As filed with the Securities and Exchange Commission on
March 27, 1997
----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number 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,
Washington, D.C. 20006
---------------------------------- ---------------------------------
(Address of principal executive (Zip code)
offices)
(202) 872-7700
(Registrant's telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Voting Common Stock
Class B Voting Common Stock
Class C Non-Voting Common Stock
<PAGE>
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (17 C.F.R. ss.229.405) is not contained herein, and will
not be contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market values of the Class A Voting Common Stock and Class C
Non-Voting Common Stock held by non-affiliates of the Registrant were
$27,225,000 and $82,338,691, respectively, based upon the average bid and asked
prices for the respective classes on March 18, 1997 as quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
aggregate market value of the Class B Voting Common Stock is not ascertainable
due to the absence of publicly available quotations or prices with respect to
the Class B Voting Common Stock as a result of the limited market for, and
infrequency of trades in, Class B Voting Common Stock and the fact that any such
trades are privately negotiated transactions.
There were 990,000 shares of Class A Voting Common Stock, 500,301 shares
of Class B Voting Common Stock, and 2,677,681 shares of Class C Non-Voting
Common Stock outstanding as of March 18, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed on or about April 29, 1997 in connection with
the Annual Meeting of Stockholders to be held on June 12, 1997 (portions of
which are incorporated by reference into Part III of this Annual Report on Form
10-K).
------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
General
The Federal Agricultural Mortgage Corporation ("Farmer Mac" or the
"Registrant") is a federally chartered instrumentality of the United States that
was created by the Agricultural Credit Act of 1987 (12 U.S.C. ss.ss. 2279aa et
seq.), which amended the Farm Credit Act of 1971 (collectively, as amended, the
"Act"), to establish a secondary market for agricultural real estate mortgage
loans, including rural housing loans ("Qualified Loans"). Farmer Mac is
authorized to provide liquidity to the agricultural mortgage market by: (i)
purchasing newly originated Qualified Loans directly from lenders on a
continuing basis through its "cash window;" (ii) exchanging Qualified Loans for
securities issued and guaranteed by Farmer Mac ("Farmer Mac Guaranteed
Securities"), backed by such loans in "swap transactions;" and (iii) purchasing
portfolios of "existing loans" on a negotiated basis. Qualified Loans purchased
by Farmer Mac are aggregated into pools that back Farmer Mac Guaranteed
Securities, which are sold periodically into the capital markets.
Farmer Mac's original statutory charter, although similar in many respects
to those of the Federal National Mortgage Association ("Fannie Mae") and the
Federal Home Loan Mortgage Corporation ("Freddie Mac") -- Farmer Mac's
residential mortgage counterparts -- contained several important distinguishing
features. Unlike Fannie Mae and Freddie Mac, Farmer Mac was dependent upon third
party "poolers," primarily commercial banks, insurance companies and
institutions of the Farm Credit System ("System Institutions"), to aggregate
Qualified Loans and submit them to Farmer Mac for securitization and was
precluded from issuing its guarantee without the existence of a minimum 10% cash
reserve or subordinated (first loss) interest. The Farm Credit System Reform Act
of 1996 (the "1996 Act") amended the Act by, in part, removing these
distinctions, thereby improving Farmer Mac's operating flexibility. As a result,
Farmer Mac is now authorized to purchase Qualified Loans directly from lenders
and to issue and guarantee securities backed by such loans without the earlier
cash reserve or subordinated interest requirement. Farmer Mac is now also a
"first loss" guarantor -- it guarantees timely payments of principal (including
any balloon payments) and interest on Farmer Mac Guaranteed Securities backed by
100% of the underlying Qualified Loans. Another important distinguishing feature
of Farmer Mac's statutory charter is that, unlike Fannie Mae and Freddie Mac,
Farmer Mac was and remains subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the requirement
that public offerings of Farmer Mac Guaranteed Securities (as distinguished from
its equity and debt securities) be registered with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act").
Farmer Mac conducts its business through two programs, "Farmer Mac I" and
"Farmer Mac II." The Farmer Mac I Program involves the purchase and
securitization of Qualified Loans that are not guaranteed by any instrumentality
or agency of the United States. The Farmer Mac II Program involves the purchase
of guaranteed portions (the "Guaranteed Portions") of loans guaranteed by the
United States Department of Agriculture (the "USDA") pursuant to the
Consolidated Farm and Rural Development Act (7 .U.S.C. ss.ss. 1921 et seq.) (the
"ConAct") and the issuance of Farmer Mac Guaranteed Securities backed by such
Guaranteed Portions. Farmer Mac's sources of revenue are: (i) fees it receives
in connection with the issuance of its guarantees; (ii) gains on the sales of
Farmer Mac Guaranteed Securities backed by loans it purchases; and (iii) net
interest income earned on its portfolio of Farmer Mac Guaranteed Securities
issued under both the Farmer Mac I and Farmer Mac II Programs, investments and
loans purchased pending securitization. Prior to the enactment of the 1996 Act,
Farmer Mac completed seven securitizations under the Farmer Mac I Program
resulting in Farmer Mac guarantees of approximately $748 million of securities
(of which approximately $274 million are currently outstanding). From the
enactment of the 1996 Act through February 28, 1997, Farmer Mac completed four
securitizations under the Farmer Mac I Program resulting in Farmer Mac
guarantees of approximately $167 million of new securities (all of which are
currently outstanding). From the inception of the Farmer Mac II Program in 1991
through February 28, 1997, Farmer Mac guaranteed approximately $281 million of
Farmer Mac Guaranteed Securities issued thereunder (of which approximately $215
million are currently outstanding). The Farmer Mac II Program was not affected
by the 1996 Act. Farmer Mac Guaranteed Securities issued under the Farmer Mac I
Program are referred to as Farmer Mac I Securities; Farmer Mac Guaranteed
Securities issued under the Farmer Mac II Program are referred to as Farmer Mac
II Securities. See "Farmer Mac Guarantee Program."
Farmer Mac obtained its initial operating capital through the sale of
670,000 Class A Units and 500,301 Class B Units in its initial public offering
in December 1988. 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, each
Unit separated into its component shares in November 1993. Additional shares of
Class B Voting Common Stock and Class C Non-Voting Common Stock were issued to
Western Farm Credit Bank ("WFCB") pursuant to a Strategic Alliance Agreement
between WFCB and Farmer Mac, although Farmer Mac has since repurchased the Class
B Voting Common Stock acquired by WFCB under the Strategic Alliance Agreement.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- 1996 Overview." Farmer Mac sold 320,000 additional shares of Class
A Voting Common Stock in April 1996 to Zions First National Bank, Salt Lake
City, Utah, and, in December 1996, completed a public offering of 1,437,500
shares of Class C Non-Voting Common Stock, 500,000 shares of which were
purchased by an affiliate of Zions First National Bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- 1996
Overview." As a result of these issuances (and the repurchase of WFCB's Class B
Voting Common Stock), there are currently outstanding 990,000 shares of Class A
Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 2,677,681
shares of Class C Non-Voting Common Stock. Farmer Mac intends to commence a
direct offering program in March 1997 to offer approximately 93,000 additional
shares of Class A Voting Common Stock to interested eligible investors. See
"Farmer Mac Guarantee Program -- Financing -- Equity Issuances." The Class A
Voting Common Stock and the Class B Voting Common Stock are herein called the
"Voting Common Stock." The Voting Common Stock and the Class C Non-Voting Common
Stock are herein called the "Common Stock."
Farmer Mac's Board of Directors has authorized the issuance of up to $2.0
billion in outstanding aggregate principal amount of notes having maturities of
not more than nine months ("Discount Notes") and notes having maturities of nine
months or more ("Medium-Term Notes" and, together with the Discount Notes, the
"Notes"). See "Farmer Mac Guarantee Program --Financing." As of December 31,
1996, Farmer Mac had outstanding $228.8 million of Discount Notes and $317.5
million of Medium-Term Notes, net of unamortized debt issuance costs, discounts
and premiums. Farmer Mac intends to increase its debt issuance activities in
1997. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations --Results of Operations -- Interest Income.") Farmer Mac
may also obtain capital from future issuances of common stock (both voting and
non-voting) or preferred stock. Other than the direct offering of Class A Voting
Common Stock which Farmer Mac intends to commence in March 1997, Farmer Mac has
no current plans to issue any additional shares of Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Review."
The Farm Credit Administration (the "FCA"), acting through the Office of
Secondary Market Oversight (the "OSMO"), has general regulatory and enforcement
authority over Farmer Mac, including the authority to promulgate rules and
regulations governing the activities of Farmer Mac and to apply its general
enforcement powers to Farmer Mac and its activities. Farmer Mac is required to
meet certain minimum and critical capital requirements established in the Act,
some of which had been scheduled to increase significantly in December 1996. The
1996 Act revised and delayed these increases by establishing a transition period
in which Farmer Mac has the opportunity to implement its new legislative
authorities before higher minimum and critical capital requirements are fully
effective. For a discussion of the capital requirements and Farmer Mac's
capital, see "Government Regulation of Farmer Mac" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations --
Capital Resources."
Although Farmer Mac is an institution of the Farm Credit System, it is not
liable for any debt or obligation of any other System Institution. Neither the
Farm Credit System nor any other individual System Institution is liable for any
debt or obligation of Farmer Mac.
Farmer Mac employs 21 persons, all located at its principal executive
offices at 919 18th Street, N.W., Suite 200, Washington, D.C. 20006. Its
telephone number is (202) 872-7700.
<PAGE>
FARMER MAC GUARANTEE PROGRAM
Farmer Mac I
General
Farmer Mac may only purchase, or guarantee securities backed by, Qualified
Loans. A Qualified Loan is a loan secured by a fee simple mortgage or a
long-term leasehold mortgage, with status as a first lien on Agricultural Real
Estate or Rural Housing (as such terms are defined below) that is located within
the United States. A Qualified Loan must also be an obligation of: (i) a citizen
or national of the United States or an alien lawfully admitted for permanent
residence in the United States; or (ii) a private corporation or partnership
whose members, stockholders or partners holding a majority interest in the
corporation or partnership are individuals described in clause (i). A Qualified
Loan must also be an obligation of a person, corporation or partnership having
sufficient indicia of creditworthiness to indicate a reasonable likelihood of
repayment of the loan according to its terms. A Qualified Loan may be an
existing or newly originated mortgage loan that conforms to Farmer Mac's
requirements.
Qualified Loans are secured either by Agricultural Real Estate or by Rural
Housing. Agricultural Real Estate is defined by Farmer Mac as a parcel or
parcels of land, which may be improved by buildings or other structures
permanently affixed to the parcel or parcels, that (i) are used for the
production of one or more agricultural commodities; and (ii) consist of a
minimum of five acres or are used in producing minimum annual receipts of at
least $5,000. In accordance with the Act, the principal amount of a Qualified
Loan secured by Agricultural Real Estate may not exceed $3.4 million, which has
been adjusted for inflation as of December 31, 1996, unless the Agricultural
Real Estate consists of an aggregate of 1,000 acres or less. In light of its new
status as a first loss guarantor, Farmer Mac has limited the maximum loan amount
to $3.4 million (adjusted annually for inflation), regardless of acreage.
Rural Housing is defined by Farmer Mac as a one- to four-family,
owner-occupied principal residence that is a moderately priced dwelling located
in a community having a population of 2,500 or fewer inhabitants; the dwelling
(excluding the land to which the dwelling is affixed) cannot have a purchase
price or current appraised value of more than $133,000 (adjusted annually for
inflation). In addition to the dwelling itself, a Rural Housing loan can be
secured by land associated with the dwelling having an appraised value of no
more than 50% of the total appraised value of the combined property. To date,
Rural Housing Qualified Loans have not represented a significant part of Farmer
Mac's business.
Cash Window Purchases
Farmer Mac purchases Agricultural Real Estate Qualified Loans directly
from lenders for cash on a continuing basis through its "cash window," which
opened in July 1996. Farmer Mac primarily purchases fixed rate Qualified Loans,
but may also purchase other types of Qualified Loans, including adjustable rate
and convertible mortgage loans. Qualified Loans purchased by Farmer Mac have a
variety of maturities and often include balloon payments and provisions that
require a yield maintenance payment in the event of prepayment (depending upon
the level of interest rates at the time of prepayment). Farmer Mac seeks to
develop and offer through the cash window loan products that are in demand by
agricultural borrowers and the lenders who serve them and that can be
securitized and efficiently sold into the capital markets. In offering to
purchase loans through the cash window, Farmer Mac emphasizes the importance of
conformity to its program requirements, including the interest rate,
amortization, final maturity and periodic payment specifications, in order to
facilitate the purchase of individual loans or groups of loans from many lenders
for aggregation into uniform pools that back Farmer Mac Guaranteed Securities.
Farmer Mac regularly publishes a "rate sheet" listing the cash window loan
products it is willing to purchase, if the loan meets its Underwriting and
Appraisal Standards (discussed below), and indicative "net yields" at which such
purchases could be completed. Farmer Mac issues commitments to purchase
specified Agricultural Real Estate Qualified Loans for a specified period of
time. Under such commitments, lenders are obligated to sell Qualified Loans to
Farmer Mac at the commitment net yield. If a lender is unable to deliver a
Qualified Loan in accordance with a mandatory delivery commitment, Farmer Mac
requires the lender to pay a fee to extend the commitment or for failure to
deliver.
Swap Transactions
Farmer Mac is also authorized to acquire Qualified Loans from lenders in
exchange for Farmer Mac Guaranteed Securities backed by such Qualified Loans.
Unlike cash window transactions, which generally involve loans with Farmer
Mac-specified terms, Farmer Mac anticipates negotiating these swap transactions
with the lender and acquiring loans with payment, maturity and interest rate
characteristics that Farmer Mac would not purchase through its cash window. Many
Qualified Loans will be eligible for swap transactions on the basis of their
conformity to Farmer Mac's "existing loan" criteria, which require that the
loans be outstanding for at least five years and have low (60% or less)
loan-to-value ratios and other indicia of performance, while Qualified Loans
outstanding for less than five years will be eligible for swap transactions only
on the basis of their conformity to Farmer Mac's more stringent credit ratios as
of the date of their origination and subject to other performance analyses.
Negotiated Transactions
Farmer Mac may also purchase portfolios of Qualified Loans that qualify as
"existing loans" and otherwise meet the characteristics of loans qualifying for
swap transactions, as described above.
Underwriting and Appraisal Standards
Farmer Mac has established Underwriting and Appraisal Standards for
Qualified Loans in an effort to reduce the risk of loss from defaults by
borrowers and to provide guidance concerning management, administration and
conduct of underwriting and appraisals to all participants in the Farmer Mac I
Program. These standards were developed on the basis of industry norms for
mortgage loans qualified to be sold in the secondary market and were designed to
assess the creditworthiness of the farmer as well as the value of the mortgaged
property relative to the amount of the Qualified Loan. In each transaction,
Farmer Mac requires representations and warranties to ensure that the Qualified
Loans conform to these standards and any other requirements it may impose from
time to time.
The Underwriting Standards require, among other things, that the
loan-to-value ratio for any Qualified Loan not exceed 70% (which Farmer Mac
reduced from 75% in light of its new status under the 1996 Act as a first loss
guarantor). In the case of Rural Housing Qualified Loans, up to 85% of the
appraised value of the property may be financed if the amount above 70% is
covered by private mortgage insurance. In the case of newly originated
Agricultural Real Estate Qualified Loans, borrowers must also meet certain
credit ratios, including: (i) a pro forma (after closing the new loan)
debt-to-asset ratio of 50% or less; (ii) a pro forma cash flow debt service
coverage ratio of not less than 1:1 on the mortgaged property; (iii) a total
debt service coverage ratio, computed on a pro forma basis, of not less than
1.25:1, including farm and non-farm income; and (iv) a ratio of current assets
to current liabilities, computed on a pro forma basis, of not less than 1:1. In
the case of an existing loan, sustained performance is considered by Farmer Mac
to be a reliable alternative indicator of a farmer's ability to pay the loan
according to its terms. In February 1997, Farmer Mac introduced a premium loan
program for loans to highly creditworthy borrowers. Under that program,
Qualified Loans meeting certain more stringent Underwriting Standards than the
foregoing loan-to-value and credit ratios will qualify for purchase at a lower
net yield than those applicable to loans not meeting the higher standards.
An existing loan generally will be deemed a Qualified Loan, eligible for
purchase or inclusion in a pool of loans to be securitized, if it has been
outstanding for at least five years and has a loan-to-value ratio (based on an
updated appraisal) of 60% or less, and there have been no payments more than 60
days past due during the previous three years and no material restructurings or
modifications for credit reasons during the previous five years.
The Underwriting Standards provide that Farmer Mac may, on a loan-by-loan
basis, accept loans that do not conform to one or more of the Underwriting
Standards when: (a) those loans exceed one or more of the Underwriting Standards
to which they do conform to a degree that compensates for noncompliance with one
or more other Standards; and (b) those loans are made to producers of particular
agricultural commodities in a segment of agriculture in which such
non-conformance and compensating strengths are typical of the financial
condition of sound borrowers. The acceptance by Farmer Mac of loans that do not
conform to one or more of the Underwriting Standards is not intended to provide
a basis for waiving or lessening in any way the requirement that loans be of
high quality in order to qualify for purchase or inclusion in a pool of loans to
be securitized. The entity that requests the acceptance by Farmer Mac of such
loans bears the burden of convincing Farmer Mac that the loans meet both tests
as set forth in clauses (a) and (b) above and that the inclusion of such loans
in a pool will not weaken the overall performance of the pool.
The Appraisal Standards for newly originated Qualified Loans require,
among other things, that the appraisal function be performed independently of
the credit decision making process. The Appraisal Standards require the
appraisal function to be conducted or administered by an individual meeting
certain qualification criteria and who (a) is not associated, except by the
engagement for the appraisal, with the credit underwriters making the loan
decision, though both the appraiser and the credit underwriter may be directly
or indirectly employed by a common employer; (b) receives no financial or
professional benefit of any kind relative to the report content, valuation or
credit decision made or based on the appraisal product; and (c) has no present
or contemplated future direct or indirect interest in the appraised property.
The Appraisal Standards also require uniform reporting of reliable and accurate
estimates of the market value, market rent and net property income
characteristics of the mortgaged property and the market forces relative
thereto.
Originators and Sellers
In addition to its Underwriting and Appraisal Standards, Farmer Mac has
established minimum eligibility requirements for lenders who originate or
purchase new or existing Qualified Loans for sale through the Farmer Mac cash
window or in negotiated transactions with Farmer Mac ("Originators"). An
Originator may be a System Institution, bank, insurance company, business and
industrial development company, savings and loan association, association of
agricultural producers, agricultural cooperative, commercial finance company,
trust company, credit union or other financial entity. In addition to the
ownership requirements discussed below, Originators are generally required to
have a stockholders' equity of at least $1 million or at least $500,000 of net
worth (defined by Farmer Mac) in order to be approved as a direct seller (a
"Seller") of Qualified Loans to Farmer Mac. Originators are also required to
have a staff experienced in agricultural lending and servicing, to maintain a
fidelity bond and either an errors and omissions, mortgage impairment or
mortgagee interest policy providing coverage in an amount determined by Farmer
Mac from time to time, and to provide representations and warranties to Farmer
Mac regarding the qualifications of Qualified Loans sold to Farmer Mac.
There are also minimum Voting Common Stock ownership requirements
("Ownership Requirements") for Originators, subject to certain exceptions. Class
B Common Stock may be held only by System Institutions; Class A Common Stock may
be held only by banks, insurance companies and other financial entities that are
not System Institutions. Class B stockholders must own at least 100 shares of
Class B Common Stock to be considered as Originators. There are Ownership
Requirements for each of four categories of Class A stockholders to be
considered as Originators. "Small Institutions," having not more than $50
million in assets, must own at least 100 shares of Class A Common Stock.
"Intermediate Institutions," having more than $50 million and not more than $100
million in assets, must own at least 200 shares of Class A Common Stock. "Large
Institutions," having more than $100 million and not more than $500 million in
assets, must own at least 500 shares of Class A Common Stock. "Major
Institutions" with more than $500 million in assets must own at least 2,000
shares of Class A Common Stock. In determining the size of an institution for
eligibility as an Originator and compliance with the Ownership Requirements,
"related corporations" within the meaning of Section 318 of the Internal Revenue
Code of 1986, as amended, will be treated as a single entity. Once a holder has
purchased the requisite amount of Voting Common Stock, all "related
corporations" will be deemed to have met the Ownership Requirements. The
determination of an institution's size for eligibility as an Originator and
compliance with the Ownership Requirements will be made at the time the entity
sells (or swaps) loans into the Farmer Mac I Program. The Act provides that no
stockholder may own, directly or indirectly, more than 33% of the outstanding
number of shares of Class A Voting Common Stock. There are no restrictions on
the maximum purchase or holding of Class B Voting or Class C Non-Voting Common
Stock.
