<PAGE>
As filed with the Securities and Exchange Commission on
- ------------------------------------------------------------------------------
November 12, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ------------------------------------------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
Commission File Number 0-17440
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its
charter)
Federally chartered
instrumentality 52-1578738
Of the United
States
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
919 18th Street, N.W., Suite
200, 20006
Washington, D.C.
(Address of principal executive (Zip code)
offices)
(202) 872-7700
(Registrant's telephone number, including
area code)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
As of November 8, 1999, there were 1,030,780 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock and 9,340,256 shares
of Class C Non-Voting Common Stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The following interim consolidated financial statements of the Federal
Agricultural Mortgage Corporation ("Farmer Mac" or the "Corporation") have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. These financial statements reflect all normal and
recurring adjustments that are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Certain
information and footnote disclosures normally included in annual consolidated
financial statements have been condensed or omitted as permitted by such rules
and regulations. Management believes that the disclosures are adequate to
present fairly the consolidated financial position, consolidated results of
operations and consolidated cash flows at the dates and for the periods
presented. These financial statements should be read in conjunction with the
audited 1998 financial statements of Farmer Mac. Results for interim periods are
not necessarily indicative of those to be expected for the fiscal year.
The following information concerning Farmer Mac's financial statements is
included herein.
Consolidated Balance Sheets at September 30, 1999 and December 31, 1998... 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and 1998............................................. 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998............................................. 5
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- -----------------
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 506,217 $ 540,626
Investment securities 853,107 643,562
Farmer Mac guaranteed securities 1,259,577 552,205
Loans 18,864 168,064
Interest receivable 29,652 24,526
Guarantee fees receivable 2,757 2,135
Prepaid expenses and other assets 11,290 4,182
---------------- -----------------
Total Assets $ 2,681,464 $ 1,935,300
---------------- -----------------
Liabilities and Stockholders' Equity:
Liabilities:
Notes payable
Due within one year $ 1,865,717 $ 1,473,688
Due after one year 707,200 365,451
Accrued interest payable 11,785 7,132
Accounts payable and accrued expenses 3,644 4,856
Reserve for losses 5,697 3,259
---------------- -----------------
Total Liabilities 2,594,043 1,854,386
Stockholders' Equity:
Common stock:
Class A Voting, $1 par value, no maximum authorization,
1,030,280 and 1,024,680 shares issued and outstanding
at September 30, 1999 and December 31, 1998. 1,030 1,025
Class B Voting, $1 par value, no maximum authorization,
500,301 shares issued and outstanding at September 30,
1999 and December 31, 1998. 500 500
Class C Non-Voting, $1 par value, no maximum amortization,
9,337,958 and 9,276,351 shares issued and outstanding
at September 30, 1999 and December 31, 1998. 9,338 9,276
Additional paid-in capital 70,845 69,984
Accumulated other comprehensive income 799 249
Retained earnings (deficit) 4,909 (120)
---------------- -----------------
Total Stockholders' Equity 87,421 80,914
---------------- -----------------
Total Liabilities and Stockholders' Equity $ 2,681,464 $ 1,935,300
---------------- -----------------
</TABLE>
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Investments and cash equivalents $ 19,202 $ 16,215 $ 50,506 $ 46,573
Farmer Mac guaranteed securities 18,776 8,401 42,365 24,378
Loans 1,145 2,180 5,818 4,757
------------ ------------ ------------ ------------
Total interest income 39,123 26,796 98,689 75,708
Interest expense 35,310 24,130 87,349 68,134
------------ ------------ ------------ ------------
Net interest income 3,813 2,666 11,340 7,574
Other income:
Guarantee fees 1,899 1,037 5,008 2,634
Gain on sale of AMBS - 420 - 1,400
Miscellaneous (88) 54 110 116
------------ ------------ ------------ ------------
Total other income 1,811 1,511 5,118 4,150
------------ ------------ ------------ ------------
Total revenues 5,624 4,177 16,458 11,724
Expenses:
Compensation and employee benefits 1,127 1,004 3,387 2,838
Professional fees 355 349 1,135 1,140
Board of Directors fees and expenses 95 75 282 251
Regulatory fees 142 130 352 461
General and administrative 466 332 1,243 1,063
------------ ------------ ------------ ------------
Total operating expenses 2,185 1,890 6,399 5,753
