal, accounting and other
professional services, increased $275 thousand and $117 thousand, respectively,
from the nine and three months ended September 30, 1995 to the nine and three
months ended September 30, 1996. This increase was primarily attributable to
fees paid for the credit underwriting of loans received through the Farmer Mac I
cash window and added legal and consulting fees incurred in the implementation
of the new legislative authorities.
Marketing and advertising expenses increased $77 thousand and $60
thousand, respectively, from the nine and three months ended September 30, 1995
to the nine and three months ended September 30, 1996. The increases were
attributable to the increased marketing and advertising associated with the
Farmer Mac I cash window program.
Administrative expenses increased $50 thousand and $48 thousand,
respectively, from the nine and three months ended September 30, 1995 to the
nine and three months ended September 30, 1996. The increases were largely a
result of increases in telephone, postage and travel related expenses, all of
which have so increased because of the implementation of the Farmer Mac I cash
window program.
The provision for losses increased $127 thousand and $36 thousand,
respectively, from the nine and three months ended September 30, 1995 to the
nine and three months ended September 30, 1996. The increases in the provision
for losses is attributable to the issuance of the $120.7 million of AMBS in June
1996 for which Farmer Mac assumes the first risk of loss.
Income tax expense. Although Farmer Mac is subject to income taxes at
regular corporate statutory rates, a provision for income taxes has not been
made because of net operating loss carryforwards. At December 31, 1995, Farmer
Mac had a book net operating loss carryforward of approximately $10.0 million.
Extraordinary gain. The Corporation recognized an extraordinary gain of
$384 thousand from the early extinguishment of $7.6 million of debt in the third
quarter of 1996. The early extinguishment of higher coupon debt will favorably
affect the Corporation's cost of funds in future periods.
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. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As described in Part I, Item 2 under "Management Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations --
Litigation," Farmer Mac commenced a legal action against Western Farm Credit
Bank in late September 1996 to enforce its rights under a strategic alliance
agreement. Western has not yet filed a responsive pleading and, at this time,
Farmer Mac is unable to predict the outcome of this dispute.
The registrant is not a party to any other pending legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Stockholders.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Description
* 3.1 - Title VIII of the Farm Credit Act of 1971, as
most recently amended by the Farm Credit System
Reform Act of 1996, P.L. 104-105 (Form 10-K
filed March 29, 1996).
* 3.2 - Amended and restated Bylaws of the Registrant (Form 10-Q
filed August 14, 1996).
+* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to
Form 10-Q filed August 14, 1992).
+* 10.1.1 - Amendment No. 1 to Stock Option Plan
(Previously filed as Exhibit 10.2 to Form 10-Q
filed August 16, 1993).
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+ 10.1.2 - 1996 Stock Option Plan (Form 10-Q filed
August 14, 1996).
+* 10.2 - Employment Agreement dated May 5, 1989 between
Henry D. Edelman and the Registrant (Previously
filed as Exhibit 10.4 to Form 10-K filed
February 14, 1990).
+* 10.2.1 - Amendment No. 1 dated January 10, 1991 to Employment
Agreement between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.4 to Form 10-K filed April 1,
1991).
+* 10.2.2 - Amendment to Employment Contract dated as of June 1,
1993 between Henry D. Edelman and the Registrant (Previously
filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993).
+* 10.2.3 - Amendment No. 3 dated as of June 1, 1994 to Employment
Contract between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-Q filed November
15, 1994).
+* 10.2.4 - Amendment No. 4 dated as of February 8, 1996
to Employment Contract between Henry D. Edelman
and the Registrant (Form 10-K filed
March 29, 1996).
+* 10.2.5 - Amendment No. 5 dated as of June 13, 1996 to
Employment Contract between Henry D. Edelman and
the Registrant (Form 10-Q filed August 14, 1996).
+* 10.3 - Employment Agreement dated May 11, 1989 between
Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-K
filed February 14, 1990).
+* 10.3.1 - Amendment dated December 14, 1989 to Employment
Agreement between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-K filed February
14, 1990).
+* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment
Agreement between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.7 to Form 10-K filed April 1,
1991).
+* 10.3.3 - Amendment to Employment Contract dated as of June 1,
1993 between Nancy E. Corsiglia and the Registrant (Previously
filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993).
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment
Contract between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.11 to Form 10-K filed March 30,
1994).
+* 10.3.5 - Amendment No. 5 dated as of June 1, 1994
to Employment Contract between Nancy E.
Corsiglia and the Registrant (Previously filed
as Exhibit 10.12 to Form 10-Q filed August 15,
1994).
+* 10.3.6 - Amendment No. 6 dated as of June 1, 1995
to Employment Contract between Nancy E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 1995).
+* 10.3.7 - Amendment No. 7 dated as of February 8,
1996 to Employment Contract between Nancy E.
Corsiglia and the Registrant (Form 10-K filed
March 29, 1996).
+* 10.3.8 - Amendment No. 8 dated as of June 13, 1996
to Employment Contract between Nancy E.
Corsiglia and the Registrant (Form 10-Q filed
August 14, 1996).
+* 10.4 - Employment Agreement dated June 13, 1989 between
Thomas R. Clark and the Registrant (Previously
filed as Exhibit 10.6 to Form 10-K filed April
1, 1990).
+* 10.4.1 - Amendment No. 1 dated February 14, 1991 to Employment
Agreement between Thomas R. Clark and the Registrant
(Previously filed as Exhibit 10.9 to Form 10-K filed April 1,
1991).
+* 10.4.2 - Amendment to Employment Contract dated as of June 1,
1993 between Thomas R. Clark and the Registrant (Previously
filed as Exhibit 10.12 to Form 10-Q filed November 15, 1993).
+* 10.4.3 - Amendment No. 3 dated June 1, 1993 to Employment
Contract between Thomas R. Clark and the Registrant (Previously
filed as Exhibit 10.16 to Form 10-K filed March 30, 1994).
+* 10.4.4 - Amendment No. 4 dated as of June 1, 1994 to
Employment Contract between Thomas R. Clark and
the Registrant (Previously filed as Exhibit
10.17 to Form 10-Q filed August 15, 1994).
+* 10.4.5 - Amendment No. 5 dated as of June 1, 1995 to
Employment Contract between Thomas R. Clark and
the Registrant (Form 10-Q filed August 14, 1995).
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.4.6 - Amendment No. 6 dated as of February 8, 1996 to
Employment Contract between Thomas R. Clark and
the Registrant (Form 10-K filed March 29, 1996).
+* 10.4.7 - Amendment No. 7 dated as of June 13, 1996 to
Employment Contract between Thomas R. Clark and
the Registrant (Form 10-Q filed August 14, 1996).
+* 10.5 - Employment Agreement dated April 29, 1994
between Charles M. Lewis and the Registrant
(Previously filed as Exhibit 10.18 to Form 10-Q
filed August 15, 1994).
+* 10.5.1 - Amendment No. 1 dated as of June 1, 1995 to
Employment Contract between Charles M. Lewis and
the Registrant (Form 10-Q filed August 14, 1995)
+* 10.5.2 - Amendment No. 2 dated as of February 8, 1996
to Employment Contract between Charles M. Lewis
and the Registrant (Form 10-K filed March 29,
1996).
+* 10.5.3 - Amendment No. 3 dated as of June 13, 1996 to
Employment Contract between Charles M. Lewis and
the Registrant (Form 10-K filed March 29, 1996).
+* 10.6 - Employment Agreement dated October 7, 1991
between Michael T. Bennett and the Registrant
(Previously filed as Exhibit 10.16 to Form 10-K
filed March 30, 1992).
+* 10.6.1 - Amendment to Employment Contract dated as of June 1,
1993 between Michael T. Bennett and the Registrant (Previously
filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993).
+* 10.6.2 - Amendment No. 2 dated June 1, 1993 to Employment
Contract between Michael T. Bennett and the Registrant
(Previously filed as Exhibit 10.21 to Form 10-K filed March 30,
1994).