The foregoing Ownership Requirements do not apply to those Originators
that cannot purchase shares of Voting Common Stock because of legal restrictions
on their ownership of such shares, provided that such participants undertake to
make the minimum purchases if and when such restrictions are withdrawn. The
Ownership Requirements also do not apply to eligible participants that Farmer
Mac may determine by resolution need not comply with the requirements. Farmer
Mac is also authorized to waive the Ownership Requirements for eligible
participants whose purchase of Voting Common Stock is not barred by legal
restrictions but is, as a practical matter, virtually impossible. For example, a
state or local government agricultural or rural housing finance agency that is
not legally barred from owning Voting Common Stock but which is unable to obtain
funds to purchase such stock might be permitted to become a participant if it
met all other eligibility standards and its participation were deemed to be in
the best interests of Farmer Mac. The Ownership Requirements also do not apply
to eligible participants that Farmer Mac may determine by resolution need not
comply with the requirements. No such waiver resolution has as yet been
requested by a potential participant.
Farmer Mac reserves the right, in its sole discretion, to change the
Ownership Requirements for Originators that are Class B stockholders, or any of
the four categories of Originators that are Class A stockholders, in order to
permit maximum participation in Farmer Mac's programs. To date, no such changes
to the Ownership Requirements have been made.
Servicing
Farmer Mac does not directly service Qualified Loans held in its
portfolio, although it does act as "master servicer" with respect to Qualified
Loans underlying Farmer Mac I Securities. Qualified Loans can be serviced only
by a servicing entity that has entered into a central servicing arrangement with
Farmer Mac. Originators of Qualified Loans sold into the Farmer Mac I Program
have a right to retain certain servicing functions (typically direct borrower
contacts) and may enter into field servicing contracts with the appropriate
central servicers to specify such servicing functions.
Farmer Mac I Securities
Farmer Mac I Securities are mortgage pass-through trust certificates
issued and guaranteed by Farmer Mac that represent beneficial interests in pools
of Agricultural Real Estate Qualified Loans. Under the Act, public offerings of
Farmer Mac I Securities are required to be registered with the Commission under
the 1933 Act; accordingly, a shelf registration statement has been filed by a
Farmer Mac subsidiary pursuant to which public offerings of Farmer Mac I
Securities are made. Farmer Mac may also issue Farmer Mac I Securities in
private, unregistered transactions. Farmer Mac has appointed First Trust
National Association, a national banking association based in Minneapolis,
Minnesota, to serve as trustee for each trust underlying Farmer Mac I
Securities.
Currently, the Farmer Mac I Securities issued and guaranteed by Farmer Mac
are single class, "grantor trust" pass-through certificates, which Farmer Mac
calls "Agricultural Mortgage-Backed Securities" or "AMBS." These securities
entitle each investor to receive a portion of the payments of principal and
interest on the underlying pool of Agricultural Real Estate Qualified Loans
equal to the investor's proportionate interest in the pool. AMBS are backed by
Qualified Loans Farmer Mac has acquired from one or more Sellers, either through
its cash window or in negotiated transactions. AMBS may back other Farmer Mac I
Securities, including real estate mortgage investment conduit securities
("REMICs") and other agricultural mortgage-backed securities.
Farmer Mac I Securities are not assets of Farmer Mac, except when acquired
for investment purposes, nor are Farmer Mac I Securities recorded as liabilities
of Farmer Mac. Farmer Mac, however, is liable under its guarantee on the
securities to make timely payments to investors of principal (including balloon
payments) and interest based on the scheduled payments on the underlying
Qualified Loans, even if Farmer Mac has not actually received such scheduled
payments. Farmer Mac I Securities enable Farmer Mac to further its statutory
purpose of increasing the liquidity of the agricultural mortgage market and
create a source of guarantee fee income for Farmer Mac without assuming any debt
refinancing risk on the underlying pooled mortgages. Because Farmer Mac is now
authorized to and does guarantee timely payments on Farmer Mac I Securities
(without the former statutory protection afforded by a minimum 10% cash reserve
or subordinated interest), it assumes the ultimate credit risk of borrower
defaults on the Qualified Loans underlying its guaranteed securities. Those
loans are subject to the Farmer Mac Underwriting Standards described above in
"--Underwriting and Appraisal Standards." See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risk Management
- --Credit Risk Management."
Farmer Mac receives guarantee fees in return for its guarantee obligations
on Farmer Mac I Securities. These fees, which are calculated on an annual basis,
are paid as installment payments become due and are received on the underlying
Qualified Loans until those loans have been repaid or otherwise liquidated from
the pool (generally as a result of delinquency). The aggregate amount of
guarantee fees received by Farmer Mac depends upon the amount of Farmer Mac I
Securities outstanding and on the guarantee fee rate, which, by statute, is
capped at 50 basis points (0.50%) per annum. The amount of Farmer Mac I
Securities outstanding is influenced by the repayment rates on the underlying
Qualified Loans and by the rate at which Farmer Mac issues new Farmer Mac I
Securities. In general, when the level of interest rates declines significantly
below the interest rates on loans underlying Farmer Mac I Securities, the rate
of prepayments is likely to increase; conversely, when interest rates rise above
the interest rates on the loans underlying Farmer Mac I Securities, the rate of
prepayments is likely to slow. In addition to changes in interest rates, the
rate of principal payments on Farmer Mac I Securities also is influenced by a
variety of economic, demographic and other considerations, including the
obligation of borrowers under most loans underlying Farmer Mac I Securities to
make a yield maintenance payment (depending upon the level of interest rates) in
the event of prepayment of the underlying loan, which tends to serve as a
deterrent to prepayments in a declining interest rate environment.
Funding
The primary sources of funding for the payment of claims, if any, made
under a Farmer Mac guarantee are the fees Farmer Mac receives for providing its
guarantees and Farmer Mac's general assets, which, collectively, are
insignificant in relation to its potential exposure to any meaningful level of
possible claims under such guarantees. A portion of the guarantee fees received
by Farmer Mac is required to be set aside in a segregated account as a reserve
against losses from its guarantee activities. Among other things, this reserve
account must be exhausted before Farmer Mac may issue obligations to the
Secretary of the Treasury against the $1.5 billion Farmer Mac is authorized to
borrow from the Secretary of the Treasury pursuant to the Act to fulfill its
guarantee obligations. Although it may borrow from the Treasury, under certain
conditions, to meet its guarantee obligations, Farmer Mac expects that its
guarantees on Farmer Mac Guaranteed Securities eventually will substantially
exceed its resources, including amounts in its guarantee reserve account and its
limited ability to borrow from the Treasury. For information with respect to the
reserve account, see Note 5 to the Financial Statements. For a more detailed
discussion of Farmer Mac's borrowing authority from the Treasury, see "Farmer
Mac's Borrowing Authority from the U.S. Treasury."
Portfolio Diversification
Prior to enactment of the 1996 Act, the Act required that pools of
Qualified Loans backing Farmer Mac I Securities be diversified with respect to
geography, commodities produced on the related mortgaged properties and
principal balance. In accordance with that requirement, Farmer Mac had developed
"diversification standards" that guided the pooling of loans backing Farmer Mac
I Securities. The 1996 Act removed the diversification requirement.
Nevertheless, Farmer Mac has established a policy objective of developing
geographically and commodity-diversified Qualified Loans underlying Farmer Mac I
Securities as soon as reasonably practicable. For information with respect to
the diversification of Farmer Mac's existing portfolio of Qualified Loans, see
Note 13 to the Financial Statements.
Farmer Mac II
General
The Farmer Mac II Program is authorized under Sections 8.0(3) (12 U.S.C.
ss. 2279aa(3)) and 8.0(9) (12 U.S.C. ss. 2279aa(9)) of the Act. Under those
Sections: (i) the Guaranteed Portions are statutorily included in the definition
of loans eligible as "Qualified Loans" for Farmer Mac secondary market programs;
(ii) Guaranteed Portions are exempted from the underwriting, appraisal and
repayment standards that all other Qualified Loans must meet, and pools of
Guaranteed Portions are exempted from any diversification and internal credit
enhancement that may be required of pools of Qualified Loans that are not
Guaranteed Portions; and (iii) Farmer Mac is authorized to pool Guaranteed
Portions and issue Farmer Mac II Securities backed by such Guaranteed Portions.
United States Department of Agriculture Guaranteed Loan Programs
USDA, acting through its various agencies, currently administers the
federal rural credit programs first developed in the mid-1930s. The USDA makes
direct loans and also issues guarantees on loans made by USDA-qualified loan
originators (each, a "Lender") for various purposes.
Under the Farmer Mac II Program, Farmer Mac purchases from Lenders and
from others the Guaranteed Portions of farm ownership loans, farm operating
loans, business and industry loans and other loans that are guaranteed by the
Secretary of Agriculture pursuant to the ConAct (collectively, the "Guaranteed
Loans"). Guaranteed Portions, which represent up to 90% of the principal amount
of Guaranteed Loans, are fully guaranteed as to principal and interest by the
USDA.
USDA Guarantees. The maximum loss covered by a USDA guarantee can never
exceed the lesser of: (i) 90% of principal and interest indebtedness on the
Guaranteed Loan, any loan subsidy due, and 90% of principal and interest
indebtedness on secured protective advances for protection and preservation of
the related mortgaged property made with USDA authorization; and (ii) 90% of the
principal advanced to or assumed by the borrower under the Guaranteed Loan and
any interest due (including a loan subsidy).
Each USDA guarantee is a full faith and credit obligation of the United
States and becomes enforceable if a Lender fails to repurchase the Guaranteed
Portion from the owner thereof (the "Owner") within thirty (30) days after
written demand from the Owner when (a) the borrower under the Guaranteed Loan
(the "Borrower") is in default not less than sixty (60) days in the payment of
any principal or interest due on the Guaranteed Portion, or (b) the Lender has
failed to remit to the Owner the payment made by the Borrower on the Guaranteed
Portion or any related loan subsidy within thirty (30) days after the Lender's
receipt thereof.
If the Lender does not repurchase the Guaranteed Portion as provided above,
the USDA is required to purchase the unpaid principal balance of the Guaranteed
Portion together with accrued interest (including any loan subsidy) to the date
of purchase, less the servicing fee, within thirty (30) days after written
demand to USDA from the Owner. While the USDA guarantee will not cover the note
interest to the Owner on Guaranteed Portions accruing after ninety (90) days
from the date of the original demand letter of the Owner (Farmer Mac) to the
Lender requesting repurchase, procedures have been established to require prompt
tendering of Guaranteed Portions.
If in the opinion of the Lender (with the concurrence of the USDA) or in
the opinion of the USDA, repurchase of the Guaranteed Portion is necessary to
service the related Guaranteed Loan adequately, the Owner will sell the
Guaranteed Portion to the Lender or USDA for an amount equal to the unpaid
principal balance and accrued interest (including any loan subsidy) on such
Guaranteed Portion less the Lender's servicing fee. Federal regulations prohibit
the Lender from repurchasing Guaranteed Portions for arbitrage purposes.
Lenders. All Guaranteed Loans must be originated and serviced by eligible
Lenders. Under applicable regulations, all eligible Lenders must be subject to
credit examination and supervision by either an agency of the United States or a
state, must be in good standing with their licensing authorities and must have
met any licensing, loan making, loan servicing and other applicable requirements
of the state in which the collateral for a Guaranteed Loan will be located. Each
Lender must inform the USDA that it qualifies as an eligible Lender and which
agency or authority supervises it.
Loan Servicing. The Lender on each Guaranteed Loan is required by
regulation to retain the unguaranteed portion of the Guaranteed Loan (the
"Unguaranteed Portion"), to service the entire underlying Guaranteed Loan,
including the Guaranteed Portion, and to remain mortgagee and/or secured party
of record. The Guaranteed Portion and the Unguaranteed Portion of the underlying
Guaranteed Loan are to be secured by the same security with equal lien priority.
The Guaranteed Portion cannot be paid later than or in any way be subordinated
to the related Unguaranteed Portion.
Farmer Mac II Guarantee
In early 1995, Farmer Mac revised the Farmer Mac II Program so that, in
addition to issuing Farmer Mac II Securities to Lenders in swap transactions or
to other investors for cash, it began purchasing Guaranteed Portions for
retention in its portfolio under a master Farmer Mac II Security. Prior to that
time, Farmer Mac purchased and pooled the Guaranteed Portions and arranged for
the issuance of a series of Farmer Mac II Securities through a related trust. As
in the Farmer Mac I Program, Farmer Mac guarantees only the timely payment of
interest on and principal of the Farmer Mac II Securities. Farmer Mac does not
guarantee the repayment of the Guaranteed Portions.
Transactions Under Farmer Mac II Program
As of February 28, 1997, Farmer Mac had issued and guaranteed
approximately $281 million of Farmer Mac II Securities, of which approximately
$215 million were outstanding as of that date. Of the $215 million of Farmer Mac
II Securities outstanding as of February 28, 1997, approximately $204 million
are held by Farmer Mac. The remaining outstanding Farmer Mac II Securities are
held by other investors. See Notes 4 and 12 to the Financial Statements.
Financing
Debt Issuances
Farmer Mac's Board of Directors has authorized the issuance of up to $2.0
billion of Notes, subject to periodic review of the adequacy of that level
relative to Farmer Mac's borrowing requirements. Farmer Mac may issue Notes to
obtain funds for the Farmer Mac I and Farmer Mac II Programs 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.) The Notes may
have maturities, bear interest and be redeemable prior to maturity, all as
determined by Farmer Mac. Farmer Mac also may issue Notes to maintain reasonable
amounts for business operations, including liquidity, relating to the foregoing
activities authorized under the Act, and may invest the proceeds of such
issuances in accordance with the policies established by the Board from time to
time. The Board's current policy authorizes Farmer Mac to invest in U.S
Treasury, agency and instrumentality obligations; repurchase agreements;
commercial paper; guaranteed investment contracts; certificates of deposit;
federal funds and bankers acceptances; certain securities and debt obligations
of corporate issuers; asset-backed securities, and corporate money market funds.
For information with respect to Farmer Mac's outstanding investments and
indebtedness, see Notes 3 and 6 to the Financial Statements.
Equity Issuances
By statute, Farmer Mac is authorized to issue Voting Common Stock (which
may include additional shares of Class A and Class B Voting Common Stock),
non-voting common stock (which may include additional shares of Class C
Non-Voting Common Stock) and preferred stock. Voting Common Stock may be held
only by banks, other financial entities, insurance companies and System
Institutions that qualify as eligible participants in the Farmer Mac Programs.
There are no ownership restrictions applicable to non-voting common stock,
including Class C Non-Voting Common Stock. Any preferred stock issued by Farmer
Mac would have priority over the Common Stock in payment of dividends and
liquidation proceeds. The ratio of dividends paid and liquidation proceeds
distributed on each share of Class C Non-Voting Common Stock to each share of
Voting Common Stock will be three-to-one. The Class C Non-Voting Common Stock
is, and any preferred stock would be, freely transferable. The holders of
preferred stock would be paid in full at par value, plus all accrued dividends,
before the holders of shares of Common Stock received any payment upon
liquidation, dissolution, or winding up of the business of Farmer Mac.
Authority to Borrow from Treasury
The Act authorizes Farmer Mac to borrow up to $1.5 billion from the
Secretary of the Treasury, subject to certain conditions, to enable Farmer Mac
to fulfill the obligations under its guarantee. See "Farmer Mac's Borrowing
Authority from the U.S. Treasury."
Administrative Expenses
By statute, Farmer Mac is authorized to impose charges or fees in
reasonable amounts to recover the costs of administering its activities. In that
regard, Farmer Mac is authorized to require program participants to make
nonrefundable capital contributions to meet the administrative expenses of
Farmer Mac. Farmer Mac would issue shares of Voting Common Stock in exchange for
such capital contributions. No such capital contributions have been required,
and Farmer Mac has no present intention to exercise its statutory authority to
require such contributions.
FARMER MAC'S BORROWING AUTHORITY FROM THE U.S. TREASURY
Farmer Mac may issue obligations to the U.S. Treasury in a cumulative
amount not to exceed $1.5 billion. The proceeds of such obligations may be used
solely for the purpose of fulfilling Farmer Mac's guarantee obligations under
the Farmer Mac I and Farmer Mac II Programs. The Act provides that the U.S.
Treasury is required to purchase such obligations of Farmer Mac if Farmer Mac
certifies that: (i) a portion of the guarantee fees assessed by Farmer Mac has
been set aside as a reserve against losses arising out of Farmer Mac's guarantee
activities in an amount determined by Farmer Mac's Board to be necessary and
such reserve has been exhausted; and (ii) the proceeds of such obligations are
needed to fulfill Farmer Mac's guarantee obligations. Such obligations would
bear interest at a rate determined by the U.S. Treasury, taking into
consideration the average rate on outstanding marketable obligations of the
United States as of the last day of the last calendar month ending before the
date of the purchase of such obligations, and would be required to be repaid to
the U.S. Treasury within a "reasonable time," which the Act does not define.
The United States government does not guarantee payments due on Farmer Mac
Guaranteed Securities, funds invested in the stock or indebtedness of Farmer
Mac, any dividend payments on shares of Farmer Mac stock or the profitability of
Farmer Mac.
<PAGE>
GOVERNMENT REGULATION OF FARMER MAC
General
Public offerings of Farmer Mac Guaranteed Securities must be registered
with the Commission pursuant to the 1933 Act. Farmer Mac also is subject to the
periodic reporting requirements of the 1934 Act and, accordingly, files reports
with the Commission pursuant thereto.
Regulation
Office of Secondary Market Oversight
As an institution of the Farm Credit System, Farmer Mac is subject to the
regulatory authority of the FCA. Through the OSMO, the FCA has general
regulatory and enforcement authority over Farmer Mac, including the authority to
promulgate rules and regulations governing the activities of Farmer Mac, and to
apply its general enforcement powers to Farmer Mac and its activities. The
Director of OSMO (the "Director"), who was selected by and reports to the FCA
Board, 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 Act. The Act requires an annual examination of the
financial transactions of Farmer Mac 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.
Department of the Treasury
In connection with the passage of the 1996 Act, the Chairmen of the House
and Senate Agriculture Committees requested the FCA, in a cooperative effort
with the Department of the Treasury, to "monitor and review the operations and
financial condition of Farmer Mac and to report in writing to the appropriate
subcommittees of the House Agriculture Committee, the House Banking and
Financial Services Committee and the Senate Agriculture, Nutrition and Forestry
Committee at six-month intervals during the capital deferral period and beyond,
if necessary."
Comptroller General
The Act requires the Comptroller General of the United States to perform
an annual review of the actuarial soundness and reasonableness of the guarantee
fees established by Farmer Mac.
Capital Standards
The Act, as amended by the 1996 Act, establishes three capital standards
for Farmer Mac -- minimum, critical and risk-based.
Risk-based Capital. The 1996 Act directs the FCA, acting through the
Director, to promulgate risk-based capital regulations for Farmer Mac. The 1996
Act further provides that the public notice of proposed rulemaking to be issued
by the Director in connection with establishing such risk-based capital
regulations shall not be published for public comment until after the expiration
of the three-year period commencing with the enactment of the 1996 Act (February
10, 1999). Thus, beginning in early February 1999, the Director may, and would
be expected to, publish risk-based capital regulations for Farmer Mac, thereby
increasing Farmer Mac's regulatory capital requirements beyond the minimum and
critical capital requirements in the 1996 Act. Farmer Mac has had no
discussions with the Director as to the possible level of risk-based capital
regulations that may be proposed.
Minimum and critical capitalization levels. Prior to the enactment of the
1996 Act, the minimum level of core capital required to be maintained by Farmer
Mac was scheduled to increase in December 1996 from 0.45% to 2.50% of all assets
owned ("on balance sheet") by Farmer Mac, while the amount required to be
maintained against Farmer Mac Guaranteed Securities not owned by Farmer Mac (or
an affiliate) and other "off-balance sheet obligations" of Farmer Mac was to
remain at 0.45%.
The 1996 Act imposes higher levels of core capital than the 2.50% in the
Act, but establishes a transition period following the enactment of the 1996 Act
before Farmer Mac is required to maintain the highest level of core capital on
and after January 1, 1999.
Under the 1996 Act, the highest minimum capital level for Farmer Mac will
be an amount of core capital equal to the sum of 2.75% of Farmer Mac's aggregate
on-balance sheet assets, as determined by generally accepted accounting
principles, plus 0.75% of the aggregate off-balance sheet obligations of Farmer
Mac, specifically including: (A) the unpaid principal balance of outstanding
Farmer Mac Guaranteed Securities; (B) instruments issued or guaranteed by Farmer
Mac that are substantially equivalent to Farmer Mac Guaranteed Securities; and
(C) other off-balance sheet obligations of Farmer Mac (the "highest minimum
capital level").