Provision for losses 782 498 2,442 1,120
------------ ------------ ------------ ------------
Total expenses 2,967 2,388 8,841 6,873
------------ ------------ ------------ ------------
Income before income taxes 2,657 1,789 7,617 4,851
Income tax expense 901 665 2,588 207
------------ ------------ ------------ ------------
Net income $ 1,756 $ 1,124 $ 5,029 $ 4,644
------------ ------------ ------------ ------------
Earnings per share:
Basic earnings per share $ 0.16 $ 0.10 $ 0.46 $ 0.43
Diluted earnings per share $ 0.16 $ 0.10 $ 0.45 $ 0.42
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1999 1998
---------------- ---------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Income from Operations $ 5,029 $ 4,644
Adjustments to reconcile net income to cash provided by
operating activities:
Amortization of investment premiums and discounts 2,748 2,502
Amortization of debt premiums, discounts and issuance costs 62,336 49,191
Provision for losses 2,442 1,120
Net (increase) decrease in other assets and liabilities (9,766) 3,010
---------------- ---------------
Net cash provided by operating activities 62,789 60,467
Cash flows from investing activities:
Purchases of available-for-sale investments (463,694) (246,628)
Purchases of investment securities (10,399) (8,280)
Purchases of Farmer Mac guaranteed securities (687,912) (116,041)
Purchases of loans (323,200) (237,661)
Proceeds from repayment of available-for-sale investments 207,952 241,160
Proceeds from repayment of investment securities 53,922 47,074
Proceeds from repayment of Farmer Mac guaranteed securities 448,555 59,720
Proceeds from repayment of loans 5,206 2,465
Proceeds from sale of loans - 164,425
---------------- ---------------
Net cash used by investing activities (769,570) (93,766)
Cash flows from financing activities:
Proceeds from issuance of discount notes 61,620,288 25,310,836
Proceeds from issuance of medium-term notes 375,283 14,960
Payments to redeem discount notes (61,288,287) (24,863,285)
Payments to redeem medium-term notes (35,840) (172,560)
Proceeds from common stock issuance 928 1,019
---------------- ---------------
Net cash provided by financing activities 672,372 290,970
---------------- ---------------
Net (decrease) increase in cash and cash equivalents (34,409) 257,671
Cash and cash equivalents at beginning of period 540,626 177,617
---------------- ---------------
Cash and cash equivalents at end of period $ 506,217 $ 435,288
---------------- ---------------
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 20,935 $ 23,300
Income Taxes $ 3,787 $ 521
Non-cash activity:
Loans securitized and retained as Farmer Mac
guaranteed securities $ 467,198 $ -
Loans acquired in exchange for AMBS $ 73,597 $ 55,426
Real estate acquired through foreclosure $ 578 $ -
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies.
(a) Principles of Consolidation
The financial information presented is consolidated to include the
accounts of Farmer Mac and its two wholly owned subsidiaries, Farmer Mac
Mortgage Securities Corporation and Farmer Mac Acceptance Corporation. All
material intercompany transactions have been eliminated in consolidation.
(b) Loans
At September 30, 1999, all loans held by Farmer Mac were held for
investment and carried at amortized cost.
(c) Interest-Rate Contracts and Hedge Instruments
Interest-rate contracts, including interest-rate swaps and caps, are used
to synthetically alter the interest rate characteristics of specific investments
or debt. As such, the net differential received or paid is recorded as an
adjustment to interest income or expense of the associated assets or
liabilities, on an accrual basis.
Hedge instruments, consisting solely of forward sale contracts involving
debt securities of other government-sponsored enterprises (GSEs) and futures
contracts involving U.S. Treasury securities, are used by Farmer Mac to manage
interest-rate risk exposure related to the purchase of loans and other assets
and the anticipated issuance of debt. Farmer Mac monitors the correlation of the
change in value of the hedge instrument and the change in value of the hedged
item to determine the effectiveness of the hedge instrument. Gains and losses on
effective hedge instruments that have been terminated or have matured are
deferred as an adjustment to the cost basis of the hedged item. Gains and losses
on ineffective hedge instruments are marked-to-fair value directly through the
consolidated statement of income.
(d) Earnings Per Share
The presentation of earnings per share has been restated to reflect the
three-for-one Class C common stock split effective August 2, 1999, and the
elimination of the three-to-one dividend and liquidation preferences applicable
to each share of Class C stock relative to each share of Class A and Class B
voting common stock. Previously, Class C earnings per share were equal to three
times the earnings per share for Class A and Class B stock. As a result of the
stock split and the elimination of the dividend and liquidation preferences,
earnings per share for all classes of stock are now the same.