+* 10.6.3 - Amendment No. 3 dated June 1, 1994 to Employment
Contract between Michael T. Bennett and the Registrant
(Previously filed as Exhibit 10.22 to Form 10-K filed August
15, 1994).
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.6.4 - Amendment no. 4 Dated as of june 1, 1995 to
employment contract between michael t. Bennett
and the registrant (form 10-q filed august 14,
1995).
+* 10.6.5 - Amendment No. 5 dated as of February 8, 1996
to Employment Contract between Michael T.
Bennett and the Registrant (Form 10-K filed
March 29, 1996).
+* 10.6.6 - Amendment No. 6 dated as of June 13, 1996 to
Employment Contract between Michael T. Bennett
and the Registrant (Form 10-Q filed August 14,
1996).
+* 10.7 - Employment Agreement dated March 15, 1993
between Christopher A. Dunn and the Registrant
(Previously filed as Exhibit 10.17 to Form 10-Q
filed May 17, 1993).
+* 10.7.1 - Amendment to Employment Contract dated as of June 1,
1993 between Christopher A. Dunn and the Registrant (Previously
filed as Exhibit 10.19 to Form 10-Q filed November 15, 1993).
+* 10.7.2 - Amendment No. 2 dated June 1, 1993 to Employment
Contract between Christopher A. Dunn and the Registrant
(Previously filed as Exhibit 10.25 to Form 10-K filed March 30,
1994).
+* 10.7.3 - Amendment No. 3 dated as of June 1, 1994 to
Employment Contract between Christopher A. Dunn
and the Registrant (Previously filed as Exhibit
10.26 to Form 10-Q filed August 15, 1994).
+* 10.7.4 - Amendment No. 4 dated as of June 1, 1995 to
Employment Contract between Christopher A. Dunn
and the Registrant (Form 10-Q filed August 14,
1995).
+* 10.7.5 - Amendment No. 5 dated as of February 8, 1996
to Employment Contract between Christopher A.
Dunn and the Registrant (Form 10-K filed
March 29, 1996).
+* 10.7.6 - Amendment No. 6 dated as of June 13, 1996 to
Employment Contract between Christopher A. Dunn
and the Registrant (Form 10-Q filed August 14,
1996).
* 10.8 - Lease Agreement, dated September 30, 1991 between 919
Eighteenth Street, N.W. Associates Limited Partnership and the
Registrant (Previously filed as Exhibit 10.20 to Form 10-K
filed March 30, 1992).
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
* 21 - Subsidiaries.
21.1 - Farmer Mac Mortgage Securities Corporation, a
Delaware Corporation.
21.2 - Farmer Mac Acceptance Corporation, a Delaware
Corporation.
* 99.1 Map of U.S. Department of Agriculture (USDA)
Regions (Previously filed as Exhibit 1.1 to Form
10-K filed April 1, 1991).
(b) Reports on Form 8-K.
The Registrant has not filed any reports on Form 8-K during the quarter
ended September 30, 1996.
- ----------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
November 14, 1996
By: /s/ Henry D. Edelman
--------------------------------------------------
Henry D. Edelman
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Nancy E. Corsiglia
--------------------------------------------------
Nancy E. Corsiglia
Vice President - Treasurer and Chief
Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 37,613
<SECURITIES> 485,600
<RECEIVABLES> 23,608
<ALLOWANCES> 269
<INVENTORY> 0
<CURRENT-ASSETS> 552,663
<PP&E> 81
<DEPRECIATION> 0
<TOTAL-ASSETS> 552,744
<CURRENT-LIABILITIES> 268,711
<BONDS> 268,868
0
0
<COMMON> 2,804
<OTHER-SE> 12,361
<TOTAL-LIABILITY-AND-EQUITY> 552,744
<SALES> 29,589
<TOTAL-REVENUES> 29,589
<CGS> 25,546
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,665
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 25,546
<INCOME-PRETAX> 378
<INCOME-TAX> 0
<INCOME-CONTINUING> 378
<DISCONTINUED> 0
<EXTRAORDINARY> 384
<CHANGES> 0
<NET-INCOME> 762
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