During the transition period, Farmer Mac's minimum capital level will be:
(A) prior to January 1, 1997, the sum of 0.45% of the aggregate off-balance
sheet obligations of Farmer Mac, plus 0.45% of the sum of: (i) the aggregate
on-balance sheet assets acquired under Farmer Mac's "linked portfolio strategy"
(pursuant to which Farmer Mac may acquire and hold Farmer Mac Guaranteed
Securities); and (ii) the aggregate amount of Qualified Loans purchased and held
by Farmer Mac (together, "designated assets"), plus 2.50% of on-balance sheet
assets other than designated assets; (B) during the 1-year period ending
December 31, 1997, the sum of 0.55% of the aggregate off-balance sheet
obligations, plus 1.20% of designated on-balance sheet assets, plus 2.55% of
on-balance sheet assets other than designated assets; (C) during the 1-year
period ending December 31, 1998, the sum of 0.65% of the aggregate off-balance
sheet obligations, plus 1.95% of designated on-balance sheet assets, plus 2.65%
of on-balance sheet assets other than designated assets; provided, however,
that, if Farmer Mac's core capital is less than $25 million on January 1, 1998,
the minimum capital level shall be the highest minimum capital level; and (D) on
and after January 1, 1999, the highest minimum capital level.
Critical capital level. The 1996 Act clarifies that Farmer Mac's critical
capital level at any time shall be an amount of core capital equal to 50% of the
total minimum capital requirement at that time.
General. Farmer Mac's current minimum and critical capital requirements are
based upon a percentage of on-balance sheet assets and a lower percentage of
outstanding Farmer Mac Guaranteed Securities and assets acquired pursuant to the
linked portfolio strategy; each of these percentages will increase over the
course of the transition period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources" for a
presentation of Farmer Mac's regulatory minimum capital position. At December
31, 1996, Farmer Mac's minimum and critical capital requirements were $7.4
million and $3.7 million, respectively, and its actual capital level was $47.2
million. If the fully-phased in (highest) minimum capital level had been in
effect at December 31, 1996, Farmer Mac's actual capital would have been $28.7
million above the requirement.
The 1996 Act also provides that, prior to the promulgation of a risk-based
capital regulation for Farmer Mac (which, as previously noted, cannot occur
until after February 10, 1999), Farmer Mac shall be classified as within "level
I" (the highest compliance level) of four enforcement levels so long as its
capital equals or exceeds the minimum capital level provided for in the 1996
Act.
Failure to comply with the minimum capital level in the 1996 Act would
result in Farmer Mac being classified as within level III (below the minimum but
above the critical capital level) or level IV (below the critical capital
level). (Level II is not applicable prior to the promulgation of the risk-based
capital regulation since it contemplates the failure to comply with the
risk-based capital standard.) In the event that Farmer Mac were classified as
within level III or IV, 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. The mandatory measures applicable to level
III include: requiring Farmer Mac to submit (and comply with) a capital
restoration plan; prohibiting the payment of dividends if such payment would
result in Farmer Mac being reclassified as within level IV and requiring the
pre-approval of any dividend payment even if such payment would not result in
reclassification as within level IV; and reclassifying Farmer Mac as within a
lower level if it does not submit a capital restoration plan that is approved by
the Director or the Director determines that Farmer Mac has failed to make, in
good faith, reasonable efforts to comply with such a plan and fulfill the
schedule for the plan approved by the Director. If Farmer Mac were classified as
within level III, then, in addition to the foregoing mandatory supervisory
measures, the Director could take any of the following discretionary supervisory
measures: imposing limits on any increase in, or ordering the reduction of, any
obligations of Farmer Mac, including off-balance sheet obligations; limiting or
prohibiting asset growth or requiring the reduction of assets; requiring the
acquisition of new capital in an amount sufficient to provide for
reclassification as within a higher level; terminating, reducing or modifying
any activity the Director determines creates excessive risk to Farmer Mac; or
appointing a conservator or a receiver for Farmer Mac. The Act does not specify
any supervisory measures, either mandatory or discretionary, to be taken by the
Director in the event Farmer Mac were classified as within level IV.
The Director has the discretionary authority to reclassify Farmer Mac to a
level that is one level below its then current level (i.e., from level III to
level IV) 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.
Item 2. Properties
On September 30, 1991, Farmer Mac entered into a long-term lease for its
principal offices, which are located at 919 18th Street, N.W., Suite 200,
Washington, D.C. 20006. The lease, which is for a term of ten years, covers
approximately 7,500 square feet of office space. See Note 9 to the Financial
Statements. Farmer Mac's offices are suitable and adequate for its present needs
and the rent paid by Farmer Mac under the lease is consistent with current
market rates for comparable office space in the District of Columbia. If ongoing
implementation of the new authorities granted to Farmer Mac in the 1996 Act
continues to result in the expansion of Farmer Mac's staff and equipment to an
extent that ndicates a need for larger facilities, Farmer Mac will consider
alternatives to its current lease arrangement.
Item 3. Legal Proceedings
Farmer Mac is not a party to any pending legal proceedings. For a
discussion of an action pending at December 31, 1996, see Note 8 to the
Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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 Class A Voting Common Stock trades on the NASDAQ Small Cap Marketsm
tier of the NASDAQ Stock Marketsm under the symbol "FAMCA;" the Class C
Non-Voting Common Stock trades on the NASDAQ National Market(R) under the symbol
"FAMCK." 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.
<PAGE>
<TABLE>
<CAPTION>
Class A Common Stock High Bid Low Bid
------------ ------------
($ per share)
1995
<S> <C> <C>
First Quarter.......................... $4.50 $4.50
Second Quarter......................... 4.50 4.25
Third Quarter.......................... 4.25 3.75
Fourth Quarter......................... 3.75 3.75
1996
First Quarter.......................... $5.50 $ 3.75
Second Quarter......................... 6.25 5.50
Third Quarter.......................... 22.25 6.00
Fourth Quarter......................... 28.00 18.75
1997
First Quarter (through March 18)....... $28.50 $26.50
</TABLE>
<TABLE>
<CAPTION>
Class C Common Stock High Bid Low Bid
------------ ------------
($ per share)
1995
<S> <C> <C>
First Quarter.......................... $4.50 $4.50
Second Quarter......................... 4.50 4.25
Third Quarter.......................... 4.25 4.25
Fourth Quarter......................... 4.25 4.25
1996
First Quarter.......................... $7.00 $4.25
Second Quarter......................... 8.00 7.00
Third Quarter.......................... 24.25 8.00
Fourth Quarter......................... 30.50 18.50
1997
First Quarter (through March 18)....... $37.00 28.75
</TABLE>
Farmer Mac is unaware of any publicly available quotations or prices with
respect to the Class B Voting Common Stock which has a limited market and trades
infrequently.
It is estimated that there were approximately 1,602 registered owners of
the Class A Voting Common Stock outstanding, approximately 104 registered owners
of the Class B Voting Common Stock outstanding and approximately 1,605
registered owners of the Class C Non-Voting Common Stock outstanding as of March
18, 1997.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for information on Farmer Mac's dividend policy.
<PAGE>
Item 6. Selected Financial Data (dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------- ----------- ----------- ----------- -----------
Summary of Financial 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Condition:
Investment
<S> <C> <C> <C> <C> <C>
securities.................$81,280 $ 63,281 $ 9,437 $ 5,503 $ 40,649
Farmer Mac I and II
securities, net........... 416,501 417,169 367,994 398,380 444,226
Total assets...............602,766 512,464 477,238 525,254 514,257
Debentures, notes and
bonds, net:
Due within one year .. 261,054 207,422 168,307 172,350 87,454
Due after one year ... 285,238 284,084 288,209 330,190 403,086
Total liabilities ........ 555,561 500,752 465,019 511,703 500,030
Stockholders' equity ..... 47,205 11,712 12,219 13,551 14,227
Selected Financial
Ratios:
Return/(loss) on average
assets .................. .14% (0.13%) (0.27%) (0.14%) (0.44%)
Return/(loss) on equity .... 2.64% (5.41%) (10.34%) (4.99%) (9.46%)
Average equity to assets ... 5.28% 2.42% 2.57% 2.71% 4.63%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Summary of Operations: Year ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 37,353 $ 36,424 $31,712 $32,642 $ 20,154
Interest expense.......................... 34,623 34,709 30,303 30,848 18,413
Net interest income....................... 2,730 1,715 1,409 1,794 1,741
Guarantee fee income...................... 1,623 1,166 1,050 1,203 932
Gain on issuance of mortgage-backed
securities.............................. 1,070 -- -- -- --
Other expenses............................ 5,081 3,699 3,968 3,976 4,151
Income/(loss) before income taxes and
extraordinary item...................... 405 (647) (1,332) (803) (1,347)
Income taxes.............................. 12 -- -- -- --
Extraordinary gain........................ 384 -- -- 127 --
Net income/(loss)......................... 777 (647) (1,332) (676) (1,347)
EARNINGS/(LOSS) PER SHARE:
Primary earnings/(loss) per share
before extraordinary item .............. $(0.58)
- Class A and B Voting Common Stock.... $0.07 $(0.14) $(0.28) $(0.17)
- Class C Non-Voting Common Stock...... $0.22 $(0.41) $(0.85) $(0.51)
Primary earnings/(loss) per share ...... $(0.58)
- Class A and B Voting Common Stock.... $0.14 $(0.14) $(0.28) $(0.14)
- Class C Non-Voting Common Stock...... $0.43 $(0.41) $(0.85) $(0.43)
Fully diluted earnings/(loss) per share
before extraordinary item............... $(0.58)
- Class A and B Voting Common Stock.... $0.07 $(0.14) $(0.28) $(0.17)
- Class C Non-Voting Common Stock...... $0.20 $(0.41) $(0.85) $(0.51)
Fully diluted earnings/(loss) per share. $(0.58)
- Class A and B Voting Common Stock.... $0.13 $(0.14) $(0.28) $(0.14)
- Class C Non-Voting Common Stock...... $0.40 $(0.41) $(0.85) $(0.43)
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial information at and for the twelve months ended December 31, 1996
and 1995 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.
1996 Overview
In 1996, Farmer Mac reported an annual profit for the first time in its
history. The $777 thousand profit (of which $384 thousand represented an
extraordinary gain on the early extinguishment of debt) compares to a $647
thousand net loss for 1995. Those favorable financial results were attributable
to a series of positive developments throughout the year, which marked a
turnaround in the finances of Farmer Mac.
In January and February 1996, Congress passed and the President signed
into law significant revisions to Farmer Mac's statutory charter, that have
greatly improved its operating flexibility and efficiency. Consequently, 1996
was the first year Farmer Mac had the authority to engage in business in a
manner that Farmer Mac's Board and management had determined would be more
conducive to the development of the secondary market for agricultural real
estate and rural housing loans than was permitted under its original charter.
Under Farmer Mac's new authorities, its operating structure is now more
analogous to those of Fannie Mae and Freddie Mac -- its residential mortgage
counterparts. It is now authorized to purchase Qualified Loans directly from
Sellers and to issue and guarantee securities backed by such loans without the
earlier statutory requirement of a cash reserve or subordinated interest, which
had significantly increased the cost of its mortgage-backed securities
transactions. Under the 1996 Act, Farmer Mac may deal directly with Originators
and Sellers, thereby eliminating the expense and inflexibility of operating
through intermediaries, as had been required under its original charter. The
1996 Act also included a number of other changes to Farmer Mac's original
charter that improve Farmer Mac's operating flexibility.
Farmer Mac began to operate under its new authorities with an issuance of
$121 million of Farmer Mac I Securities in June 1996, which established new,
competitive spreads for such securities. That transaction facilitated forward
sales of Farmer Mac Guaranteed Securities and thus the opening in July of a
"cash window" facility through which Farmer Mac began to purchase newly
originated Qualified Loans for cash directly from Sellers on a weekly basis.
Through January 31, 1997, 121 lenders from 25 states had applied for "seller"
approval status; 100 had been approved; 20 were pending approval; and one had
been denied. Through the same date, approved Sellers had submitted for approval
345 loans with initial principal balances totaling $173.3 million, of which
approximately 80% met Farmer Mac's Underwriting and Appraisal Standards. No
assurance can be given that the entire $173.3 million will be sold to Farmer
Mac.
Operations in 1996 resulted in the securitization of approximately $149.3
million of newly originated Qualified Loans purchased through the cash window or
otherwise acquired by Farmer Mac. In June 1996, Farmer Mac filed a shelf
registration statement with the Commission to enable it to issue regularly and
sell securities backed by the Qualified Loans it purchases through the cash
window. Farmer Mac Guaranteed Securities, known as "agricultural mortgage-backed
securities" or "AMBS," have been well-received by investors, as indicated by the
pricing of those securities at levels close to those of comparable
mortgage-backed securities issued by Fannie Mae and Freddie Mac, although
identical pricing levels have not yet been achieved due to the limited supply,
and consequently lower liquidity, of Farmer Mac's securities in the capital
markets. Management believes that improvements in the liquidity and pricing of
Farmer Mac's AMBS will result from an increased presence in the capital markets.
Consequently, Farmer Mac is increasing its presence in the capital markets in
1997 through increased debt issuances and its presence in the mortgage-backed
securities market through planned monthly sales of AMBS. See -- "Results of
Operations -- Interest Income." The frequency of issuances of Farmer Mac
Guaranteed Securities will ultimately depend on the volume of loans purchased
through the cash window or otherwise acquired by Farmer Mac.
In addition to the opening of its cash window, Farmer Mac introduced a
"swap" program in 1996 pursuant to which Sellers or other portfolio lenders may
exchange their Qualified Loans for Farmer Mac Guaranteed Securities backed by
those loans. Swap transactions are being negotiated with lenders and may involve
loans with payment, maturity and interest rate terms varying from the standard
terms for conforming loans Farmer Mac purchases through its cash window. Swap
transactions offer certain advantages to lenders because the Farmer Mac
Guaranteed Securities received in exchange for their loans are accorded a lower
risk-weight than whole loans under risk-based capital guidelines and can be
pledged as collateral and used in repurchase transactions. In the latter part of
1996, Farmer Mac expanded its marketing efforts to increase lenders' awareness
of the advantages of utilizing the Farmer Mac secondary market, including the
swap program, and is currently negotiating with several prospective swap
counterparties, although no swap transactions have been consummated to date. As
part of its expanded marketing strategy, Farmer Mac has also targeted
non-traditional agricultural lenders, such as mortgage bankers and agricultural
supply and equipment companies, for which the advantages of its programs would
result in a diversification of income sources and more effective utilization of
their existing facilities and personnel, which may be accomplished at low
marginal cost through access to their established customer base.
Farmer Mac increased its capital by $34.5 million during 1996, through two
important transactions. In April, shortly after enactment of its new charter
legislation, Farmer Mac sold 320,000 newly issued shares of its Class A Voting
Common Stock in a private placement to Zions First National Bank, Salt City,
Utah, for slightly more than $2.5 million. To obtain additional capital to
support the continued growth of its programs, Farmer Mac sold approximately 1.4
million new shares of its Class C Non-Voting Common Stock in a public offering
in December 1996 for net proceeds of approximately $32 million. By the end of
the year, Farmer Mac had increased its capital from $11.7 million at December
31, 1995 to $47.2 million. In addition, the new equity brought Farmer Mac almost
90% above the $25 million "core capital" required under the 1996 Act for
continuation of its guarantee authorities beyond February 1998, more than one
year ahead of the statutory deadline.
Also in late 1996, Farmer Mac and WFCB engaged in discussions that led to
the settlement in early 1997 of the litigation Farmer Mac had commenced against
WFCB under the Strategic Alliance Agreement (the "Agreement") between the
parties. As part of the settlement, the parties terminated the Agreement and
agreed to other terms, including: the waiver by Farmer Mac of certain
restrictions in the Agreement limiting the ability of WFCB to sell the
approximately 63,000 shares of Farmer Mac Class C Non-Voting Common Stock sold
or optioned to WFCB under the Agreement; and the repurchase by Farmer Mac of the
approximately 93,000 shares of Class B Voting Common Stock sold to WFCB under
the Agreement. While other terms of the settlement are subject to a
confidentiality agreement between Farmer Mac and WFCB, the settlement did not
have a material adverse effect on Farmer Mac's financial condition.
Notwithstanding the significant positive developments of 1996, Farmer Mac
still faces many challenges, particularly that of continuing to implement its
legislative authorities in the very competitive market for agricultural and
rural home mortgage loans. Having obtained the statutory authority to operate
under similar guidelines to those of Fannie Mae and Freddie Mac does not ensure
the success of Farmer Mac's programs. To date, those programs have received only
limited acceptance in the agricultural lending community. A number of factors
have continued to constrain participation in Farmer Mac's programs, including:
the historical preference of lenders, particularly System Institutions, which
are among the Nation's primary lenders to agriculture, to retain agricultural
mortgage loans in their own portfolios; the excess liquidity of many
agricultural lenders; 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- and long-term loans
due to the lower interest rates generally associated with shorter term loans.
Even though the 1996 Act removed those charter provisions that Farmer Mac had
concluded were constraining the operation of the secondary market, most of the
other enumerated factors, over which Farmer Mac has little, if any, control, may
continue to exist as Farmer Mac continues to implement its new authorities. If
those factors persist, they will affect Farmer Mac's ability to generate the
volume of loans necessary to sustain profitability. As a result of the
legislation, and the positive developments that have come from it, Farmer Mac
now operates programs that are more accessible to agricultural lenders and which
offer competitive loan rates and terms. Those programs must be significantly
utilized, however, for Farmer Mac to realize its business development and
profitability goals. Although the number of lenders approved to participate in
Farmer Mac's programs and the volume of agricultural mortgage loans purchased
thereunder have both increased since the enactment of the 1996 Act, no assurance
can be given that 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 success over the long-term.
A detailed discussion of Farmer Mac's financial results for the years
ended December 31, 1996, 1995 and 1994 follows.
Financial Review
Balance Sheet--General. During 1996, Farmer Mac's assets increased by
$90.3 million, from $512.5 million at December 31, 1995 to $602.8 million at
December 31, 1996. This increase in assets resulted primarily from growth in
short-term liquid investments classified as cash equivalents, securities
available for sale and loans held for securitization.
Farmer Mac I and II Securities, net. At December 31, 1996, Farmer Mac held
$416.5 million of Farmer Mac I and II Securities, $217.1 million of which were
Farmer Mac I Securities and $199.4 million of which were Farmer Mac II
Securities. Under the Farmer Mac I Program, Farmer Mac issued $149.3 million in
Farmer Mac I Securities during 1996, none of which were acquired for investment
purposes. During 1996, Farmer Mac issued $92.5 million in securities under the
Farmer Mac II Program, $84.4 million of which were purchased by Farmer Mac for
investment purposes. At December 31, 1995, Farmer Mac held $417.2 million of
Farmer Mac I and II Securities, $278.6 million of which were Farmer Mac I
Securities and $138.5 million of which were Farmer Mac II Securities.
The following table summarizes the amortized cost, fair value and weighted
average yield of Farmer Mac I and II Securities by remaining weighted average
contractual maturity as of December 31, 1996. Actual 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>
Maturity
---------------------------------------------------------------
After 1 After 5
year years
Within 1 through through After 10
year 5 years 10 years years Total
---------- - ---------- -- ---------- - ---------- - ----------
(dollars in thousands)
Farmer Mac I
Securities
<S> <C> <C> <C> <C> <C>
- Amortized cost -- $179,967 -- $37,104 $217,071
- Fair value -- 182,935 -- 37,719 220,654
- Yield -- 7.04% -- 7.42% 7.10%
Farmer Mac II
Securities
- Amortized cost $660 22,405 49,116 127,249 199,430
- Fair value 660 22,380 44,467 131,585 199,092
- Yield 6.56% 6.85% 6.82% 6.90% 6.87%
Total
- Amortized cost $660 202,372 49,116 164,353 416,501
- Fair value 660 205,315 44,467 169,304 419,746
- Yield 6.56% 7.02% 6.82% 7.02% 6.99%
</TABLE>
Investment Securities. At December 31, 1996 and 1995, Farmer Mac's
investment securities totaled $81.3 million and $63.3 million, respectively, an
increase of $18.0 million from 1995 to 1996. This increase was largely
attributable to the purchase in 1996 of an additional $30.6 million of floating
rate mortgage-backed securities issued by instrumentalities of the U.S. This
portfolio of available for sale investments is primarily funded with debt of
comparable maturities. Farmer Mac's expanded debt issuance activities in 1997
will result in a significant increase in the level of investment securities
outstanding in 1997 and will likely change the composition of the portfolio.
<PAGE>
The following table sets forth the amortized cost of Farmer Mac's
investment securities by type and classification as of December 31, 1996 and
1995.