Basic earnings per share are based on the weighted average shares
outstanding. Diluted earnings per share are based on the weighted average number
of common shares outstanding adjusted to include all dilutive potential common
stock. The following schedule reconciles basic and diluted earnings per share
for the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------------------- ---------------------------------------
Dilutive Dilutive
stock Diluted stock Diluted
Basic EPS options EPS Basic EPS options EPS
---------------------------------- ----------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Three months ended:
Net income $ 1,756 $ - $ 1,756 $ 1,124 $ - $ 1,124
Weighted average shares 10,850 419 11,269 10,793 389 11,182
Earnings per share $ 0.16 $ 0.16 $ 0.10 $ 0.10
Nine months ended:
Net income $ 5,029 $ - $ 5,029 $ 4,644 $ - $ 4,644
Weighted average shares 10,824 404 11,228 10,794 409 11,203
Earnings per share $ 0.46 $ 0.45 $ 0.43 $ 0.42
</TABLE>
(e) Reclassifications
Certain reclassifications of prior period information were made to conform
to the current period presentation.
<PAGE>
Note 2. Off-Balance Sheet Financial Instruments.
In the ordinary course of its business, Farmer Mac incurs off-balance
sheet risk in connection with the issuance of commitments to purchase and sell
loans, the issuance of its guarantee and the use of interest-rate contracts and
hedge instruments. At September 30, 1999, outstanding commitments to purchase
Farmer Mac I and II loans totaled $19.4 million. There were no outstanding
commitments to sell loans at September 30, 1999. For information regarding the
off-balance sheet risks associated with off-balance sheet guarantees, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management - Credit Risk." For information related to the use
of interest-rate contracts and hedge instruments, see Note 1 (c) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management - Interest Rate Risk."
Note 3. Comprehensive Income
Comprehensive income is comprised of net income plus other changes in
stockholders' equity not resulting from investments by or distributions to
stockholders. The following table sets forth comprehensive income for the three
and nine months ended September 30, 1999 and 1998. Comprehensive income for the
three and nine months ended September 30, 1999 is net of taxes of $629 thousand
and $283 thousand, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 1,756 $ 1,124 $ 5,029 $ 4,644
Change in unrealized gain (loss) on securities
available for sale, net of taxes 1,221 (756) 550 (1,186)
----------- ------------ ------------ ------------
Comprehensive income $ 2,977 $ 368 $ 5,579 $ 3,458
----------- ------------ ------------ ------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Special Note Regarding Forward-Looking Statements
Certain statements made in this Form 10-Q are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
pertaining to management's current expectations as to Farmer Mac's future
financial results, business prospects and business developments. Forward-looking
statements include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance or achievements, and
typically are accompanied by, and identified with, such terms as "anticipates,"
"believes," "expects," "intends," "should" and similar phrases. The following
management's discussion and analysis includes forward-looking statements
addressing Farmer Mac's prospects for earnings and growth in loan purchase,
guarantee and securitization volume; trends in net interest income,
delinquencies and provision for losses; changes in capital position; year 2000
readiness efforts; and other business and financial matters. Management's
expectations for Farmer Mac's future necessarily involve a number of
assumptions, estimates and the evaluation of risks and uncertainties. Various
factors could cause Farmer Mac's actual results or events to differ materially
from the expectations as expressed or implied by the forward-looking statements,
including: uncertainties regarding the rate and direction of development of the
secondary market for agricultural mortgage loans; the possible establishment of
additional statutory or regulatory restrictions applicable to Farmer Mac, such
as the imposition of regulatory risk-based capital requirements in excess of
statutory minimum and critical capital levels or restrictions on Farmer Mac's
investment authority; substantial changes in interest rates, the agricultural
economy (including agricultural land values, commodity prices, export demand for
U.S. agricultural products and federal assistance to farmers) or the general
economy; protracted adverse weather, market or other conditions affecting
particular geographic regions or particular commodities related to agricultural
mortgage loans backing Farmer Mac guaranteed securities; the non-compliance of
Farmer Mac's internal systems or the systems of critical vendors with respect to
the year 2000 date change; legislative or regulatory developments or
interpretations of Farmer Mac's statutory charter that could adversely affect
Farmer Mac or the ability of certain lenders to participate in its programs or
the terms of any such participation; the availability of debt funding in
sufficient quantities and at favorable rates to support continued growth; the
rate of growth in agricultural mortgage indebtedness; the size of the
agricultural mortgage market; borrower preferences for fixed-rate agricultural
mortgage indebtedness; the willingness of lenders to sell agricultural mortgage
loans into the Farmer Mac secondary market; the willingness of investors to
invest in agricultural mortgage-backed securities; competition in the
origination or purchase of agricultural mortgage loans and the sale of
agricultural mortgage-backed and debt securities; or changes in Farmer Mac's
status as a government-sponsored enterprise.
The foregoing factors are not exhaustive. Other sections of this report
may include additional factors that could adversely impact Farmer Mac's business
and its financial performance. Furthermore, new risk factors emerge from time to
time and it is not possible for management to predict all such risk factors, nor
assess the impact of such factors on Farmer Mac's business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from the expectations expressed or implied by the forward-looking
statements. Given these potential risks and uncertainties, no undue reliance
should be placed on any forward-looking statements expressed in this report.
Furthermore, Farmer Mac undertakes no obligation to publicly release the results
of revisions to any forward-looking statements that may be made to reflect any
future events or circumstances.
Results of Operations
Overview. Net income totaled $1.8 million for third quarter 1999, or $0.16
per share on a diluted basis, compared to $1.1 million, or $0.10 per share, for
third quarter 1998. Earnings per share for the third quarter were up 60 percent
over the third quarter 1998. Year-to-date net income was $5.0 million, or $0.45
per share, compared to $3.1 million, or $0.28 per share, for the same period in
1998 on a fully taxable equivalent basis (see "Income Tax Expense").
The steady growth in earnings reflects growth in business volume. Total
loan purchases and guarantees for year-to-date 1999 were $898.4 million, an
increase of 145 percent compared to year-to-date 1998. During the same period,
the balance of loans held or guaranteed by Farmer Mac increased by 74 percent
from $1.2 billion at September 30, 1998 to just over $2.0 billion at September
30, 1999. Although year-to-date business volume has increased significantly,
third quarter 1999 volume decreased compared to the same period a year ago, from
$110.5 million to $98.8 million. This decrease reflects lower origination volume
in the agricultural mortgage market due to economic uncertainties caused by
continued low commodity prices, crop damage from adverse weather conditions and
rising market interest rates. Recent federal legislation, providing $8.7 billion
in new economic and natural disaster assistance for farmers, should add needed
liquidity to the agricultural sector in the near term and support agricultural
land values. These factors, together with increased interest in Farmer Mac's
programs on the part of lenders desiring to diversify their credit exposure and
more effectively utilize their capital (particularly through swap transactions),
indicate that fourth quarter 1999 volume should exceed the level achieved in
fourth quarter 1998.
Notwithstanding the decrease in third quarter business volume, total
revenues increased by 35 percent during third quarter 1999 compared to third
quarter 1998. This reflects Farmer Mac's long-term financial strength
attributable to the annuity nature of the ongoing interest income and guarantee
fee stream received on the loans held or guaranteed by Farmer Mac. Although
business volume is expected to fluctuate from quarter to quarter due to seasonal
fluctuations in agricultural mortgage originations, Farmer Mac expects total
revenues to continue an upward trend as income on new volume adds to the income
earned on existing loans and guarantees.
Post-1996 Act loan delinquencies increased during third quarter 1999 from
1.03 percent at June 30, 1999 to 1.56 percent at September 30, 1999, consistent
with the semi-annual and annual payment characteristics of most of the post-1996
Act loans. Farmer Mac anticipates fluctuations in the delinquency rate from
quarter to quarter, with higher levels likely to be reported during the first
and third quarters of each year. The third quarter 1999 delinquency rate was
down slightly from 1.59 percent at the end of first quarter 1999.
Set forth below is a more detailed discussion of Farmer Mac's results of
operations.
Net Interest Income. Net interest income for third quarter and
year-to-date 1999 was $3.8 million and $11.3 million, respectively, compared to
$2.7 million and $7.6 million for the same periods a year ago. The increases in
net interest income were primarily attributable to increases in the balance of
program assets (Farmer Mac guaranteed securities and loans), driven by the
retention of loans in portfolio and the purchase of $189.8 million of AMBS from
capital market investors (see "Balance Sheet Review Assets"). Management
regularly evaluates whether to retain or sell AMBS based on the present value of
the net interest income earned over the life of the AMBS if retained, compared
to the up-front gain earned if sold to capital market investors. Farmer Mac's
assessment of the relative economic attractiveness of each execution is
determined primarily by market conditions, particularly the relationship between
Farmer Mac's debt securities' spreads and its AMBS spreads.