<TABLE>
<CAPTION>
Amortized Cost
----------------------------------
December 31, December 31,
1996 1995
----------------------------------
(in thousands)
Held-to-maturity
<S> <C> <C>
Debt securities $2,000 $2,000
Mortgage-backed securities 352 5,419
--- -----
Total $2,352 $7,419
====== ======
Available-for-sale
Mortgage-backed securities $78,599 $55,722
======= =======
</TABLE>
The amortized cost, fair values, and weighted average interest rates of
investment securities at December 31, 1996, by remaining contractual maturity,
were as set forth in the table below. Actual 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, 1996
--------------------------------------------------
Amortized Fair Weighted
Cost Value Average Rate
------------ -- -------------- -- ---------------
(dollars in thousands)
Held-to-maturity securities
<S> <C> <C> <C>
Due within 1 year $ 2,000 $ 2,001 5.65%
Due after 10 years 352 351 7.00%
------------ -------------- ---------------
Total $ 2,352 $ 2,352 5.85%
============ ============== ===============
Available-for-sale
securities
Due after 10 years $78,599 $78,928 6.18%
============ ============== ===============
</TABLE>
Other investments. Other investments are comprised of cash invested in a
Guaranteed Investment Contract. At December 31, 1996 and 1995, other investments
totaled $4.5 million and $2.3 million, respectively. The weighted average rate
of the other investments at December 31, 1996 and 1995 was 6.15% and the
weighted average remaining maturity was 3.3 years.
Debentures, notes and bonds, net. At December 31, 1996, Farmer Mac had
$546.3 million of Discount Notes and Medium-Term Notes (net of unamortized debt
issuance costs, discounts and premiums) outstanding, an increase of $54.8
million over 1995. The increase in outstanding debt was primarily attributable
to the issuance of debt to warehouse loans held for securitization and to
purchase short-term investments.
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.
<PAGE>
<TABLE>
<CAPTION>
Maximum
Effective Amount Effective
Interest Outstanding Interest
Balance at Rate during the Rate
end of period at end of period during the
period period
--------------- ------------- -------------- -------------
(dollars in thousands)
December 31, 1996
<S> <C> <C> <C> <C>
Discount Notes $228,752 5.31% $308,076 5.28%
Current Portion of
Medium-Term Notes 32,302 6.75% 56,994 6.72%
===============
Total $261,054
===============
December 31, 1995
Discount Notes $132,788 5.62% $297,341 5.80%
Current Portion of
Medium-Term Notes 74,634 6.65% 79,436 6.53%
===============
Total $207,422
===============
</TABLE>
<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>
Year Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average Average Income/ Average
Balances Expense Rate Balances Expense Rate Balances Expense Rate
------------------------------------------------------------------------------------
(dollars in thousands)
Assets
Earning assets:
Farmer Mac I and II
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities $408,534 $29,672 7.26% $397,265 $29,097 7.32% $381,282 $26,627 6.98%
Investments and cash
equivalents 127,465 6,964 5.46% 114,050 7,327 6.43% 100,864 5,085 5.04%
Loans held for 8,513 717 8.42%
securitization --------------------------- -------------------------------------------------------
Total earning assets 544,512 37,353 6.86% 511,315 36,424 7.12% 482,146 31,712 6.58%
Other assets 20,168 13,451 11,403
--------------------------- -------------------------------------------------------
$564,680 $524,766 $493,549
=========================== =======================================================
Liabilities and Stockholders' Equity
Interest-bearing
liabilities
Debentures, notes and
bonds, net 537,802 34,623 6.44% $507,015 $34,709 6.84% $473,387 $30,303 6.40%
Other liabilities 12,045 5,871 7,286
Stockholders' equity 14,833 11,880 12,876
--------------------------- -------------------------------------------------------
$564,680 $524,766 $493,549
=========================== =======================================================
Net interest income/spread $ 2,730 0.42% $1,715 0.28% $1,409 0.18%
Net yield on interest
earning assets 0.50% 0.33% 0.29%
</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>
1996 vs. 1995 1995 vs. 1994
----------------------------------------- ------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Rate Volume Total Rate Volume Total
------------ -------------- ------------ ------------- --------------- -----------
(in thousands) (in thousands)
Income from
interest-earning assets:
Farmer Mac I and II
<S> <C> <C> <C> <C> <C> <C>
Securities $ (245) $ 820 $ 575 $1,307 $1,163 $2,470
Investments (1,168) 805 (363) 1,210 1,032 2,242
Loans held for
securitization - 717 717 - - -
------------ -------------- ------------ ------------ --------------- -----------
Total income from
interest-earning assets (1,413) 2,342 929 2,517 2,195 4,712
Expense on interest-
bearing liabilities (2,130) 2,044 (86) 1,925 2,481 4,406
----- ------ --- ----- ----- -----
Change in net
interest income $ 717 $ 298 $ 1,015 $ 592 $(286) $ 306
============ ============== ============ ============ =============== ===========
</TABLE>
<PAGE>
Results of Operations
General. Farmer Mac reported net income in 1996 of $777 thousand, an
increase in earnings of $1.4 million over the loss of $647 thousand reported in
1995. 1996 net income includes an extraordinary gain of $384 thousand resulting
from the early extinguishment of debt. Without the extraordinary gain, Farmer
Mac's 1996 income totaled $393 thousand, a $1.0 million improvement over the net
loss of $647 thousand reported in 1995. The increase in earnings is largely
attributable to the gain on issuance of mortgage-backed securities, a result of
sales of Farmer Mac Guaranteed Securities backed by loans purchased through the
cash window, and increased net interest income, a result of the shift from lower
yielding to higher yielding interest-earning assets, which was reduced by
increased expenses associated with greater business activity.
The $647 thousand net loss reported in 1995 represents a $685 thousand or
51% decrease from the loss reported in 1994. The decrease in loss from 1994 to
1995 was attributable to increased net interest income, a result of the shift
from lower yielding to higher yielding interest earning assets, increased
guarantee fee income from an increase in the level of outstanding Farmer Mac I
and II Securities, and reduced expenses, as Farmer Mac focused on its
legislative initiative rather than pursuing and marketing a program it expected
Congress to change through legislation.
Farmer Mac's profitability depends significantly on the volume of
guarantee transactions in which it engages. Losses, if any, on guarantees will
be affected by many general circumstances, including agricultural growing
conditions, agricultural market conditions and the agricultural economy, and
particular circumstances, including the quality of Farmer Mac credit
underwriting, appraisals and loan servicing. Historically, the volume of Farmer
Mac's guarantee transactions did not generate income in excess of operating
expenses, requiring Farmer Mac to expend capital to fund operations, and
resulting in annual net losses for each of Farmer Mac's fiscal years through
December 31, 1995. The 1996 Act removed certain charter provisions that were
constraining Farmer Mac's activities in the agricultural secondary market,
thereby improving its operating flexibility. Notwithstanding Farmer Mac's
improved financial performance for 1996 and its ongoing efforts to implement its
new authorities under the 1996 Act, there can be no assurance that Farmer Mac
will be able to achieve or sustain significant guarantee volume or
profitability. Improvements in Farmer Mac's operating results will continue to
depend upon the volume of new guarantee transactions, which, in turn, is
dependent upon continued and significantly increased utilization of its programs
by its Class A and Class B stockholders.
Net Interest Income. Net interest income totaled $2.7 million, $1.7
million and $1.4 million for the years ended December 31, 1996, 1995, and 1994.
The $1.0 million increase from 1995 to 1996 is primarily attributable to the 14
basis point (0.14%) increase in net interest spread, the net result of the $33.2
million increase in the outstanding balance of interest-earning assets from 1995
to 1996 and the 26 basis point (0.26%) decrease in the average rate of Farmer
Mac's interest-earning assets.
The $306 thousand increase from 1994 to 1995 in net interest income is
largely attributable to a 10 basis point (0.10%) increase in the net interest
spread, resulting from a shift in the composition of interest earning assets
from lower yielding Farmer Mac I Securities to higher yielding Farmer Mac I and
II Securities. The effective yield on the Farmer Mac I Securities also increased
from 1994 to 1995 as certain loans underlying the Farmer Mac I Securities
extended beyond their scheduled maturity date, thus generating interest income
to Farmer Mac until the payoff date, and increasing the effective yield.
Interest Income. Interest income totaled $37.4 million, $36.4 million and
$31.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The $1.0 million increase in interest income from 1995 to 1996 was
attributable to the $33.2 million increase in the outstanding balance of
interest-earning assets, which more than offset the 26 basis point (0.26%)
decrease in the average rate of Farmer Mac's interest-earning assets. The
increase in the outstanding balance of interest-earning assets was primarily
attributable to the growth in the Farmer Mac II Program, which exceeded the
repayments on the Farmer Mac I and II Securities, and the purchase of loans
through Farmer Mac's cash window for securitization. Farmer Mac issued $92.5
million in Farmer Mac II Securities in 1996, as compared to $56.2 million in
1995, almost all of which were purchased in both years by Farmer Mac for
investment purposes, and had an average balance of loans held for securitization
of $8.5 million for 1996. The decrease in the average rate of Farmer Mac's
interest-earning assets resulted from a decrease in market rates which in turn
lowered the average rate of Farmer Mac's investments and cash equivalents,
almost all of which are floating rate, and the average rate of the Farmer Mac II
portfolio, of which approximately 37% consists of short-term adjustable rate
securities.
The $4.7 million increase from 1994 to 1995 in interest income is
attributable to a $29.2 million increase in the average amount of
interest-earning assets outstanding during 1995 as compared to 1994, a result of
$43.7 million in net growth in the Farmer Mac II Program, and a 54 basis point
(0.54%) increase in the average rate of interest-earning assets from 1994 to
1995. The increase in the average rate of interest-earning assets was due to an
increase in market interest rates, a shift from lower coupon, more seasoned
Farmer Mac I and II Securities to higher coupon, newly originated Farmer Mac I
and II Securities, and an increase in the effective yield of Farmer Mac I
Securities as a result of the extension of certain loans with balloon maturities
underlying the Farmer Mac I Securities. In certain pools underlying Farmer Mac I
Securities, loans with balloon maturities are permitted to remain in the pool up
to two years after the scheduled maturity date. Farmer Mac and/or the holder of
the Farmer Mac I Securities receives interest during that two-year period.
During 1997, management intends to increase Farmer Mac's presence in the
capital markets, particularly the debt markets, in order to continue to attract
investors in its debt and mortgage-backed securities and so reduce its borrowing
and securitization costs. The Board and management believe that increasing
Farmer Mac's presence in the capital debt markets will improve the pricing of
its AMBS and thereby enhance the attractiveness of the loan products offered
through its programs for the benefit of agricultural lenders and borrowers.
While the overall objective of an increased debt issuance strategy is to invest
the proceeds in Qualified Loans purchased under the Farmer Mac Programs, during
the period in which Farmer Mac is increasing its loan purchases it will be
investing those proceeds in interest-earning assets, which will generate
increased interest income. See "Farmer Mac Guarantee Program -- Financing --
Debt Issuances."
Interest Expense. Interest expense for the years ended December 31, 1996,
1995 and 1994 totaled $34.6 million, $34.7 million, and $30.3 million,
respectively. The $86 thousand decrease in interest expense from 1995 to 1996
was attributable to the decrease in the average cost of outstanding
interest-bearing liabilities, which approximately equaled the effect of the
increase in the average balances for the comparable periods. During 1996, Farmer
Mac issued $2.0 billion (net of discount) of Discount Notes and $39.9 million of
Medium-Term Notes and redeemed $1.9 billion of Discount Notes and $80.8 million
of Medium-Term Notes.
The $4.4 million increase in interest expense from 1994 to 1995 resulted
from increases in the average amount and average cost of interest bearing
liabilities. During 1995, Farmer Mac issued $2.8 billion (net of discount) of
Discount Notes and $68.5 million of Medium-Term Notes and redeemed $2.8 billion
of Discount Notes and $42.1 million of Medium-Term Notes.
Other Income. Other income totaled $2.8 million, $1.4 million, and $1.3
million for the years ended December 31, 1996, 1995 and 1994, respectively, an
increase of $1.4 million from 1995 to 1996 and an increase of $114 thousand from
1994 to 1995. Guarantee fee income, the principal component of other income,
increased $360 thousand from 1995 to 1996 and $120 thousand from 1994 to 1995.
The changes in guarantee fee income were attributable to the level of Farmer Mac
I and II Securities outstanding in each of the comparable periods.
Gain on issuance of mortgage-backed securities, the other principal
component of other income, is recognized to the extent the sale proceeds of
Farmer Mac I Securities backed by loans purchased through Farmer Mac's cash
window exceed the recorded value of the underlying loans. The gain is net of any
related costs associated with the issuance and sale of the Farmer Mac I
Securities. In 1996, Farmer Mac recognized $1.1 million in gains on the issuance
of $149.3 million of Farmer Mac I Securities.
Other Expenses. Other expenses totaled $5.1 million, $3.8 million and $4.1
million for the years ended December 31, 1996, 1995 and 1994, respectively, an
increase of $1.3 million from 1995 to 1996, and a decrease of $265 thousand from
1994 to 1995. The $1.3 million increase from 1995 to 1996 was largely
attributable to increased costs associated with the implementation of Farmer
Mac's expanded authorities. Compensation and employee benefits increased $433
thousand or 22% over 1995, primarily as a result of the addition of four
employees in the credit and business development areas. Professional fees,
comprised of consulting, accounting and legal fees, increased $416 thousand or
101% over 1995 primarily because of the utilization of outside service providers
to assist with the credit underwriting of loans submitted for purchase through
the cash window and the development of a guarantee fee and credit scoring model;
legal fees also increased due to the dispute with WFCB regarding the termination
of the Strategic Alliance Agreement. Marketing and advertising expenses and
administrative expenses increased $166 thousand and $140 thousand, respectively,
both as a result of increased business activity from the implementation of the
expanded authorities. The provision for losses increased $166 thousand as a
result of the increase in outstanding Farmer Mac I Guaranteed Securities for
which Farmer Mac bears the risk of first loss.
From 1994 to 1995, other expenses decreased $265 thousand, primarily as a
result of reductions in compensation and employee benefits due to lower bonuses
paid to management, lower professional fees because of fewer special projects
(including a marketing study and a comprehensive asset and liability management
review in 1994), and lower travel-related administrative expenses.
Extraordinary Gain. In 1996, the Corporation recognized an extraordinary
gain of $384 thousand from the early extinguishment of $8.0 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. There is no preference between
holders of the Voting Common Stock and Class C Non-Voting Common Stock 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.
Risk Management
Interest rate risk management. Interest rate risk is the risk that
interest rate changes could materially affect equity and earnings. Farmer Mac is
subject to interest rate risk on its portfolio of Farmer Mac I and II Securities
as a result of the ability of borrowers to prepay their mortgages before the
scheduled maturities and as a result of changes in interest rates during the
period from the issuance by Farmer Mac of a loan purchase commitment until the
loan is securitized by Farmer Mac. Mortgage prepayments can cause fluctuations
in net interest income to the extent that they change the match of cashflows of
Farmer Mac's assets and liabilities, as well as the amortization of certain
deferred items. This risk is mitigated by yield maintenance provisions, when
present, which require payments to be made to Farmer Mac when mortgage loans
prepay. These payments are calculated such that, when reinvested with the
prepaid principal, they should generate substantially the same cash flows that
would have been generated by the mortgage-backed securities had the underlying
mortgage loans not prepaid. The existence of these provisions reduces (but does
not eliminate) Farmer Mac's exposure to reinvestment risk. Yield maintenance
provisions are not contained in any Guaranteed Portions underlying Farmer Mac II
Securities, which Securities comprised approximately 48% of Farmer Mac's
portfolio of Farmer Mac I and II Securities at December 31, 1996.
Farmer Mac's primary strategy to manage prepayment and reinvestment risk
is to fund its portfolio of Farmer Mac I and II Securities with a mix of
short-term Discount Notes and callable and non-callable Medium-Term Notes. This
funding mix is designed to match the expected cash flows of the mortgages
underlying the Farmer Mac I and II Securities, while allowing Farmer Mac the
ability to adjust debt maturities in response to prepayments.
Farmer Mac is subject to interest rate risk on loans purchased through the
cash window. Weekly, or more frequently for larger Qualified Loans, Farmer Mac
issues commitments to purchase Qualified Loans through its cash window, and from
time to time purchases portfolios of Qualified Loans in negotiated transactions.
Until those Qualified Loans are securitized, Farmer Mac is subject to the risk
that interest rate changes during that period may materially affect the value of
those Qualified Loans. Management employs a variety of hedging instruments,
including forward sales, short sales of Treasuries and futures contracts to
mitigate the interest rate risks inherent in managing a portfolio of Qualified
Loans (including Qualified Loans under commitment and those held pending
securitization). As of December 31, 1996, all of Farmer Mac's interest rate risk
management with respect to loans purchased through the cash window had been
accomplished by means of forward sales. Commencing in early 1997, Farmer Mac
began to utilize a combination of forward sales and futures contracts to manage
its interest rate risk and expects to continue to use a combination of hedge
instruments.
Management has established policies and implemented interest rate risk
management procedures to monitor its exposure to interest rate volatility from
prepayments and reinvestment risk. Management performs sensitivity analyses of
Farmer Mac's market value of equity and net interest income and calculates the
duration gap of its assets and liabilities on an ongoing basis. These risk
measures are reviewed regularly to determine the optimal asset and liability mix
to limit Farmer Mac's exposure to interest rate risk.
Credit risk management. 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.
At December 31, 1996, Farmer Mac's total loss allowance was $655 thousand.
The Farmer Mac I and II Securities are shown net of their applicable allowance
of $338 thousand at December 31, 1996, representing an increase of $58 thousand
from December 31, 1995; the allowance for Farmer Mac Guaranteed Securities not
held by Farmer Mac was $317 thousand at December 31, 1996, representing an
increase of $205 thousand from December 31, 1995. The $205 thousand increase was
attributable to the issuance of $149.3 million of Farmer Mac Guaranteed
Securities as to which Farmer Mac bears the risk of first loss.
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; the results of its quality control reviews; and its underwriting
standards. Farmer Mac considers the amounts in the allowance accounts to be
adequate to cover its exposure to guarantee payments in the Farmer Mac I
Program. For a discussion of the composition of Farmer Mac Guaranteed
Securities, see Notes 12 and 13 to the Financial Statements.
At December 31, 1996 and 1995, loans that were 90 days or more past due,
loans that were in foreclosure or bankruptcy and loans that had been acquired by
the trust represented 0.7% and 0.5% of the principal amount of all loans
underlying Farmer Mac Guaranteed Securities. 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 because of the existence of the 10% subordinated
interests with respect to the related securities.
<PAGE>
Liquidity
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. Although Farmer Mac's debt is not guaranteed by the U.S. government,
Farmer Mac has been able to access the capital markets at favorable rates.
Funds from the issuance of Discount Notes and Medium-Term Notes may be
used in the Farmer Mac I and Farmer Mac II Programs 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). Farmer Mac may also issue Notes to
maintain reasonable amounts for business operations, including liquidity,
relating to the foregoing activities authorized under the Act.
Farmer Mac also maintains a portfolio of cash equivalents, comprised of
commercial paper, federal funds, and other short-term investments, to draw upon
as necessary. At December 31, 1996 and 1995, Farmer Mac's cash and cash
equivalents totaled $68.9 million and $8.3 million, respectively.
Capital Resources
The Act established capital requirements for Farmer Mac, which were
modified by the 1996 Act. 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;" the 1996 Act phases in higher minimum
capital requirements over a three-year transition period. Certain levels of
enforcement are given to the FCA depending upon Farmer Mac's compliance with
these capital levels. See "Government Regulation of Farmer Mac -- Regulation
- --Capital Standards." As of December 31, 1996, Farmer Mac's minimum capital
requirement was $7.4 million and its actual capital level was $47.2 million. At
December 31, 1995, Farmer Mac's minimum capital requirement was $4.7 million,
and its actual capital level was $11.7 million. See "Government Regulation of
Farmer Mac."
The following is analysis of Farmer Mac's minimum capital requirements at
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Required Required
Minimum Minimum
Capital Capital
December 31, December December 31, December
1996 31, 1995 31, 1995
1996
------------- ------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Designated assets $ 429,500 $ 1,933 $417,169 $ 1,877
Other on-balance sheet
assets 173,266 4,332 95,295 2,382
Off-balance sheet
assets 226,030 1,017 99,573 448
Other off-balance
sheet obligations 26,303 118 -- --
------------- ------------
Total minimum capital
required 7,400 4,707
Actual capital 47,205 11,712
------------ -------------
Minimum capital $ 39,805 $ 7,005
surplus
============= ============
</TABLE>
In the opinion of management, Farmer Mac has sufficient liquidity and
capital for the next twelve months.
New Accounting Standards
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
which prescribes new accounting and reporting standards for sales,
securitizations, and servicing of receivables and other financial assets, for
certain secured borrowing and collateral transactions, and for extinguishment of
liabilities. SFAS No. 125 is based on a financial-components approach that
focuses on the legal and physical control over the component. Under this
approach, following a transfer of financial assets, an entity recognizes the
assets it controls and liabilities it has incurred, and derecognizes financial
assets for which control has been surrendered and financial liabilities that
have been extinguished.