The following table provides information regarding the average balances
and rates of interest earning assets and funding for the nine months ended
September 30, 1999 and 1998. The increase in net interest yield between the two
periods is due to growth in program assets, which resulted in a shift in the
composition of interest earning assets from lower yielding non-program assets
(cash and cash equivalents and investments) to higher yielding program assets.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
----------- -------------- ----------- ------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Cash and cash equivalents $ 587,847 $ 22,158 5.03% $ 400,342 $ 16,761 5.58%
Investments 695,068 28,348 5.44% 663,851 29,812 5.99%
Farmer Mac guaranteed securities 862,645 42,365 6.55% 458,735 24,378 7.09%
Loans 115,609 5,818 6.71% 90,452 4,757 7.01%
------------- ----------- ----------- ------------ --------- ------------
Total interest earning assets 2,261,169 98,689 5.82% 1,613,380 75,708 6.26%
------------- ------------
Funding:
Discount notes 1,686,273 62,588 4.95% 1,180,208 49,079 5.54%
Medium-term notes 515,881 24,761 6.40% 364,582 19,055 6.97%
------------- ----------- ----------- ------------ --------- ------------
Total interest bearing liabilities 2,202,154 87,349 5.29% 1,544,790 68,134 5.88%
Net non-interest bearing funding 59,015 - 0.00% 68,590 - 0.00%
------------- ----------- ----------- ------------ --------- ------------
Total funding $ 2,261,169 87,349 5.15% $ 1,613,380 68,134 5.63%
------------- ----------- ----------- ------------ --------- ------------
Net interest income/yield $ 11,340 0.67% $ 7,574 0.63%
----------- ----------- ---------- ------------
</TABLE>
<PAGE>
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 changes in
volume (change in volume multiplied by old rate) and changes in rate (change in
rate multiplied by old volume). Combined rate/volume variances, a third element
of the calculation, are allocated based on their relative size.
<TABLE>
<CAPTION>
Comparson of Nine Months Ended
September 30, 1999 and 1998
-----------------------------------------------
Increase/(Decrease) Due to
-----------------------------------------------
Rate Volume Total
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Income from interest earning assets:
Cash and cash equivalents $ (1,459) $ 6,856 $ 5,397
Investments (3,001) 1,537 (1,464)
Farmer Mac guaranteed securities (1,696) 19,683 17,987
Loans (195) 1,256 1,061
------------- ------------- -------------
Total (6,351) 29,332 22,981
Expense from interest bearing liabilities (5,955) 25,170 19,215
------------- ------------- -------------
Change in net interest income $ (396) $ 4,162 $ 3,766
------------- ------------- -------------
</TABLE>
Other Income. Other income, which is comprised of guarantee fee income,
gain on sale of AMBS and miscellaneous income, totaled $1.8 million for third
quarter 1999 and $5.1 million for year-to-date 1999, compared to $1.5 million
and $4.2 million, respectively, in 1998. Guarantee fee income increased from
$1.0 million for third quarter 1998 to $1.9 million for third quarter 1999.
Year-to-date 1999 guarantee fee income was $5.0 million compared to $2.6 million
for year-to-date 1998. The increase in guarantee fee income reflects continued
growth in outstanding guarantees, which have increased by 92 percent since third
quarter 1998 to a total outstanding balance of $2.0 billion at September 30,
1999. For year-to-date 1999, there was no gain on sale of AMBS as a consequence
of Farmer Mac retaining in its portfolio loans purchased during the period.
During the same period a year ago, Farmer Mac recognized a $1.4 million gain on
the sale of $141.7 million of AMBS. Miscellaneous income showed a loss of $88
thousand in third quarter 1999, compared to income of $54 thousand in third
quarter 1998. Year-to-date, miscellaneous income totaled $110 thousand and $116
thousand in 1999 and 1998, respectively. Included in miscellaneous income for
third quarter 1999 was a $115 thousand loss on hedging activity, which was more
than offset by unrecognized gains (due to lower funding costs) on program
related investments to be recognized into interest income over the life of the
investments. For more information concerning Farmer Mac's hedging activities,
see "Risk Management - Interest Rate Risk."
Expenses. Operating expenses totaled $2.2 million for third quarter 1999
and $6.4 million for year-to-date 1999, compared to $1.9 million and $5.8
million in 1998, respectively. While operating expenses have been increasing
with growth in business volume, they have been increasing at a slower rate than
increases in total revenues due to Farmer Mac's ability to leverage existing
resources to support that growth. Operating expenses as a percentage of total
revenues were 39 percent and 45 percent for third quarter 1999 and 1998, and 39
percent and 49 percent for year-to-date 1999 and 1998.
Farmer Mac's provision for losses was $782 thousand for third quarter 1999
and $2.4 million for year-to-date 1999, compared to $498 thousand and $1.1
million, respectively, in 1998. The increase in the provision for losses
corresponds to growth in outstanding post-1996 Act loans held or guaranteed by
Farmer Mac, which totaled $1.5 billion at September 30, 1999. Farmer Mac's
reserve for principal and interest losses at September 30, 1999 totaled $5.7
million, or 0.38 percent of the outstanding post-1996 Act loans.
Income Tax Expense. The provision for income taxes totaled $901 thousand
for third quarter 1999 and $665 thousand for third quarter 1998. For
year-to-date 1999, the provision for income taxes was $2.6 million, compared to
$207 thousand for the same period in 1998. The provision for taxes for the nine
months ended September 30, 1998 included the recognition of previously deferred
tax benefits. Had Farmer Mac's effective tax rate equaled its statutory tax rate
in 1998, the provision for income taxes and net income would have been $1.7
million and $3.1 million for the nine months ended September 30, 1998, compared
to $207 thousand and $4.6 million, respectively, as reported.
<PAGE>
Business Volume. The following table sets forth the amount of Farmer Mac I
loans purchased or guaranteed, and AMBS issued during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Purchase and guarantee volume:
Farmer Mac I
Cash window $ 70,561 $ 86,949 $ 319,436 $ 237,570
Swap transactions - - 73,597 32,755
LTSPC - - 407,701 -
Farmer Mac II 28,239 23,596 97,635 96,023
------------ ------------ ------------ -------------
Total loans purchased or
guaranteed $ 98,800 $ 110,545 $ 898,369 $ 366,348
------------ ------------ ------------ -------------
AMBS issuances:
Retained $ 153,397 $ 22,671 $ 467,198 $ 22,671
Sold - 44,301 - 141,758
Swap transactions - - 73,597 32,755
------------ ------------ ------------ -------------
Total AMBS issuances $ 153,397 $ 66,972 $ 540,795 $ 197,184
------------ ------------ ------------ -------------
</TABLE>
See "Overview" for a discussion regarding changes in the amount of loans
purchased and guaranteed by Farmer Mac.
Indicators of future purchase and guarantee volume, particularly cash
window activity, include outstanding commitments to purchase Farmer Mac I loans
and the total balance of loans submitted for approval or approved but not yet
purchased. Most purchase commitments entered into by Farmer Mac are mandatory
delivery commitments. If a Seller obtains a mandatory commitment and is unable
to deliver the loans required thereunder within the specified time period,
Farmer Mac requires the Seller to pay a fee to extend or cancel the commitment.
At September 30, 1999, outstanding commitments to purchase Farmer Mac I loans
totaled $17.0 million, compared to $23.6 million at September 30, 1998, while
loans submitted for approval or approved but not yet committed to purchase
totaled $181.6 million at September 30, 1999, compared to $145.7 million at
September 30, 1998. Not all of these loans are purchased, as some are denied for
credit reasons or withdrawn by the Seller.
While significant progress has been made in developing the secondary
market for agricultural mortgages, Farmer Mac continues to face the challenges
of establishing a new market where none previously existed. Acceptance of Farmer
Mac's programs is increasing among lenders, reflecting the competitive rates,
terms and products offered and the advantages we believe Farmer Mac's programs
provide. For Farmer Mac to succeed in realizing its business development and
profitability goals over the long term, however, agricultural mortgage lenders,
whether traditional or non-traditional, must value the benefits of selling loans
to Farmer Mac or otherwise obtaining the benefits of the Farmer Mac guarantee
and must be persuaded to modify their business practices accordingly.
Balance Sheet Review
Assets. At September 30, 1999, total assets were $2.7 billion compared to
$1.9 billion at December 31, 1998. The increase in total assets was primarily
due to growth in program assets, which have increased $558.2 million since the
end of 1998 to a total of $1.3 billion. During the first nine months of 1999,
Farmer Mac purchased and retained $319.4 million of loans. In addition, Farmer
Mac purchased $189.8 million of AMBS from capital market investors and $96.4
million of Farmer Mac II securities. For further information regarding
on-balance sheet guaranteed securities, see "On- and Off-Balance Sheet
Guaranteed Securities." During the same period, non-program assets, consisting
of cash and cash equivalents and investments, grew by $175.1 million.
Liabilities. Total liabilities increased by $739.7 million from December
31, 1998 to September 30, 1999. Most of Farmer Mac's liabilities are due within
one year since most of Farmer Mac's assets are short- or long-term floating rate
investments. Notes payable due after one year totaled $707.2 million (29 percent
of total debt outstanding) at September 30, 1999 compared to $365.5 million (20
percent of total debt outstanding) at December 31, 1998. The increase in the
proportion of long-term debt corresponds to a similar increase in Farmer Mac
guaranteed securities.