Although the provisions of this statement are effective January 1, 1997,
the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" in December 1996 which delays, until
January 1, 1998, the provisions of SFAS No. 125 that deal with securities
lending, repurchase and dollar repurchase agreements, and the recognition of
collateral. Management does not believe that SFAS No. 125 will have a material
impact on Farmer Mac's financial results.
<PAGE>
Item 8. Financial Statements and Supplementary Data
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 and subsidiaries ("Farmer Mac") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. 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 audit 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farmer Mac as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 20, 1997
<PAGE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
-------------------------------------
1996 1995
------------------ ------------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 68,912 $ 8,336
Interest receivable 14,821 15,572
Guarantee fees receivable 745 573
Investments (fair value of $85,795 and $65,627 at
December 31, 1996 and 1995, respectively) (Note 3) 85,799 65,621
Farmer Mac I & II securities, net (fair value of
$419,746 and $427,040 at December 31, 1996 and 1995,
respectively)(Note 4) 416,501 417,169
Loans held for securitization 12,999 --
Farmer Mac I & II payments receivable 2,421 4,939
Prepaid expenses and other assets 568 254
================== ==================
TOTAL ASSETS $602,766 $512,464
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Debentures, notes and bonds, net (Note 6):
<S> <C> <C>
Due within one year $ 261,054 $ 207,422
Due after one year 285,238 284,084
Accrued interest payable on Medium-Term Notes 7,231 8,394
Accounts payable and accrued expenses 1,721 740
Allowance for losses on guaranteed securities 317 112
(Note 5)
------------------ ------------------
TOTAL LIABILITIES 555,561 500,752
------------------ ------------------
STOCKHOLDERS' EQUITY (Note 7)
Common stock:
Class A Voting, $1 par value, no maximum
authorization, 990,000
and 670,000 shares issued and
outstanding at December 31, 1996 and 1995 990 670
Class B Voting, $1 par value, no maximum
authorization, 593,401 and 500,301 shares
issued and outstanding at December 31, 1996
and 1995 593 500
Class C Non-Voting, $1 par value, no maximum
authorization, 2,658,897 and 1,170,301
shares issued and outstanding at
December 31, 1996 and 1995 2,659 1,170
Additional paid in capital 52,513 19,331
Loan receivable for purchase of stock (557) --
Unrealized gain on securities available for sale 329 140
Accumulated deficit (9,322) (10,099)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 47,205 11,712
------------------ ------------------
Commitments (Notes 9 and 12)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $602,766 $512,464
================== ==================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
December 31,
-----------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
INTEREST INCOME:
<S> <C> <C> <C>
Farmer Mac I and II securities $ 29,672 $ 29,097 $ 26,627
Investments and cash equivalents 6,964 7,327 5,085
Loans held for securitization 717 -- --
--------------- --------------- ---------------
TOTAL INTEREST INCOME 37,353 36,424 31,712
INTEREST EXPENSE 34,623 34,709 30,303
--------------- ------------- ---------------
NET INTEREST INCOME 2,730 1,715 1,409
OTHER INCOME:
Guarantee fees 1,623 1,263 1,143
Gain on issuance of mortgage-backed securities 1,070 -- --
Other 63 171 177
--------------- --------------- ---------------
TOTAL OTHER INCOME 2,756 1,434 1,320
OTHER EXPENSES:
Compensation and employee benefits 2,361 1,928 2,034
Professional fees 828 412 567
Marketing and advertising 192 26 91
Insurance 220 216 141
Rent 173 166 179
Regulatory fees 250 289 302
Board of Directors fees and meeting expenses 320 328 297
Administrative 474 334 356
Provision for losses (Note 5) 263 97 94
--------------- --------------- ---------------
TOTAL OTHER EXPENSES 5,081 3,796 4,061
INCOME/(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 405 (647) (1,332)
PROVISION FOR INCOME TAXES (NOTE 10) 12 -- --
--------------- --------------- ---------------
INCOME/(LOSS) BEFORE EXTRAORDINARY ITEM 393 (647) (1,332)
EXTRAORDINARY GAIN ON EARLY
EXTINGUISHMENT OF DEBT (NOTE 6) 384 -- --
--------------- --------------- ---------------
NET INCOME/(LOSS) $ 777 $ (647) $ (1,332)
=============== =============== ===============
EARNINGS/(LOSS) PER SHARE:
Primary earnings/(loss) per share before
extraordinary item
- Class A and B Voting Common Stock $ 0.07 $ (0.14) $ (0.28)
- Class C Non-Voting Common Stock $ 0.22 $ (0.41) $ (0.85)
Primary earnings/(loss) per share
- Class A and B Voting Common Stock $ 0.14 $$(0.14) $ (0.28)
- Class C Non-Voting Common Stock $ 0.43 $ (0.41) $ (0.85)
Fully diluted earnings/(loss) per share
before extraordinary item
- Class A and B Voting Common Stock $ 0.07 $ (0.14) $ (0.28)
- Class C Non-Voting Common Stock $ 0.20 $ (0.41) $ (0.85)
Fully diluted earnings/(loss) per share
- Class A and B Voting Common Stock $ 0.13 $ (0.14) $ (0.28)
- Class C Non-Voting Common Stock $ 0.40 $ (0.41) $ (0.85)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Consolidated Statements of Stockholders' Equity
(in thousands)
Loan Unrealized
Receivable Gain on
Class A Class B Class C Additional for Securities Total
Common Common Common Paid in Purchases Available Accumulated Stockholders'
Stock Stock Stock Capital of Stock for Sale Deficit Equity
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 670 $ 500 $1,170 $ 19,331 $ -- $ -- $ (8,120) $ 13,551
Net Loss (1,332) (1,332)
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 1994 670 500 1,170 19,331 -- -- (9,452) 12,219
Net Loss (647) (647)
Change in unrealized
gain on securities
available for sale 140 140
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 1995 670 500 1,170 19,331 -- 140 (10,099) 11,712
Net income 777 777
Proceeds from Class C
Common Stock issuance 1,438 30,479 31,917
Proceeds on Class A
Common Stock issuance 320 2,240 2,560
Issuance from Class B
and Class C Common
Stock for note
receivable 93 44 420 (557) --
Change in unrealized
gain on securities
available for sale 189 189
Issuance of Class C Common
Stock as incentive
compensation
7 43 50
Balance, December 31, 1996 $ 990 $ 593 $ 2,659 $ 52,513 $ (557) $ 329 $ (9,322) $ 47,205
========== ========== ========== ========== ========== ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
December 31,
--------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Income/(loss) from Operations $ 777 $ (647) $ (1,332)
Adjustments to reconcile net income/(loss)
to cash provided by operating activities:
Amortization of premium on Farmer Mac I &
II securities 3,072 4,791 6,554
Discount note amortization 11,131 9,522 4,807
(Increase) decrease in guarantee fees
receivable (172) (119) 66
Decrease (increase) in interest receivable 751 (1,549) 1,484
Decrease (increase) in Farmer Mac
I & II payments receivable 2,518 (3,743) (690)
(Increase) decrease in prepaid expenses and
other assets (294) 27 (127)
Amortization and depreciation 105 203 245
Increase (decrease) in accounts payable
and 981 (232) 200
accrued expenses
Increase in loans held for securitization (12,999) -- --
(Decrease) increase in accrued interest
payable on Medium-Term Notes (1,163) 944 (882)
Provision for losses 263 97 94
Gain on early extinguishment of debt (384) -- --
Other (1) (49) (42)
--------------- --------------- ---------------
Net cash provided by operating activities 4,585 9,245 10,377
--------------- --------------- ---------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Farmer Mac I & II purchases (84,452) (104,674) (47,712)
Purchases of investments (51,629) (78,865) (44,905)
Proceeds from maturity of investments 31,646 33,496 65,408
Proceeds from Farmer Mac I & II principal
repayments 81,990 50,641 65,212
Purchases of office equipment (61) (7) (40)
--------------- --------------- ---------------
Net cash (used) provided by investing
activities (22,506) (99,409) 37,963
-------------- --------------- ---------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance of Medium-Term Notes 39,897 68,536 --
Payments to redeem Medium-Term Notes (80,760) (42,095) (67,915)
Proceeds from issuance of Discount Notes 1,993,048 2,785,917 775,437
Payments to redeem Discount Notes (1,908,215) (2,786,987) (758,500)
Proceeds from common stock issuance 34,527 --
--------------- --------------- ---------------
Net cash provided (used) by financing
activities 78,497 25,371 (50,978)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents 60,576 (64,793) (2,638)
--------------- --------------- ---------------
Cash and cash equivalents at beginning of
period 8,336 73,129 75,767
Cash and cash equivalents at end of period $68,912 $ 8,336 $ 73,129
=============== =============== ===============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 24,581 $ 24,146 $ 26,229
Income Taxes $ 20 -- --
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
The Federal Agricultural Mortgage Corporation ("Farmer Mac"), a federally
chartered instrumentality of the United States, was established pursuant to
Title VIII of the Farm Credit Act of 1971 (the "Charter 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 authorized to provide liquidity to the agricultural mortgage
market by: (i) purchasing newly originated Qualified Loans directly from lenders
on a continuing basis through its "cash window;" (ii) exchanging Qualified Loans
for Farmer Mac Guaranteed Securities backed by such loans in "swap
transactions;" and (iii) purchasing portfolios of "existing loans" on a
negotiated basis. Qualified Loans purchased by Farmer Mac are aggregated into
pools that back securities issued and guaranteed by Farmer Mac ("Farmer Mac
Guaranteed Securities"), which are sold periodically into the capital markets.
The Farm Credit System Reform Act of 1996 (the "1996 Act"), enacted on February
10, 1996, changed the manner in which Farmer Mac is authorized to do business,
thereby improving its operating flexibility. Farmer Mac is now authorized to
purchase Qualified Loans directly from lenders and to issue and guarantee
securities backed by such loans without the earlier cash reserve or subordinated
interest requirement; Farmer Mac is now also a "first loss" guarantor -- it
guarantees timely payments of principal (including any balloon payments) and
interest on Farmer Mac Guaranteed Securities backed by 100% of the underlying
Qualified Loans.
Farmer Mac conducts its business through two programs, "Farmer Mac I" and
"Farmer Mac II." The Farmer Mac I Program involves the purchase and
securitization of Qualified Loans that are not guaranteed by any instrumentality
or agency of the United States. The Farmer Mac II Program involves the purchase
of guaranteed portions (the "Guaranteed Portions") of loans guaranteed by the
United States Department of Agriculture (the "USDA") and the issuance of Farmer
Mac Guaranteed Securities backed by such Guaranteed Portions.
In 1991, Farmer Mac formed Farmer Mac Mortgage Securities Corporation, a wholly
owned subsidiary incorporated under the laws of the State of Delaware, which
commenced business in 1992. 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; (ii) to incur indebtedness in connection
with its activities; and (iii) 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. In 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
this subsidiary is to act as the registrant under a registration statement filed
with the Securities and Exchange Commission in connection with the 1992
registration of securities under the Federal securities laws. Farmer Mac
Acceptance Corporation commenced business in May 1992.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Farmer Mac conform with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates. The
following comprises the significant accounting policies which Farmer Mac follows
in preparing and presenting its financial statements:
(a) Principles of Consolidation
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) Cash Equivalents
Farmer Mac considers highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at amortized cost, which approximates market value.
(c) Farmer Mac I and II Securities and Investment Securities
Farmer Mac I and II Securities and investment securities which Farmer Mac has
the positive intent and ability to hold to maturity are classified as
held-to-maturity. Such securities are carried at cost, adjusted for unamortized
premiums and unearned discounts. Premiums are amortized and discounts are
accreted to interest income using the interest method over the remaining
contractual maturity, adjusted, in the case of mortgage-backed securities, for
actual prepayments.
Other Farmer Mac I and II Securities and investment securities for which Farmer
Mac does not have the positive intent to hold to maturity have been classified
as available-for-sale and are carried at estimated fair value. Unrealized gains
and losses are reported as a separate component of stockholders' equity.
(d) Yield Maintenance Income
Farmer Mac receives yield maintenance payments when mortgage loans underlying
certain Farmer Mac I 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 cash flows that would have been generated by the Farmer Mac I and II
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.
(e) Loans Held For Securitization
Loans held for securitization are loans Farmer Mac has purchased through its
cash window with the intent of securitizing those loans and selling the security
in the capital markets. The loans are typically held for less than 45 days and
are carried at cost, adjusted for unamortized premiums and unearned discounts.
At December 31, 1996, there was no unamortized premium or unearned discount
associated with those loans.
(f) Earnings/Loss Per Share
Earnings/(loss) per share are computed using the weighted average number of
common shares outstanding, including the fully dilutive effect of common stock
equivalents and the effect of the 3-to-1 dividend ratio applicable to each share
of Class C Non-Voting Common Stock relative to each share of Voting Common
Stock.
(g) 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:
<TABLE>
<CAPTION>
Estimated
Lives
------------------
<S> <C>
Furniture and fixtures 10 Years
Computer equipment and software 3 Years
Other Office equipment 5 Years
</TABLE>
(h) Income Taxes
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. Management has established a valuation
allowance for 100 percent of the net deferred assets.
(i) Guarantee Fees
Farmer Mac recognizes guarantee fees as income when earned. Farmer Mac
recognizes the portion of guarantee fees generated by Farmer Mac I and II
Securities held in portfolio as guarantee fee income rather than interest income
in its statements of operations. Approximately $981 thousand, $934 thousand and
$905 thousand of guarantee fees in 1996, 1995 and 1994, respectively, relate to
Farmer Mac I and II Securities held in portfolio.
(j) Allowance for Losses
The allowance for losses is based on an analysis of outstanding Farmer Mac
Guaranteed Securities and Qualified Loans and provides for future anticipated
losses. This analysis considers economic conditions, geographic and agricultural
commodity concentrations, the credit profile of the guaranteed securities and
Qualified Loans, delinquency trends, and historical charge-off and recovery
activity. The analysis also considers the level of reserve or subordinated
interest providing credit enhancement for guaranteed securities issued prior to
December 31, 1995 against which full recourse must be first taken before Farmer
Mac is required to make a guarantee payment. Management believes that the
allowance for losses is adequate to provide for estimated losses in the Farmer
Mac I Program. 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
USDA guarantee of the principal and interest thereon.
(k) Debt Issuance Costs
Debt issuance costs are deferred and amortized over the estimated life of the
related debt.
(l) Reclassifications
Certain reclassifications of prior year information were made to conform with
the 1996 presentation.
<PAGE>
3. INVESTMENTS
The amortized cost and estimated fair values of investments at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
----------- ----------- ----------- -----------
(in thousands)
Held-to-maturity securities
<S> <C> <C> <C> <C>
Debt Securities $ 2,000 $ 1 $ -- $ 2,001
Mortgage-Backed Securities 352 -- 1 351
----------- ----------- ----------- -----------
Total 2,352 1 1 2,352
----------- ----------- ----------- -----------
Available-for-sale securities
Mortgage-Backed Securities 78,599 329 78,928
--
----------- ----------- ----------- -----------
Total 78,599 329 -- 78,928
----------- ----------- ----------- -----------
Other investments
Cash Investment in Guaranteed
Investment Contract 4,519 -- 4 4,515
----------- ----------- ----------- -----------
Total 4,519 -- 4 4,515
----------- ----------- ----------- -----------
Total investments $ 85,470 $ 330 $ 5 $ 85,795
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
----------- ----------- ---------- -----------
(in thousands)
Held-to-maturity securities
<S> <C> <C> <C> <C>
Debt Securities $2,000 $-- $ 1 $1,999
Mortgage-Backed Securities 5,419 9 -- 5,428
----------- ----------- ---------- -----------
Total 7,419 9 1 7,427
----------- ----------- ---------- -----------
Available-for-sale securities
Mortgage-Backed Securities 55,722 140 -- 55,862
----------- ----------- ---------- -----------
Total 55,722 140 -- 55,862
----------- ----------- ---------- -----------
Other investments
Cash Investment in Guaranteed
Investment Contract 2,340 -- 2 2,338
----------- ----------- ---------- -----------
Total 2,340 -- 2 2,338
----------- ----------- ---------- -----------
Total investments $65,481 $ 149 $ 3 $65,627
=========== =========== ========== ===========
</TABLE>
<PAGE>
The amortized cost and estimated fair value of investments by remaining
contractual maturity at December 31, 1996 were as follows. 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>
Maturity
-------------------------------------------------
After 1
year
Within 1 through After 10
year 5 years years Total
---------- - ---------- - ---------- - ----------
(dollars in thousands)
Held-to-maturity
securities
<S> <C> <C> <C> <C>
- Amortized cost $ 2,000 $ 352 $ 2,352
- Fair value 2,001 351 2,352
Available-for-sale
securities
- Amortized cost 78,599 78,599
- Fair value 78,928 78,928
Other investments
- Amortized cost $ 4,519 4,519
- Fair value 4,515 4,515
Total
- Amortized cost $ 2,000 $ 4,519 $78,951 $ 85,470
- Fair value 2,001 4,515 79,279 85,795
</TABLE>
During 1996 and 1995, there were no sales of investment securities.
4. FARMER MAC I AND II SECURITIES
The following table sets forth the amortized costs, unrealized gains and losses
and estimated fair values of the Farmer Mac I and II Securities at December 31,
1996 and 1995.
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
----------- -- ----------- - ----------- - -----------
(in thousands)
December 31, 1996
Held-to-maturity securities
<S> <C> <C> <C> <C>
Farmer Mac I Securities $217,071 $ 4,365 $ 782 $220,654
Farmer Mac II Securities 199,430 -- 338 199,092
------- ------- ------- -------
Total $416,501 $ 4,365 $1,120 $419,746
=========== =========== =========== ==========
December 31, 1995
Held-to-maturity securities
Farmer Mac I Securities $278,625 $ 8,505 $257 $286,873
Farmer Mac II Securities 138,544 1,623 -- 140,167
------- ----- ------- -------
Total $417,169 $10,128 $257 $427,040
=========== =========== =========== ===========
</TABLE>
There were no sales of Farmer Mac I or Farmer Mac II Securities during 1996 or
1995.
The amortized costs and estimated fair values of Farmer Mac I and II Securities
by remaining weighted average contractual maturity at December 31, 1996 were as
follows. Actual 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, 1996
------------ ---------
Amortized Fair
Cost Value
---------- ---------
(in thousands)
<S> <C> <C>
Due within 1 year $ 660 $ 660
Due after 1 year through 5 years 202,372 205,315
Due after 5 years through 10 years 49,116 44,467
Due after 10 years 164,353 169,304
---------- ---------
Total $416,501 $ 419,746
========== =========
</TABLE>
Amortized Cost of Farmer Mac I and II Securities
Farmer Mac I and II Securities are shown net of unamortized premium, deferred
fees and the allowance for losses. The following table sets forth those
components at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Farmer Farmer Farmer Farmer
Mac I Mac II Mac I Mac II
----------- ------------ ------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Outstanding Principal Balance $205,835 $199,418 $264,272 $138,520
Unamortized premium and
deferred fees, net 11,574 12 14,633 24
Less:
Allowance for Losses (338) -- (280) --
----------- ------------ ------------ ----------
$217,071 $199,430 $278,625 $138,544
=========== ============ ============ ==========
</TABLE>
<PAGE>
5. ALLOWANCE FOR LOSSES
Changes in the allowance for losses for 1996, 1995 and 1994 are summarized
below:
<TABLE>
<CAPTION>
On-Balance Off-Balance
Sheet Sheet
Farmer Mac Farmer Mac
I & II I & II
Securities Securities Total
------------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
January 1, 1994 $ 142 $ 59 $ 201
Provision for losses 72 22 94
------------- ------------- ------------
December 31, 1994 214 81 295
Provision for losses 66 31 97
------------- ------------- ------------
December 31, 1995 280 112 392
Provision for Losses 58 205 263
------------- ------------- ------------
December 31, 1996 $ 338 $ 317 $ 655
============= ============= ============
</TABLE>
Farmer Mac has not incurred any losses to date.
At December 31, 1996, $338 thousand of the allowance for losses related to
securities held in portfolio and, accordingly, the allowance is recorded as a
component of "Farmer Mac I and II Securities, net" in the consolidated balance
sheets.
6. DEBENTURES, NOTES AND BONDS, NET
Total debt outstanding at December 31, 1996 and 1995 amounted to $546.3 million
and $491.5 million, net of unamortized discounts, premiums and issuance costs.
The effective interest rate of total debt outstanding was 6.42% and 6.76% at
December 31, 1996 and 1995, respectively. The average maturity of all debt
outstanding at December 31, 1996 and 1995 was 2.1 years and 2.9 years,
respectively.