Capital. Farmer Mac's capital totaled $87.4 million at September 30, 1999,
compared with $80.9 million at December 31, 1998. The increase was due to the
retention of net income earned during the first nine months of 1999 and a $550
thousand increase in the value of available-for-sale securities. Those capital
balances were in excess of Farmer Mac's regulatory minimum capital requirements,
although the surplus over the fully phased-in regulatory minimum capital
requirement was reduced from $22.9 million at December 31, 1998 to $6.8 million
at September 30, 1999. The reduction in surplus capital is attributable to the
growth in on-balance sheet program assets and off-balance sheet guarantees. As a
result of the reduction in surplus capital and growth in program assets, which
generate higher returns on equity, return on equity increased from 5.4 percent
in 1998 to 8.0 percent for the first nine months of 1999. Farmer Mac's current
surplus capital would support additional asset growth in amounts ranging from
$245 million of on-balance sheet assets to $905 million of off-balance sheet
assets based on applicable minimum capital requirements. Management believes
Farmer Mac has sufficient capital to support anticipated increases in business
volume for at least the next twelve months in light of the existing surplus
capital and Farmer Mac's ability to replace on-balance sheet non-program assets
with on- and off-balance sheet program assets and, ultimately, to sell
on-balance sheet program assets to support increases in off-balance sheet
program assets.
In addition to the regulatory minimum capital requirement referred to
above, the Farm Credit System Reform Act of 1996 (the "1996 Act") directs the
Farm Credit Administration (the "FCA") to establish a risk-based capital test
for Farmer Mac, using stress-test parameters set forth in the 1996 Act. On
September 30, 1999, the FCA announced that its Board had adopted a proposed
risk-based capital regulation for Farmer Mac and that, after the statutorily
mandated 30-day period for Congressional review, the proposed regulation would
be published in the Federal Register, which has not yet occurred. Farmer Mac has
obtained a copy of the proposed regulation, which it has begun to analyze, and
intends to provide the FCA with detailed comments during the public comment
period, which is expected to last 120 days after Federal Register publication.
Farmer Mac believes that the FCA's rulemaking should result in a risk-based
capital test that will be consistent with Farmer Mac's own assessment of its
capital adequacy, and that the final rule should ensure that Farmer Mac remains
able to continue to fulfill effectively its important public mission.
<PAGE>
On and Off-Balance Sheet Guaranteed Securities. The following table
summarizes the outstanding principal balance of Farmer Mac guaranteed securities
at September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------------------------ ------------------------------------------
On-Balance Off-Balance On-Balance Off-Balance
Sheet Sheet Total Sheet Sheet Total
------------- ------------- -------------- ------------- ------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Farmer Mac I
AMBS $ 719,856 $ 398,410 $ 1,118,266 $ 75,555 $ 545,614 $ 621,169
LTSPC - 367,934 367,934 - - -
AgVantage bonds 61,900 - 61,900 10,800 - 10,800
Pre-1996 Act Securities 120,452 10,000 130,452 152,935 21,848 174,783
Farmer Mac II Securities 350,433 27,230 377,663 306,800 30,114 336,914
------------- ------------ ------------- ------------ ------------ -------------
Total $ 1,252,641 $ 803,574 $ 2,056,215 $ 546,090 $ 597,576 $ 1,143,666
------------- ------------ ------------- ------------ ------------ -------------
</TABLE>
At September 30, 1999, outstanding off-balance sheet Farmer Mac guarantees
totaled $803.6 million, compared to $597.6 million at December 31, 1998. The
increase in off-balance sheet guarantees is attributable to the $407.7 million
long-term standby purchase commitment and the $73.6 million swap transaction
closed during first quarter 1999, less the $189.8 million of AMBS purchased from
capital market investors during second quarter 1999. See "Assets" for a
discussion regarding the change in on-balance sheet guaranteed securities. For
further information regarding credit exposure related to Farmer Mac guaranteed
securities, see "Risk Management - Credit Risk."
Risk Management
Interest Rate Risk. Farmer Mac's asset and liability management objective
is to limit the effect of changes in interest rates on its equity and earnings
to within acceptable risk tolerance levels. In doing so, Farmer Mac enters into
off-balance sheet derivative financial instruments. Farmer Mac uses these
instruments as an end-user and not for trading or speculative purposes.
Off-balance sheet derivative financial instruments used by Farmer Mac are
interest-rate contracts, including interest-rate swaps and caps, forward sale
contracts involving GSE debt securities and futures contracts involving U.S.