<PAGE>
Borrowings Due Within One Year
As of December 31, 1996 and 1995, Farmer Mac's borrowings due within one year
were as follows:
<TABLE>
<CAPTION>
Maximum Average
Amount Amount Effective
Effective Outstanding Outstanding Interest
Interest during the during the Rate
Balance Rate period period during the
period
------------ ------------ ------------ ----------- ------------
(dollars in thousands)
December 31, 1996
<S> <C> <C> <C> <C> <C>
Discount Notes $228,752 5.31% $308,076 $206,350 5.28%
Current Portion of
Medium-Term Notes 32,302 6.75% 56,994 44,349 6.72%
------------
Total $261,054
============
December 31, 1995
Discount Notes $132,788 5.62% $166,055 5.80%
$297,341
Current Portion of
Medium-Term Notes 74,634 6.65% 79,436 72,298 6.53%
------------
Total $207,422
============
</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 1996, Farmer Mac called $8.0 million of debt, resulting in an
extraordinary gain of $384 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 up 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, 1996 and 1995 was 7.27% and 7.32%, respectively, with an average
effective maturity of 3.9 years and 5.0 years, respectively.
The following table sets forth the outstanding balances (net of any unamortized
discounts, premiums and debt issuance costs), and effective interest rates of
Farmer Mac's Medium-Term Notes due after one year at December 31, 1996 and 1995:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------------
Effective Effective
Interest Interest
Balance Rate Balance Rate
----------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
1997 -- -- $ 30,393 6.80%
1998 $ 68,062 6.81% 58,038 6.87%
1999 61,143 7.10% 41,164 7.23%
2000 46,114 7.44% 46,090 7.44%
2001 47,512 7.63% 39,033 7.61%
2002 7,931 7.51% 14,234 7.81%
Thereafter 54,476 7.54% 55,132 7.67%
----------- --------------
TOTAL $285,238 $284,084
=========== ==============
</TABLE>
Authority to Borrow from the Treasury of the United States
The Charter Act authorizes Farmer Mac to borrow, under certain conditions, up to
$1.5 billion from the Secretary of the Treasury, if necessary, to fulfill its
obligations 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, 1996, Farmer Mac had no such debt
outstanding.
7. STOCKHOLDERS' EQUITY
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.
Under the Charter Act, no holder of Class A Voting Common Stock may directly or
indirectly be a beneficial owner of more than 33% 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.
There is no preference between holders of Voting Common Stock and Class C
Non-Voting Common Stock relating to dividends. However, 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.
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.
Farmer Mac obtained its initial operating capital through the sale of 670,000
Class A Units and 500,301 Class B Units in its initial public offering in
December 1988. 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, each
Unit separated into its component shares in November 1993.
On January 23, 1996, Farmer Mac issued 93,100 shares of Class B Voting Common
Stock and 44,162 shares of Class C Non-Voting Common Stock to Western Farm
Credit Bank ("WFCB") pursuant to a Strategic Alliance Agreement between WFCB and
Farmer Mac for an aggregate purchase price of $557,196. At the same time, Farmer
Mac loaned the stock purchase proceeds to WFCB in return for a note from WFCB in
the principal amount of $557,196. The terms of the note provided for interest at
market rates and repayment from the segregated assets and property, including
profits, if any, of the strategic alliance and not from the assets and property
of WFCB. On January 30, 1997, Farmer Mac repurchased the Class B Voting Common
Stock acquired by WFCB as part of the Strategic Alliance Agreement in
conjunction with the settlement of litigation that Farmer Mac commenced against
WFCB in the fall of 1996 alleging certain breaches of the Strategic Alliance
Agreement. Also in conjunction with the settlement, WFCB repaid the principal
amount of the note with interest.
On January 31, 1996, Farmer Mac issued warrants to WFCB to purchase 18,784
shares of Class C Non-Voting Common Stock. On January 30, 1997, in connection
with the settlement of the litigation, WFCB exercised the warrants through the
payment of the $7.67 per share exercise price therefor and acquired the shares
of Class C Non-Voting Common Stock.
Farmer Mac sold 320,000 additional shares of Class A Voting Common Stock to
Zions First National Bank, Salt Lake City, Utah, in April 1996 at a price of
$8.00 per share and, in December 1996, completed a public offering of 1,437,500
shares of Class C Non-Voting Common Stock at a price of $24 per share, 500,000
shares of which were purchased by an affiliate of Zions First National Bank. The
public offering generated approximately $31.9 million in additional equity for
Farmer Mac. As of December 31, 1996, there were outstanding 990,000 shares of
Class A Voting Common Stock, 593,401 shares of Class B Voting Common Stock and
2,658,897 shares of Class C Non-Voting Common Stock.
8. LITIGATION
At December 31, 1996, Farmer Mac was a plaintiff in a legal action
commenced against WFCB in connection with the Strategic Alliance Agreement
between the two parties. In January 1997, the litigation was settled. As part of
the settlement, the parties terminated the Strategic Alliance Agreement
(resulting in the termination of the "AgFunding" program that had been operated
thereunder) and agreed to certain other terms, including: the waiver by Farmer
Mac of the restrictions in the Agreement limiting the ability of WFCB to sell
the approximately 63,000 shares of Farmer Mac Class C Non-Voting Common Stock
sold to WFCB under the Agreement; and the repurchase by Farmer Mac of the
approximately 93,000 shares of Class B Voting Common Stock sold to WFCB under
the Agremeent; and the repayment by WFCB of the $557,196 note with interest.
Although the other terms of the settlement are subject to a confidentiality
agreement between the parties, the settlement did not have a material adverse
effect on Farmer Mac's financial condition.
9. 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, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
- ------------------------
<S> <C>
1997 235
1998 235
1999 235
2000 235
2001 235
------------
TOTAL $1,175
============
</TABLE>
Rent expense for 1996, 1995 and 1994 was $173 thousand, net of $21 thousand of
sublease income, $166 thousand, net of $35 thousand of sublease income and $179
thousand, net of $25 thousand of sublease income, respectively.
10. INCOME TAXES
The components of the provision for federal income taxes for the years ended
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Current $ 12 $ 0
Deferred 300 (216)
--------- ----------
312 (216)
Change in valuation allowance (300) 216
--------- ----------
Net federal income tax provision $ 12 $ 0
========= ==========
</TABLE>
<PAGE>
A reconciliation of tax at the statutory federal tax rate to the income tax
provision for the years ended December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
Tax applicable to book income/(loss) at
<S> <C> <C>
statutory rate $268 $(220)
Adjustments due to:
Nondeductible expenses 5 4
Change in valuation allowance (300) 216
Other 39 0
------------ -------------
Total income tax expense 12 0
============ =============
Statutory tax rate 34.0%
Effective tax rate 3.0%
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and liabilities as of December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
Deferred tax assets:
Provision for uncollectible yield
<S> <C> <C>
maintenance $ 124 $ 160
Provision for losses 270 33
Accrued expenses 106 129
Net operating loss carryforwards 2,744 3,219
Other 12 40
--------- ----------
Total deferred tax asset 3,256 3,581
--------- ----------
Deferred tax liabilities:
Depreciation and prepaid expenses 51 41
--------- ----------
Total deferred tax liability 51 41
--------- ----------
Net deferred tax asset, before
valuation allowance 3,205 3,540
Less:
Valuation allowance (3,205) (3,540)
--------- ----------
Net deferred tax asset $ 0 $ 0
========= ==========
</TABLE>
Deferred income tax assets and liabilities are recognized for differences
between financial statement and tax bases of assets and liabilities that will
result in future tax consequences. A valuation allowance is required to reduce
deferred tax assets to an amount that is likely to be realized. Because of
Farmer Mac's lack of sufficient profitable operating history, a valuation
allowance has been established for the entire amount of the deferred tax asset.
In December 1996, Farmer Mac adjusted its valuation allowance to recognize
approximately $300 thousand of the deferred tax asset for its recent
profitability. On an ongoing basis, management will continue to reassess the
required valuation allowance, considering all factors which influence the
realizability of the deferred tax asset including pretax income, projected
pretax income and the accuracy of previous estimates of taxable income.
Farmer Mac had book net operating loss carryforwards of approximately $9.3
million and $10.0 million at December 31, 1996 and 1995. 1996 tax net operating
loss carryforwards of $301 thousand expire in 2010, $1.7 million expire in 2009,
$839 thousand expire in 2008, $1.6 million expire in 2007, $3.0 million expire
in 2006, and $2.0 million expire in 2005.
11. 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, Farmer Mac 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. Pension expense for the years ended December
31, 1996, 1995 and 1994 was $216 thousand, $188 thousand and $179 thousand,
respectively.
Stock Option Plan
In 1992 and 1996, Farmer Mac adopted stock option plans for key management
employees to acquire shares of Class C Non-Voting Common Stock. Under the 1992
plan, the stock options are exercisable immediately, and, if not exercised, will
expire ten years from the date of grant. The provisions of the plan also provide
for the adjustment of the exercise price of those options, initially at $15 per
share, to give effect to the issuance of new shares of Class C Non-Voting Common
Stock above the 1.1 million level of Class C shares outstanding at the time the
plan was adopted. Consequently, following the December 1996 public offering of
Class C Non-Voting Common Stock, the exercise price of options granted under the
plan in 1992 and 1993 adjusted to $6.60 per share.
Under the 1996 plan, the stock options, granted at an exercise price of $7.875
per share, vest in thirds over a three-year period, and, if not exercised, will
expire ten years from the date of grant. No options have yet been exercised
under either plan.
The fair value of the options granted in 1996 has been estimated on the date of
the grant using the Black Scholes option pricing model with the following
assumptions: dividend yield of 0.0%; expected volatility of 42.8%; risk free
interest rate of 6.7%; and an expected life of 5 years.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes stock option activity for 1996 and 1995:
1996 1995
---------- --------- --------- ----------
Exercise Exercise
Shares Price Shares Price
---------- --------- --------- ----------
Outstanding at beginning of
<S> <C> <C> <C> <C>
year 105,000 $15.00 105,000 $15.00
Granted 112,830 $ 7.875 0 --
Exercised 0 -- 0 --
Canceled 0 -- 0 --
---------- --------- --------- ----------
Outstanding at end of year 217,830 $ 7.26** 105,000 $ 15.00
Options available for
exercise 142,610 105,000
Fair value of options
granted during the year $3.73 --
</TABLE>
**End of year exercise price is the weighted average exercise price of all
outstanding options, using the $6.60 adjusted exercise price for the
options issued in 1992 and 1993 rather than the initial $15.00 per share
exercise price.
The following table summarizes information regarding options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------- ---------------
Number Number
outstanding Weighted Avg. Exercisable
at December 31, Remaining at December 31,
1996 Contractual 1996
Exercise Price Life
--------------- ------------- ---------------- --------------
<S> <C> <C> <C>
$6.60 105,000 5.98 years 105,000
$7.875 112,830 9.45 years 37,610
------------- --------------
217,830 7.78 years 142,610
============= ==============
</TABLE>
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock
Compensation," provides companies the option of either recording an expense for
all stock compensation awards based on fair values at grant date, or electing to
continue to follow Accounting Principles Board (APB) Opinion No. 25 with the
additional requirement that they disclose, in a footnote, pro forma net income
and earnings per share as if they have adopted the expense recognition
provisions of SFAS No. 123. Farmer Mac elected to apply APB Opinion No. 25 and
related interpretations in accounting for its stock option plans, and,
accordingly, no compensation expense has been recognized for its plans. Had
Farmer Mac adopted the expense recognition provisions of SFAS No. 123, Farmer
Mac's net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
1996
----------
Net income As reported $777
Pro forma $637
Primary earnings per share
- Class A and B Voting Common Stock As reported $0.14
Pro forma $0.12
- Class C Non-Voting Common Stock As reported $0.43
Pro forma $0.35
Fully diluted earnings per share
- Class A and B Voting Common Stock As reported $0.13
Pro forma $0.11
- Class C Non-Voting Common Stock As reported $0.40
Pro forma $0.33
</TABLE>
12. 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
Guaranteed Securities, commitments to purchase Qualified Loans or to issue and
guarantee Farmer Mac Guaranteed Securities, and certain hedge instruments.
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.
Farmer Mac Guaranteed Securities
Farmer Mac guarantees the timely payment of principal (including any balloon
payments) and interest on securities issued under the Farmer Mac I and Farmer
Mac II Programs. In the Farmer Mac I Program, until enactment of the 1996 Act,
Poolers were required to establish reserve accounts or issue subordinated
interests equal to at least 10 percent of the initial balance of the Qualified
Loans in the pool backing the securities. Before Farmer Mac is required to make
a guarantee payment on those securities with a reserve or subordinated interest,
full recourse must first be taken against the reserve or subordinated interest.
The main risk Farmer Mac bears with respect to those pools 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
required 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 subjected 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. As of
December 31, 1996, the subordinated interests represented 10.0% of the
outstanding balance of all Farmer Mac I Securities issued prior to the enactment
of the 1996 Act; any losses incurred as a result of foreclosures may reduce the
outstanding balance of the subordinated interests.
The 1996 Act eliminated the former minimum 10% reserve or subordinated interest
requirement. Farmer Mac is now authorized to issue and guarantee securities
backed by Qualified Loans in the Farmer Mac I Program up to 100% of the
principal amount of the Qualified Loans in each pool.
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 USDA guarantee
of the principal and interest on all Guaranteed Portions.
As of December 31, 1996 and 1995, the outstanding principal balance of
securities guaranteed and not held in Farmer Mac's portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
Guaranteed Securities
<S> <C> <C>
- - Farmer Mac I Securities with subordinated
interests $ 65,506 $94,763
- - Other Farmer Mac I Securities 148,918 --
- - Farmer Mac II Securities 11,606 4,810
-------------- ---------------
$226,030 $99,573
============== ==============
</TABLE>
Commitments
Farmer Mac enters into mandatory delivery commitments to purchase Qualified
Loans from seller/servicers. Under such commitments, seller/servicers are
obligated to sell Qualified Loans to Farmer Mac at the commitment net yield. If
a seller/servicer is unable to deliver the Qualified Loans required under a
mandatory delivery commitment within the specified time period, Farmer Mac
requires the seller/servicer to pay a fee to extend the commitment or for
failure to deliver. As of December 31, 1996, Farmer Mac had issued mandatory
delivery commitments to purchase Qualified Loans totaling $6.7 million.
Farmer Mac also enters into commitments to guarantee pools of Qualified
Loans. As of December 31, 1996, Farmer Mac had no such commitments outstanding.
As of December 31, 1995, Farmer Mac had one outstanding commitment to guarantee
approximately $50 million of Farmer Mac I Securities.
Hedge instruments
From the time Farmer Mac issues a commitment to purchase a Qualified Loan or
purchases a portfolio of Qualified Loans in a negotiated transaction, until
those Qualified Loans are securitized, Farmer Mac is subject to the risk that
interest rate changes during that period may materially affect the value of
those Qualified Loans. To mitigate that risk, management employs a variety of
hedging techniques, including short sales of Treasury securities, forward sales
and futures contracts. As of December 31, 1996, Farmer Mac had entered into
forward sales totaling $19.7 million.
<PAGE>
13. 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, 1996 and 1995:
<TABLE>
<CAPTION>
Geographic Diversification
1996 1995
----------------------- -----------------------
Off-balance Off-balance
On-balance Sheet On-balance Sheet
Sheet Securities Sheet Securities
Geographic Region Securities Securities
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Northeast 0.38% 1.08% 0.42% 0.44%
Appalachia 0.78% 3.77% 1.04% 1.19%
Southeast 5.05% 1.37% 6.71% 2.25%
Lake States 5.57% 7.68% 5.53% 4.67%
Corn Belt 8.64% 9.94% 8.47% 13.90%
Delta States 11.67% 2.42% 12.29% 3.67%
Northern Plains 4.69% 7.11% 4.52% 5.48%
Southern Plains 9.60% 1.06% 10.71% 3.81%
Mountain 6.82% 8.44% 7.00% 3.90%
Pacific 46.80% 57.13% 43.31% 60.69%
---------- --------- ---------- ----------
Totals 100.00% 100.00% 100.00% 100.00%
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Commodity Diversification
1996 1995
----------------------- ------------------------
Off-balance
On-balance Sheet On-balance Off-balance
Sheet Securities Sheet Sheet
Commodity Group Securities Securities Securities
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Food Grains 12.92% 9.84% 13.27% 8.10%
Feed Grains 12.96% 13.79% 13.35% 17.70%
Cotton/Tobacco 8.70% 2.77% 9.30% 4.60%
Oilseeds 10.84% 7.57% 11.88% 8.00%
Potatoes, Tomatoes, and
other Veg. 8.81% 5.50% 9.25% 5.35%
Permanent Plantings 25.86% 34.10% 23.89% 31.30%
Sugarbeets, Cane and Other
Crops 4.39% 6.64% 4.41% 5.78%
Dairy 3.68% 8.37% 3.08% 5.39%
Cattle and Calves 8.99% 7.97% 9.13% 11.81%
Other 2.85% 3.45% 2.44% 1.97%
--------- ---------- ---------- ----------
Totals 100.00% 100.00% 100.00% 100.00%
========= ========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Distribution by Loan-to-Value Ratio
1996 1995
---------------------------- -----------------------------
On-balance Off-balance On-balance Off-balance
Sheet Sheet Sheet Sheet
Securities Securities Securities
Securities
----------- -------------- ------------ -------------
Loan-to-Value
<S> <C> <C> <C> <C>
0.00 - 10.00% 0.00% 0.64% 0.02% 1.52%
10.01 - 20.00% 0.66% 1.58% 0.72% 4.44%
20.01 - 30.00% 3.53% 6.00% 3.76% 13.72%
30.01 - 40.00% 7.83% 9.26% 8.56% 21.45%
40.01 - 50.00% 17.34% 20.60% 19.06% 28.61%
50.01 - 60.00% 33.20% 27.69% 32.19% 22.95%
60.01 - 70.00% 33.63% 32.56% 31.66% 6.90%
70.01 - 80.00% 3.81% 1.67% 4.03% 0.41%
----------- -------------- ------------ -------------
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.
14. FAIR VALUE DISCLOSURES
The majority of Farmer Mac's assets and liabilities are financial instruments;
however, most of these financial instruments lack an available active 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.
<PAGE>
The estimated fair values and carrying values at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
(in thousands)
Financial Assets:
Cash and cash
<S> <C> <C> <C> <C>
equivalents $ 68,912 $ 68,912 $ 8,336 $ 8,336
Investment securities 85,795 85,799 65,627 65,621
Farmer Mac I & II
securities, net 419,746 416,501 427,040 417,169
Loans held for
securitization 13,014 12,999 -- --
Financial Liabilities:
Debentures, notes and
bonds net:
Due within one year 261,200 261,054 207,711 207,422
Due after one year 294,559 285,238 301,698 284,084
</TABLE>
The following methods and assumptions were used to estimate the fair value of
Farmer Mac's financial instruments:
Cash and cash equivalents
For the short-term financial instruments, the carrying value is a
reasonable estimate of fair value.
Investment securities
The investment securities are comprised of mortgage-backed securities and
agency debt securities. The fair values of these securities were based on
quoted market prices or prices quoted for similar financial instruments.
Farmer Mac I and II Securities
The fair values of the Farmer Mac Guaranteed Securities issued under the
Farmer Mac I and II Programs and held in portfolio were estimated by using
a model to project each pool's total expected cash flows, given the
original pool subordination level, if any, payment characteristics and net
interest rates of the qualified loan collateral. Other factors considered
in determining the expected cash flows were yield maintenance provisions
and credit quality. These expected cash flows were then discounted by, in
the case of Farmer Mac I Securities, the corresponding rates imputed from
the U.S. Treasury yield curve plus an incremental interest spread similar
to the spread over Treasury rates found in agency mortgage-backed
securities and, in the case of Farmer Mac II Securities, Farmer Mac's
corresponding net yields at December 31, 1996 and 1995.
Loans held for securitization
The fair values of the the loans held for securitization were estimated by
using a duration weighted valuation model. The duration of each loan was
multiplied by the change in the yields from the date Farmer Mac committed
to purchase the loan to December 31, 1996 to determine the effect of the
respective rate change, which was then applied to the loan amount to arrive
at a fair value.
Other investments
Other investments include cash invested in a guaranteed investment
contract and Guaranteed Portions purchased under the Farmer Mac II
Program. For the cash invested in the guaranteed investment contract, the
fair value is derived by discounting the expected cash flows by a market
rate of a similar financial instrument. The fair values of the Guaranteed
Portions purchased under the Farmer Mac II Program are derived in the same
manner as the Farmer Mac II Securities.
Debentures, notes and bonds, net
Debentures, notes and bonds due within one year are comprised of Discount
Notes and Medium-Term Notes with a remaining maturity of less than one
year. For Discount Notes, the carrying value approximates the fair value.
For Medium-Term Notes with a remaining maturity of less than one year and
debentures, notes and bonds due after one year, the fair values were based
on quoted market prices or prices quoted for similar credit quality
financial instruments or on the current rates offered to Farmer Mac for
debt of the same approximate remaining maturity.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the executive officers of the Registrant and
persons who have been nominated for election or reelection to the board of
directors at the Registrant's annual meeting of stockholders to be held on June
12, 1997 is hereby incorporated by reference from the Registrant's definitive
proxy statement which will be filed with the Commission within 120 days after
the close of the fiscal year.
Item 11. Executive Compensation
Information concerning executive compensation is hereby incorporated by
reference from the Registrant's definitive proxy statement which will be filed
with the Commission within 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference from the Registrant's definitive
proxy statement which will be filed with the Commission within 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
hereby incorporated by reference from the Registrant's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of the fiscal year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements.
Refer to Item 8, above.
(2) Financial Statement Schedules.
All schedules are omitted since they are not applicable, not
required, or the information required to be set forth therein is included in
the financial statements, or in notes thereto.
(3) 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.
+* 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.
** Filed herewith.
+ 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 reviously 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).
- ----------------------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.3.3 - Amendment to Employment Contract dated as of June 1,
1993 between Nancy E. Corsiglia and the Registrant (Previously
filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993).
+* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Previously filed
as Exhibit 10.11 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. orsiglia 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).
- ---------------------------------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 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).
+* 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).
- --------------------------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 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).
+* 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).
- ------------------
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 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 Contrac
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).
* 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 December 31, 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 1934 Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
/s/ Henry D. Edelman March 27, 1997
- -------------------------------------- ---------------------------------------
By: Henry D. Edelman Date
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Charles Eugene Branstoo Chairman of the Board and March 27, 1997
- ---------------------------------
Charles Eugene Branstool Director
President and Chief March 27, 1997
/s/ Henry D. Edelman Executive
- ---------------------------------
Henry D. Edelman Officer (Principal
Executive Officer)
/s/Nancy E. Corsiglia Vice President - Business March 27, 1997
- ---------------------------------
Nancy E. Corsiglia Development and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
<S> <C> <C>
Name Title Date
/s/ John C. Dean Director March 27, 1997
- ---------------------------------------
John C. Dean
/s/ W. David Hemingway Director March 27, 1997
- ---------------------------------------
W. David Hemingway
/s/ Lowell Junkins Director March 27, 1997
- ---------------------------------------
Lowell Junkins
/s/ James A. McCarthy Director March 27, 1997
- ---------------------------------------
James A. McCarthy
/s/ Robert J. Mulder Director March 27, 1997
- ---------------------------------------
Robert J. Mulder
/s/ John G. Nelson Director March 27, 1997
- ---------------------------------------
John G. Nelson
/s/ David J. Nolan Director March 27, 1997
- ---------------------------------------
David J. Nolan
/s/ Michael C. Nolan Director March 27, 1997
- ---------------------------------------
Michael C. Nolan
/s/ Marilyn Peters Director March 27, 1997
- ---------------------------------------
Marilyn Peters
/s/ John Dan Raines, Jr. Director March 27, 1997
- ---------------------------------------
John Dan Raines, Jr.
/s/ Darryl W. Rhodes Director March 27, 1997
- ---------------------------------------
Darryl W. Rhodes
/s/ Gordon Clyde Southern Vice Chairman March 27, 1997
- ---------------------------------------
Gordon Clyde Southern
/s/ Clyde A. Wheeler Director March 27, 1997
- ---------------------------------------
Clyde A. Wheeler
</TABLE>
<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
/s/ Henry D. Edelman March 27, 1997
- ---------------------------------------- -------------------------------------
By: Henry D. Edelman Date
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Charles Eugene Branstool Chairman of the Board and March 27, 1997
- -------------------------------- Director
Charles Eugene Branstool
/s/ Henry D. Edelman President and Chief Executive March 27, 1997
- --------------------------------
Henry D. Edelman Officer (Principal Executive
Officer)
/s/ Nancy E. Corsiglia Vice President - Business March 27, 1997
- --------------------------------
Nancy E. Corsiglia Development and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
EXHIBITS
TO
FORM 10-K
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------------------
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
===============================================================================
<PAGE>
Exhibit Description
** 3.2 - Amended and restated Bylaws of the Registrant.
- --------------------
** Filed herewith.
EXHIBIT 3.2
BY-LAWS OF THE
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
("FARMER MAC")
as amended by the Board of Directors
through December 19, 1996
<PAGE>
Table of Contents
ARTICLE I
NAME AND LOCATION OF OFFICES
Section 1. Name 1
Section 2. Principal Office and Other Offices 1
Section 3. Seal 1
Section 4. Service of Process 1
Section 5. Fiscal Year 1
ARTICLE II
PURPOSES
Section 1. Statutory Purposes 1
Section 2. Ancillary Purposes 2
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Number and Type 2
Section 2. Appointment and Confirmation 2
Section 3. Removal 2
Section 4. Vacancies 2
Section 5. The President 3
Section 6. The Secretary 3
Section 7. The Treasurer 3
Section 8. The Controller 3
Section 9. Employee Conduct 4
Section 10. Outside or Private Employment 4
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers 4
Section 2. Number and Type of Directors 5
Section 3. Meetings and Waiver of Notice 6
Section 4. Meetings by Telephone 6
Section 5. Quorum 6
Section 6. Action Without a Meeting 6
Section 7. Compensation 7
Section 8. Chairman and Vice Chairman 7
Section 9. Standing Committees 7
(a) Audit Committee 7
(b) Compensation Committee 8
(c) Executive Committee 8
(c) Finance Committee 9
(d) Program Development Committee 10
(e) Public Policy Committee 10
Section 10. Ad Hoc Committees 10
ARTICLE V
SHAREHOLDERS
Section 1. Special Meeting 10
Section 2. Annual Meeting 11
Section 3. Notice 11
Section 4. Waiver of Notice 11
Section 5. Record Date 11
Section 6. Voting Lists 12
Section 7. Quorum 12
Section 8. Proxies 12
Section 9. Organization 13
Section 10. Voting of Shares 13
Section 11. Inspectors of Votes 14
ARTICLE VI
SHARES OF STOCK
Section 1. Issuance and Conditions 14
Section 2. Common Stock 14
Section 3. Redemption 15
Section 4. Dividends on Voting Common Stock and Non-Voting
Common Stock 15
Section 5. Preferred Stock 15
Section 6. Dividends, Redemption, Conversion of Preferred Shares 16
Section 7. Preference on Liquidation 16
Section 8. Purchase of Own Shares 16
Section 9. Consideration for Shares 16
Section 10. Stated Capital 16
Section 11. No Preemptive Rights 17
Section 12. Liability of Shareholders 17
<PAGE>
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates 17
Section 2. Contents 18
Section 3. Transfer 19
Section 4. Records 19
ARTICLE VIII
INDEMNIFICATION
Section 1. Authorization 19
Section 2. Procedure 20
Section 3. Advance Payments 20
Section 4. Other Rights to Indemnification 20
Section 5. Indemnification Insurance 20
ARTICLE IX
CONTRACTS, LOANS, CHECKS, DEPOSITS AND INVESTMENTS
Section 1. Contracts 21
Section 2. Loans 21
Section 3. Checks, Drafts, etc. 21
Section 4. Deposits 21
Section 5. Investments 21
ARTICLE X
FACSIMILE SIGNATURES 22
ARTICLE XI
AMENDMENTS
<PAGE>
ARTICLE I
NAME AND LOCATION OF OFFICES
Section 1. Name
The Corporation shall do business as the Federal Agricultural Mortgage
Corporation.
Section 2. Principal Office and Other Offices
The principal office of the Corporation shall be located in Washington;
D.C. The Corporation may establish other offices in such other places, within
or without the District of Columbia, as the Board of Directors shall, from
time to time, deem useful for the conduct of the Corporation's business.
Section 3. Seal
The seal of the Corporation shall be of such design as shall be
approved and adopted from time to time by the Board of Directors, and may be
affixed to any document by impression, by printing, by rubber stamp, or
otherwise.
Section 4. Service of Process
The Corporate Secretary or any Assistant Secretary of the Corporation
shall be agents of the Corporation upon whom any process, notice or demand
required or permitted by law to be served upon the Corporation may be served.
Section 5. Fiscal Year
The fiscal year of the Corporation shall end on the thirty-first day of
December of each year.
ARTICLE II
PURPOSES
Section 1. Statutory Purposes
The Corporation is organized pursuant to its governing statute, Title
VIII of the Farm Credit Act of 1971, as amended, to provide a secondary
market for agricultural real estate mortgage loans and to enhance the ability
of individuals in small rural communities to obtain financing for
moderate-priced homes and to undertake such other activities authorized by
such Act as may be necessary and appropriate to further the availability of
funds for agricultural real estate mortgage loans and housing in small rural
communities.
Section 2. Ancillary Purposes
The Corporation is further organized to engage in such other related
activities that are not prohibited and as the Board of Directors shall from
time to time determine to be in the furtherance of its statutory purposes.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Number and Type
The officers of the Corporation shall be a President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary, a Treasurer, and a Controller, each of whom shall be appointed by
the Chairman of the Board of Directors subject to confirmation by resolution
of the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be appointed by the Chairman subject to confirmation
by resolution of the Board of Directors. Any of the above offices may be held
by the same person, except the offices of President and Secretary.
Section 2. Appointment and Confirmation
The initial officers of the Corporation shall be appointed and
confirmed at such time as may be appropriate. Thereafter, the officers shall
be appointed and confirmed annually at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the
selection of officers is not held at such meeting, such selection shall be
held as soon thereafter as practicable. Each officer shall hold office until
his successor shall have been duly appointed and confirmed or until his death
or until he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. Removal
Any officer may be removed by a majority of the Board of Directors,
whenever in its judgment the best interests of the Corporation would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the persons so removed. Appointment or confirmation of an
officer shall not of itself create contract rights.
Section 4. Vacancies
A vacancy in an office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Chairman of the Board of
Directors, subject to confirmation by the Board of Directors at the meeting
next following the appointment, for the unexpired portion of the term.
Section 5. The President
The President shall be the principal executive officer of the
Corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
Corporation. He may sign, singly or with the Secretary or any other proper
officer of the Corporation authorized by the Board of Directors, certificates
for shares of the Corporation, any deeds, mortgages, bonds, contracts, or
other instruments which the Board of Directors has authorized to be executed,
except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation,
or shall be required to be otherwise signed or executed, and in general shall
perform all duties incident to the office of President and such other duties
as may be prescribed by the Board of Directors from time to time.
Section 6. The Secretary
The Secretary shall: (a) keep the minutes of the shareholders' and of
the Board of Directors' meetings in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-laws; (c) be the custodian of the corporate records
and of the seal of the Corporation and see that the Seal of the Corporation
is affixed to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized; (d) keep a register of the
post office
address of each shareholder which shall be furnished to the Secretary by
such shareholder; (e) sign with the President, certificates for shares of
the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general control of the stock
transfer books of the Corporation; and (g) in general, perform all duties
incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 7. The Treasurer
The Treasurer shall: (a) have charge and custody of and be responsible
for all funds and securities of the Corporation, receive and give receipts
for monies due and payable to the Corporation from any source whatsoever, and
deposit all such monies in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with a
resolution of the Board of Directors; and (b) in general, perform all of the
duties incident to the office of Treasurer and such other duties as from time
to time may be assigned to him by the President or by the Board of Directors.
Section 8. The Controller
The Controller shall: (a) keep full and accurate accounts of all
assets, liabilities, commitments, receipts, disbursements, and other
financial transactions of the Corporation; (b) certify vouchers for payment
by the Treasurer or his designee, and designate, with the written concurrence
of the Chairman of the Board, such other officers, agents, and employees,
severally, who may so certify; and (c) in general, perform all the duties
ordinarily incident to the office of Controller and such other duties as may
be assigned to him by the Board of Directors or by the Chairman of the Board.
Section 9. Employee Conduct
No officer or employee shall engage, directly or indirectly, in any
personal business transaction or private arrangement for personal profit
which arises from or is based upon his official position or authority or upon
confidential information which he gains by reason of such position or
authority, and he shall reasonably restrict his personal business affairs so
as to avoid conflicts of interest with his official duties. No officer or
employee shall divulge confidential information to any unauthorized person,
or release any such information in advance of authorization for its release,
nor shall he accept, directly or indirectly, any valuable gift favor or
service from any person with whom he transacts business on behalf of the
Corporation.
Section 10. Outside Private Employment
No officer or employee shall have any outside or private employment or
affiliation with any firm or organization incompatible with his concurrent
employment by the Corporation and he shall not accept or perform any outside
or private employment which the President of the Corporation determines will
interfere with the efficient performance of his official duties. Any officer
or employee who intends to perform services for compensation or to engage in
any business shall report his intention to do so to the President of the
Corporation prior to such acceptance or performance.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers
Except as otherwise provided in these By-Laws, the powers of the
Corporation shall be exercised by the Board of Directors, which shall have
all powers granted to it by the Corporation's governing statute, as may be
amended from time to time, and such other powers including, but not limited
to, the power:
a. to determine the general policies that shall govern the
operations of the Corporation;
b. to issue stock in the manner provided in Section 8.4 of
TitleVIII of the Farm Credit Act of 1971, as amended;
c. to adopt, alter and use a corporate seal, which shall be
judicially noted;
d. to provide for a president, one or more vice presidents,
secretary, treasurer, and such other officers, employees and agents, as
may be necessary and define their duties and compensation levels, all
without regard to title 5, United States Code, and require surety bonds
or make other provisions against losses occasioned by acts of the
aforementioned persons;
e. to provide guarantees in the manner provided under Section 8.6
of Title VIII of the Farm Credit Act of 1971, as amended;
f. to have succession until dissolved by law enacted by the
Congress;
g. to prescribe such standards as may be necessary to carry out
Title VIII of the Farm Credit Act of 1971, as amended;
h. to enter into contracts and make payments with respect to the
contracts;
i. to sue and be sued in its corporate capacity and to complain
and defend in any action brought by or against the Corporation in any
state or federal court of competent jurisdiction;
j. to make and perform contracts, agreements, and commitments
with persons and entities both inside and outside the Farm Credit
System;
k. to acquire, hold, lease, mortgage or dispose of, at public or
private sale, real and personal property, purchase or sell any
securities or obligations, and otherwise exercise all the usual
incidents of ownership of property necessary and convenient to the
business of the Corporation;
1. to conduct its business, carry on its operations, and have
officers and exercise the power granted by the governing statute in any
state without regard to any qualification or similar statute in any
such state;
m. to accept gifts or donations of services, of property, real,
personal or mixed, tangible or intangible; and
n. to exercise such other incidental powers as are necessary to
carry out the powers, duties, and functions of the Corporation in
accordance with the governing statute.
Section 2. Number and Type of Directors
The Board of Directors shall consist of those directors appointed or
elected as provided in Section 8.2 of Title VIII of the Farm Credit Act of
1971, as amended.
Section 3. Meetings and Waiver of Notice
The Board of Directors shall meet at the call of the Chairman or a
majority of its members. Notice shall be given to each member by the
Secretary at the direction of the calling authority. Such notice shall be by
letter, telegram, cable, or radiogram delivered for transmission not later
than during the third day immediately preceding the day of the meeting or by
word of mouth, telephone, or radio phone, received not later than during the
second day immediately preceding the day of the meeting. Notice of any such
meeting may be waived in writing signed by the person or persons entitled
thereto either before or after the time of the meeting. Neither the business
to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of the meeting.
Section 4. Meetings by Telephone
Any meeting of the Board of Directors or any meeting of a Board
committee may be held with the members of the Board or such committee
participating in such meeting by telephone or by any other means of
communication by which all such members participating in the meeting are able
to speak to and hear one another.
Section 5. Quorum
The presence, in person or otherwise, in accordance with Section 6 of
this Article, of eight of the then incumbent members of the Board of
Directors or of a majority of the then incumbent members of a Board
committee, as applicable, at the time of any meeting of the Board or such
committee, shall constitute a quorum for the transaction of business. The act
of the majority of such members present at a meeting at which a quorum is
present shall be the act of the Board of Directors or committee, as
applicable, unless the act of a greater number is required by these By-Laws.
Members may not be represented by proxy at any meeting of the Board of
Directors or committee thereof.
Section 6. Action Without a Meeting
Any action required to be taken by the Board of Directors at a meeting,
or by a committee of the Board at a meeting can be taken without a meeting,
if a consent in writing, setting forth the actions so taken, is later signed
by a majority of the directors, or a majority of the members of the
committee, as the case may be. Such consent shall have the same effect as a
majority vote of the Board of Directors or committee, as the case may be.
Written notice of any action taken pursuant to this section by a majority of
the directors, or members of a committee, as the case may be, shall, within
10 days of such action, be given to all directors or members of a committee
not consenting to the action.
Section 7. Compensation
Each director shall be paid such compensation as may be fixed from time
to time by resolution of the Board of Directors, and each director shall also
be reimbursed for his or her travel and subsistence expenses incurred while
attending meetings of the Board of Directors or committees thereof.
Section 8. Chairman and Vice Chairman
Under the authority of the Corporation's governing statute, the
President of the United States shall designate one director from among those
directors appointed by the President as provided in Section 8.2 of the Farm
Credit Act of 1971, as amended, to be Chairman of the Board of Directors. The
Chairman shall preside over meetings of the Board of Directors.
The Board of Directors shall select a Vice Chairman from among the
directors appointed by the President of the United States who shall have all
the rights, duties and obligations of the Chairman at any time when the
incumbent Chairman is absent, unable or unwilling so to act, and at any time
when there is a vacancy in the office of Chairman. The Vice Chairman shall
serve at the pleasure of the Board and shall be selected no less frequently
than annually for a term expiring on December 31 of each year.
Section 9. Standing Committees
The Standing Committees described in this Section shall have such
responsibilities and authority as are set forth herein, together with such
other responsibilities and authority as may from time to time be provided in
resolutions adopted by the Board of Directors. The Board of Directors shall
designate members of the Standing Committees from among its members.
(a) Audit Committee
The Audit Committee shall select and engage independent
accountants to audit the books, records and accounts of the Corporation
and its subsidiaries, if any, and to perform such other duties as the
Committee may from time to time prescribe. The Committee shall review
the scope of audits as recommended by the public accountants to ensure
that the recommended scope is sufficiently comprehensive. The Audit
Committee's selection of accountants shall be made annually in advance
of the Annual Meeting of Stockholders and shall be submitted for
ratification or rejection at such meeting.
The Audit Committee shall receive a special report from the
independent accountants, prior to the public accountants' report on the
published financial statements. The special report shall, among other
things, point out and describe each material item affecting the
financial statements of the Corporation which might in the opinion of
the independent public accountants receive, under generally accepted
accounting principles, treatment varying from that proposed for such
statements. The Committee shall decide in its discretion upon the
treatment to be accorded such items and shall take such other action
in respect of the special report as the Committee may deem appropriate
A copy of the special report shall be transmitted to the Compensation
Committee, together with the Audit Committee's decision.
(b) Compensation Committee
The Compensation Committee shall make recommendations to the
Board on the salaries and benefit plans of all corporate directors and
officers. The Committee shall recommend a framework to the Board for
all compensation plans and shall have authority to act within the
framework approved by the Board. The Committee shall have exclusive
jurisdiction on behalf of the Corporation to make recommendations to
the full Board to approve, disapprove, modify or amend all pla ns to
compensate employees eligible for incentive compensation.
The Compensation Committee shall review and approve, prior to
implementation, any employee benefit plan and any amendment or
modification thereof submitted to the Board to the extent such plan or
amendment or modification affects employees under its jurisdiction.
(c) Executive Committee
The Executive Committee shall, during the intervals between
meetings of the Board, have and may exercise the powers of the Board,
other than those assigned to the Audit and Compensation Committees, and
except that it shall not have the authority to take any of the
following actions:
o the submission to stockholders of any action requiring
stockholders' authorization;
o the filling of vacancies on the Board of Directors or on the
Executive Committee;
o the fixing of compensation of directors for serving on the Board or
on the Executive Committee;
o the removal of any director, the President or any Vice President,
except that vacancies in established management positions may be
filled subject to ratification by the Board of Directors;
o the amendment or repeal of the By-Laws or the adoption of new
by-laws;
o the amendment or repeal of any resolution of the Board which, by
its terms, is not so amendable or repealable;
o the declaration of dividends; and
o any action which the Chairman or Vice Chairman of the Board of
Directors (in the event that the Vice Chairman is the Chairman of
the Board due to the absence, inability or unwillingness of the
Chairman so to act) or the President shall, by written instrument
filed with the Secretary, designate as a matter which should be
considered by the Board of Directors; and it is further
The Executive Committee shall include the Chairman of the Board
(or the Vice Chairman, who shall be deemed a member of the Committee at
any time when the incumbent Chairman is absent, unable or unwilling so
to act), who shall be the Chairman of the Committee, and one
representative from each of the Corporation's two elected classes of
directors. The designation of such Committee and the delegation
thereto of authority shall not relieve any director of any duty he or
she owes to the Corporation. The Executive Committee shall meet at the
call of its chairman or a majority of its members and all three members
of the Committee shall constitute a quorum. The action of the majority
of the members of the Committee present at a duly convened meeting
shall be the action of the Committee. Members of the Committee may not
be represented by proxy at any meeting of the Committee. In connection
with each regular meeting of the Board of Directors, the minutes of all
meetings of the Executive Committee since the last meeting of the Board
shall be distributed to the Board, and the Board shall take such
action, if any, as the Board may deem appropriate, to approve, alter or
rescind actions, if any, previously taken by the Committee, provided
that rights or acts of third parties vested or taken in reliance on
such action prior to any such alteration or rescission shall not be
adversely affected thereby.
(d) Finance Committee
The Finance Committee shall be responsible for determining the
financial policies of the Corporation and managing the Corporation's
financial affairs, except those financial policies and affairs that are
assigned to the Audit and Compensation Committees.
The guarantee fee policies of the Corporation shall be reviewed
and approved by the Finance Committee and recommended to the Board for
its approval. All capital expenditures of the Corporation shall be
approved by the Committee, except that it may authorize the President
to approve expenditures which do not involve the Corporation in a new
line of business. All action taken by the Finance Committee shall be
reported to the Board and shall be subject to revision by the Board,
provided that no acts or rights of third parties shall be affected
thereby.
(e) Program Development Committee
The Program Development Committee shall have primary
responsibility for reviewing and approving all policy matters relating
to changes, additions or deletions to the Securities Guide, including
the forms and appendices thereto and any other forms or documents used
in the Corporation's programs. The Committee shall make recommendations
to the Board with respect to commencement of new programs and
modification or discontinuance of existing programs.
(f) Public Policy Committee
The Public Policy Committee shall consider matters of public
policy referred to it by the Board or the Chairman including: (i) the
Corporation's relationship with and policies regarding Borrowers; (ii)
the Corporation's relationship with and policies regarding Congress and
governmental agencies and instrumentalities; and (iii) matters which
generate actual or apparent conflicts of interest between the
Corporation and one or more of its directors. The Committee shall
report the outcome of its evaluation of matters under preceding clause
(iii) within a reasonable time after reference is made.
Section 10. Ad Hoc Committees
The Board of Directors may, by resolution adopted by a majority of its
members, designate from among its members one or more ad hoc committees, each
of which to the extent provided in the resolution and in these By-Laws shall
have and may exercise all the authority of the Board of Directors. No such ad
hoc committee shall have the authority of the Board of Directors in reference
to any powers reserved to the full Board of Directors by the resolution or
these By-Laws.
ARTICLE V
SHAREHOLDERS
Section 1. Special Meeting
Special meetings of the shareholders shall be held upon the call of
either the Chairman or a majority of the directors of the Corporation, and
shall be called by the Chairman upon the written request of holders of at
least one-third of the shares of the Corporation having voting power. A
special meeting may be called for any purpose or purposes for which
shareholders may legally meet, and shall be held, within or without
the District of Columbia, at such place as may be determined by the Chairman
or a majority of the directors of the Corporation, whichever shall call the
meeting.
Section 2. Annual Meeting
An annual meeting of the shareholders shall be held each year at such
date and at such time as designated by the Board of Directors. At the
meeting, the shareholders entitled to vote shall elect directors and transact
such other business as may properly be brought before the meeting.
Section 3. Notice
Written or printed notice stating the place, day and hour of any
meeting and, in the case of a special meeting, the purpose for which the
meeting is called, shall be delivered not less than 10 nor more than 50 days
before the date of the meeting, either personally or by mail, by or at the
direction of the Chairman of the Board, or the Secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed
to the shareholder at his address as it appears on the stock transfer books
of the Corporation or such other address as the shareholder has in writing
instructed the Secretary.
Section 4. Waiver of Notice
Attendance by a shareholder at a shareholders' meeting, whether in
person or by proxy, without objection to the notice or lack thereof, shall
constitute a waiver of notice of the meeting. Any shareholder may, either
before or after the time of the meeting, execute a waiver of notice of such
meeting.
Section 5. Record Date
For the purpose of determining shareholders entitled to notice or to
vote at any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors shall fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than 60
days, in the case of a meeting of shareholders, not less than 10 days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. If the Board of Directors fails to designate
such a date, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividends is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a date is set for the determination of shareholders
entitled to vote at any meeting of shareholders, such determination shall
apply to any adjournment thereof.
Section 6. Voting Lists
The officer or agent having charge of the stock transfer books for
shares of the Corporation shall make a complete record of the shareholders
entitled to vote at each meeting of the shareholders or any adjournment
thereof, arranged in alphabetical order, with the address and the number of
shares held by each. Such officer or agent shall also prepare two separate
lists of such shareholders, one indicating in alphabetical order which
shareholders are financial institutions not members of the Farm Credit System
and another indicating in alphabetical order which shareholders are member
institutions of the Farm Credit System. Such records shall be produced and
kept open at the time and place of the meeting and shall be subject to
inspection by any shareholder during the whole time of the meeting for the
purposes thereof.
Section 7. Quorum
A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn a meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Shares of its own stock
belonging to the Corporation shall not be counted in determining the total
number of outstanding shares at any given time.
Section 8. Proxies
At all meetings of shareholders, a shareholder entitled to vote may
vote by proxy executed in writing by the shareholder or by its duly
authorized attorney in fact. Shares standing in the name of another
corporation may be voted by such officer, agent or proxy as the by-laws of
such corporation may prescribe, or, in the absence of such provisions, as the
board of directors of such corporation may determine. All proxies shall be
filed with the Secretary of the Corporation before or at the time of the
meeting, and shall be revocable, if such revocation be in writing, until
exercised. No proxy shall be valid after eleven months from the date of its
executions unless otherwise provided in the proxy.
The Board of Directors may solicit proxies from shareholders to be
voted by such person or persons as shall be designated by resolution of the
Board of Directors. The Corporation shall assume the expense of solicitations
undertaken by the Board.
Any solicitation of proxies by the Corporation shall contain the names
of all persons the Corporation proposes to nominate for directorships to be
filled at the next meeting, their business addresses, and a brief summary of
their business experience during the last five years. Each proxy solicitation
shall be accompanied by a copy of the most recent annual report of the
Corporation which report, to the satisfaction of the Board of Directors,
shall reasonably represent the financial situation of the Corporation as of
the time of its preparation.
If any shareholder entitled to vote at a meeting of shareholders shall
seek a list of shareholders for the purpose of soliciting proxies from any
other shareholders, the Corporation may, at its option, either (a) provide
the soliciting shareholder with a complete and current list containing the
names of all shareholders of the Corporation entitled to vote at such
meeting; and their addresses as they appear on the transfer books of the
Corporation; or (b) mail such proxy solicitations on behalf of the soliciting
shareholders, upon being furnished the material to be mailed and the
reasonable cost of the mailing.
Section 9. Organization
Meetings of the shareholders shall be presided over by the Chairman of
the Board of Directors. The Secretary of the Corporation shall act as
secretary of every meeting and, if the Secretary is not present, the meeting
shall choose any person present to act as secretary of the meeting.
Section 10. Voting of Shares
Except as provided in this Section, at every meeting of the
shareholders, every holder of common stock entitled to vote on a matter
coming before such meeting shall be entitled to one vote for each share of
common stock registered in its name on the stock transfer books of the
Corporation at the close of the record date.
At each election of directors, the Chairman of the meeting shall inform
the shareholders present of the persons appointed by the President of the
United States to be the appointed directors of the Corporation. The
shareholders entitled to vote for the election of directors which are
institutions of the Farm Credit System shall constitute a single class and
shall then proceed to elect five directors. Following the election of
directors by shareholders which are institutions of the Farm Credit System,
the shareholders entitled to vote for the election of directors which are
financial institutions and are not institutions of the Farm Credit System
shall constitute a single class and shall proceed to elect five directors.
Every holder of common stock entitled to vote for the election of
directors shall have the right to cast the number of votes that is equal to
the product of the number of shares owned by it multiplied by the number of
directors to be elected of the class for which it may vote, and it may cast
all such votes for one person or may distribute them evenly or unevenly among
any number of persons not greater than the number of such directors of such
class to be elected, at its option. Shares of its own stock belonging to the
Corporation shall not be eligible to vote on any matter.
Section 11. Inspectors of Votes
The Board of Directors, in advance of any meeting of shareholders, may
appoint one or more Inspectors of Votes to act at the meeting or any
adjournment thereof. In case any person so appointed resigns or fails to act,
the vacancy may be filled by appointment by the Chairman of the meeting. The
Inspectors of Votes shall determine all questions concerning the
qualification of voters, the validity of proxies, the acceptance or rejection
of votes and, with respect to each vote by ballot, shall collect and count
the ballots and report in writing to the secretary of the meeting the result
of the vote. The Inspectors of Votes need not be shareholders of the
Corporation. No person who is an officer or director of the Corporation, or
who is a candidate for election as a director, shall be eligible to be an
Inspector of Votes.
ARTICLE VI
SHARES OF STOCK
Section 1. Issuance and Conditions
The Board of Directors shall have the power in accordance with the
provisions of the governing statute to authorize the issuance of voting
common, non-voting common and preferred shares of stock. The Board of
Directors may by resolution impose a stock purchase requirement as a
prerequisite to participation in any program of the Corporation. Any stock
purchase requirement shall not apply to any participant who is prohibited by
law from acquiring stock of the Corporation, provided such participant
undertakes to make such purchase when such legal restrictions are alleviated,
or to such otherwise eligible participants as the Board may by resolution
provide.
Section 2. Common Stock
The Corporation shall have voting common stock having such par value as
may be fixed by the Board of Directors, which may only be issued to
institutions which are authorized to be issued such shares pursuant to Title
VIII of the Farm Credit Act of 1971, as amended.
The Corporation may issue non-voting common stock having such par value
as may be fixed by the Board of Directors, which may be issued without
limitations as to the status of the holders thereof.
Except as otherwise provided in these By-Laws, the powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions applicable to all shares of common stock, whether voting common
stock or non-voting common stock, shall be identical in every respect.
Except as provided in this Section, the voting common stock and the
non-voting common stock of the Corporation shall be fully transferable,
except that, as to the Corporation, they shall be transferred only on the
books of the Corporation.
Section 3. Redemption
Whenever the Corporation shall determine that any shares of the voting
common stock of the Corporation are held by a person, including a
partnership, joint venture, trust, corporation or any other association, not
eligible to acquire such shares under the provisions of Title VIII of the
Farm Credit Act of 1971, as amended, the Corporation shall notify such person
in writing that such shares are to be disposed of to a person eligible to
acquire such shares within a period of not more than 30 days. If the
Corporation determines that the shares have not been transferred within 30
days of such notice, the Corporation may redeem such shares at the lesser of
the fair market value thereof or the book value thereof at the date
established for such redemption.
The power to redeem voting common stock found to be held by ineligible
persons granted by this Section shall not be deemed to limit the right of the
Corporation, at its discretion, to pursue any other lawful remedy against
such ineligible person.
Section 4. Dividends on Voting Common Stock and Non-Voting Common Stock
To the extent that income is earned and realized, the Board of
Directors may from time to time declare and the Corporation shall pay,
dividends on the voting common stock and the non-voting common stock, except
that no such dividends shall be payable with respect to any share that has
been called for redemption after the date established for such redemption. No
dividend shall be declared or paid on any share of voting common stock or
non-voting common stock at any time when any dividend is due on the shares of
preferred stock and has not been paid.
The ratio of any dividends paid on each share of non-voting common
stock to any dividends paid on each share of voting common stock shall be
three-to-one. Dividends to the holders of the non-voting common stock and the
voting common stock are to be paid concurrently. Such ratio may be decreased
only by the affirmative vote of the holders of two-thirds of the outstanding
shares of the non-voting common stock.
Section 5. Preferred Stock
The Corporation may issue shares of preferred stock having such par
value, and such other powers, preferences and relative and other special
rights, and qualifications, limitations and restrictions applicable thereto,
as may be fixed by the Board of Directors. Such shares shall be freely
transferable, except that, as to the Corporation, such shares shall be
transferred only on the books of the Corporation.
Section 6. Dividends, Redemption, Conversion of Preferred Shares
The holders of the preferred shares shall be entitled to such rate of
cumulative dividends, and such shares shall be subject to such redemption or
conversion provisions, as may be provided for at the time of issuance. Such
dividends shall be paid out of the net income of the Corporation, to the
extent earned and realized.
Section 7. Preference on Liquidation
In the event of any liquidation, dissolution, or winding up of the
Corporation's business,
(a) the holders of shares of preferred stock shall be paid in
full at par value thereof, plus all accrued dividends, before the
holders of the voting common stock and non-voting common stock receive
any payment; and
(b) the ratio of any distributions to the holders of non-voting
common stock to any distributions to the holders of voting common stock
shall be three-to-one per share. Such ratio may be decreased only by
the affirmative vote of the holders of two-thirds of the outstanding
shares of the non-voting common stock.
Section 8. Purchase of Own Shares
The Corporation shall have the right, pursuant to resolution by the
Board of Directors, to purchase, take, receive or otherwise acquire its own
shares, but purchases, whether direct or indirect, shall be made only to the
extent of unreserved and unrestricted earned or capital surplus available
therefor.
Section 9. Consideration for Shares
The Corporation shall issue shares of stock for such consideration,
expressed in dollars, but not less than the par value thereof, as shall be
fixed from time to time by the Board of Directors. That part of the surplus
of the Corporation which is transferred to stated capital upon issuance of
shares as a share dividend shall be deemed to be the consideration for the
shares so issued.
The consideration for the issuance of shares may be paid, in whole or
in part, in cash or other property acceptable to the Board of Directors,
except that a promissory note shall not constitute payment or partial payment
for the issuance of shares of the Corporation.
Section 10. Stated Capital
The consideration received upon the issuance of any share of stock
shall constitute stated capital to the extent of the par value of such shares
and the excess, if any, of such consideration shall constitute capital surplus.
The stated capital of the Corporation may be increased from time to time by
resolution of the Board of Directors directing that all or a part of the
surplus of the Corporation be transferred to stated capital. The Board of
Directors may direct that the amount of the surplus so transferred shall be
deemed to be stated capital in respect of any designated class of shares.
The Board of Directors may, by resolution from time to time, reduce the
stated capital of the Corporation but only in the amount of the aggregate par
value of any shares of the Corporation which shall have been reacquired and
canceled. Any surplus created by virtue of a reduction of stated capital
shall be deemed to be capital surplus.
Section 11. No Preemptive Rights
No holder of the shares of the Corporation of any class, now or
hereafter authorized, shall as such holder have any preemptive or
preferential rights to subscribe to, purchase, or receive any shares of the
Corporation of any class, now or hereafter authorized, or any rights or
options for any such shares or any rights or options to subscribe to or
purchase any such shares or other securities convertible into or exchangeable
for or carrying rights or options to purchase shares of any class or other
securities, which may at any time be issued, sold or offered for sale by the
Corporation or subjected to the rights or options to purchase granted by the
Corporation.
Section 12. Liability of Shareholders
A holder of shares of the Corporation shall be under no obligation to
the Corporation with respect to such shares other than the obligation to pay
to the Corporation the full consideration for which such shares were or are
to be issued.
Any person becoming a transferee of shares in good faith and without
notice or knowledge that the full consideration thereof had not been paid
shall not be personally liable to the Corporation for any unpaid portion of
such consideration.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates
The interest of each shareholder of the Corporation shall be evidenced
by certificates representing shares of stock of the Corporation, certifying
the number of shares represented thereby, and shall be in such form not
inconsistent with the governing statute of the Corporation as the Board of
Directors may from time to time prescribe.
The certificates of stock shall be signed by the Chairman of the Board
of Directors or the President and by the Secretary or Assistant Secretary and
sealed with the corporate seal or an engraved or printed facsimile thereof. The
signatures of such officers upon a certificate may be facsimile if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Corporation itself or one of its employees. In the event that
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
officer had not ceased to be such at the time of the issue.
Each certificate or share shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled,
and no new certificate shall be issued until the former certificate for a
like number of shares shall have been surrendered and canceled, except that
in the case of a lost, destroyed or mutilated certificate, a new certificate
may be issued upon such terms and with indemnity to the Corporation as the
Board of Directors may prescribe.
Section 2. Contents
Each certificate representing shares shall state:
a. That the Corporation is organized pursuant to an Act of
Congress;
b. The name of the person to whom issued;
c. The number and class of shares, and the designation of the
series, if any, which such certificate represents;
d. The par value of each share represented by such certificate;
e. The provisions by which such shares may be redeemed; and
f. That the shares represented shall not have any preemptive
rights to purchase unissued or treasury shares of the
Corporation.
Each certificate representing shares of preferred stock shall state
upon the face thereof the annual dividend rate for such shares, and shall
state upon the reverse side thereof the powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
applicable to such shares of preferred stock.
No certificate shall be issued for any share until such share is fully
paid.
Section 3. Transfer
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of the authority to
transfer, or by his attorney thereto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and on surrender
for cancellation of the certificate for such shares.
The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
Section 4. Records
The Corporation shall keep at its principal place of business, or at
the office of its transfer agent or registrar, a record of its shareholders,
giving the names and addresses of all shareholders and the number of shares
held by each. Any person who shall be the holder of at least five percent of
the aggregate number of shares of any class of common stock of the
Corporation shall upon written demand stating the purpose therefor, have the
right to examine, in person, or by agent or attorney, duly authorized in
writing, at any reasonable time or times, for any proper purpose, the
Corporation's record of shareholders and minutes of meetings of the
shareholders and the Board of Directors, and to make extracts therefrom.
ARTICLE VIII
INDEMNIFICATION
Section 1. Authorization
The Corporation shall, to the extent permitted by law, indemnify any
person who was or is a party, whether as a plaintiff acting with the approval
of the Board of Directors or as a defendant, or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal
or informal, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Any such person shall be indemnified by the Corporation to the
extent he or she is successful in the action, suit or proceeding. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal proceeding,
had reasonable cause to believe that his or her conduct was unlawful.
Section 2. Procedure
Any indemnification under this Article shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the officer, director,
employee or agent has met the applicable standard of conduct set forth in
this Article. Such determination shall be made by a majority vote of the
members of the Board of Directors who were not parties to such action, suit
or proceeding. If all members of the Board of Directors were parties to such
action, suit or proceeding, such determination shall be made either (a) by
legal counsel or (b) by the shareholders at the next meeting of shareholders.
In any case under this Article, the Board or shareholders are authorized to
obtain the opinion of independent legal counsel.
Section 3. Advance Payments
Expenses, including attorneys' fees, incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding, whether
formal or informal, shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in section 2 of this Article upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount only
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation.
Section 4. Other Rights to Indemnification
The indemnification provided in this Article shall not be deemed
exclusive of any other rights to which the director, officer, employee or
agent may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise. The indemnification provided by this
Article shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 5. Indemnification Insurance
The Corporation, pursuant to a resolution of the Corporation, may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her in any such capacity or
arising out of his status as such whether or not the Corporation would have
the power to indemnify him or her against such liability under the provisions
of this Article.
ARTICLE IX
CONTRACTS, LOANS, CHECKS, DEPOSITS AND STATEMENTS
Section 1. Contracts
The Board of Directors may authorize the Chairman or officers of the
Corporation to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances.
Section 2. Loans
No loans shall be contracted on behalf of the Corporation and no
evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, etc.
All checks, drafts or other orders for the payment of money, notes or
other evidence of indebtedness issued in the name of the Corporation shall be
signed by the Chairman or officers of the Corporation and in such manner as
shall from time to time be determined by a resolution of the Board of
Directors.
Section 4. Deposits
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation at such banks, trust
companies or other depositories as the Board of Directors may select.
Section 5. Investments
The Board of Directors may authorize the Chairman or officers of the
Corporation to invest the funds of the Corporation in such securities and in
such manner as shall from time to time be determined by a resolution of the
Board of Directors.
ARTICLE X
FACSIMILE SIGNATURES
The Board of Directors may by resolution authorize the use of facsimile
signatures in lieu of manual signatures.
ARTICLE XI
AMENDMENTS
These By-Laws may be altered, amended or repealed and new by-laws,
consistent with the governing statute, may be adopted by the majority vote of
the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Primary EPS shown is for Class C shares.
Primary EPS for Class A and B shares is $0.14
Fully diluted EPS shown is for Class C shares.
Fully diluted EPS for Class A and B shares is $0.13
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1996
<CASH> 68,912
<SECURITIES> 502,300
<RECEIVABLES> 17,987
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 602,198
<PP&E> 85
<DEPRECIATION> 0
<TOTAL-ASSETS> 602,766
<CURRENT-LIABILITIES> 270,006
<BONDS> 285,238
0
0
<COMMON> 4,242
<OTHER-SE> 42,963
<TOTAL-LIABILITY-AND-EQUITY> 602,766
<SALES> 40,109
<TOTAL-REVENUES> 40,109
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,623
<INCOME-PRETAX> 405
<INCOME-TAX> 393
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 384
<CHANGES> 0
<NET-INCOME> 777
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.40
</TABLE>