Treasury securities. Interest-rate contracts are used to synthetically alter the
interest rate characteristics of specific investments or debt such that the
interest rate characteristics of Farmer Mac's investments and debt are better
matched. At September 30, 1999, the notional amount of interest-rate contracts
was $761.7 million compared to $492.5 million at December 31, 1998. The increase
in the notional amount of interest-rate contracts was primarily due to the
purchase of a $210.0 million interest-rate cap in September to offset
interest-rate caps embedded in new collateralized mortgage obligation (CMO)
investments acquired during the first nine months of 1999. Farmer Mac uses
forward sale and futures contracts to reduce its interest rate risk exposure to
the purchase of loans and the anticipated issuance of debt. At September 30,
1999, the notional amount of outstanding forward sale and futures contracts
totaled $13.6 million, compared to $20.1 million at December 31, 1998.
Farmer Mac monitors its exposure to interest rate risk by measuring
duration of equity and the sensitivity of its fair value of equity (FVE) to an
immediate and permanent parallel shift in the Treasury yield curve. Farmer Mac's
duration of equity at September 30, 1999 was -1.4 months, compared to 7.2 months
at December 31, 1998. The following schedule summarizes the results of Farmer
Mac's FVE sensitivity analysis at September 30, 1999:
<TABLE>
<CAPTION>
Percentage Change in FVE from
Base Case
-----------------------------------
Interest Rate September 30, December 31,
Scenario 1999 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
+ 300 bp -12.5% -11.0%
+ 200 bp -6.7% -6.9%
+ 100 bp -2.1% -1.2%
- 100 bp -2.3% 0.0%
- 200 bp -9.4% -0.6%
- 300 bp -19.1% -1.2%
</TABLE>
The change in duration of equity and sensitivity of FVE reflects the
lengthening of Farmer Mac's debt maturities and an increase in the convexity of
Farmer Mac's assets. The increased convexity reflects increased investment in
loans (Farmer Mac I part-time farm loans and loans underlying Farmer Mac II
securities) that can be prepaid by the borrower without penalty. Farmer Mac was
in compliance with its established interest rate risk policy limits at September
30, 1999 and December 31, 1998.
Credit Risk. Farmer Mac is exposed to credit risk on loans it holds, as
well as on loans backing securities issued (or sold) to third parties because of
Farmer Mac's guarantee of the timely payment of principal, including any balloon
payments, and interest on the securities. Loans held or guaranteed by Farmer Mac
can be divided into three groups: (a) pre-1996 Act Farmer Mac I loans; (b)
post-1996 Act Farmer Mac I loans; and (c) Farmer Mac II loans. Farmer Mac
assumes 100 percent of the credit risk on post-1996 Act Farmer Mac I loans.
Farmer Mac believes it has little or no credit risk exposure to pre-1996 Act
Farmer Mac I loans because of the subordinated interests related to the loans,
or to Farmer Mac II loans because they are guaranteed by the USDA. The
outstanding principal balance of those loans as of September 30, 1999 and
December 31, 1998 is summarized in the table below.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
(in thousands)
<S> <C> <C>
Farmer Mac I:
Post-1996 Act $ 1,505,064 $ 789,233
Pre-1996 Act 130,452 174,783
Farmer Mac II 377,663 336,914
------------- -------------
Total $ 2,013,179 $ 1,300,930
------------- -------------
</TABLE>
For post-1996 Act loans, Farmer Mac regularly monitors agricultural
economic conditions and evaluates the credit quality of those loans. The
agricultural economy continues to be adversely affected by low commodity prices
and weak export markets, as well as crop damage experienced earlier this year as
a result of adverse weather conditions. As previously noted (see "Results of
Operations - Overview"), recently enacted federal assistance for farmers should
bolster the near-term economic outlook for the agricultural sector. Overall,
Farmer Mac believes that the credit quality of the post-1996 Act Farmer Mac I
loans remains strong, based on their compliance with Farmer Mac's standards at
the time of purchase or acquisition; their performance to date; and current
agricultural land values. A prolonged continuation or worsening of the adverse
conditions currently affecting the agricultural economy could result in a
deterioration of the credit quality, and a possible decline in land values, of
loans underlying Farmer Mac's guarantee.
An indicator of the credit quality of loans underlying Farmer Mac's
guarantee is the level of defaulted loans and related credit losses. At
September 30, 1999, post-1996 Act Farmer Mac I loans that were 90 days or more
past due (referred to as non-performing or "impaired" loans) totaled $23.5
million, or 1.56 percent of the total principal amount of all post-1996 Act
loans compared to 1.03 percent at June 30, 1999. Because of the annual and
semi-annual payment characteristics of most Farmer Mac I loans, higher
delinquency rates are expected in the first and third quarters of each year. The
post-1996 Act delinquency rate was 1.59 percent at March 31, 1999 and 0.85
percent at September 30, 1998. The increase in the post-1996 Act loan
delinquency rate compared to September 30, 1998 reflects the growing number of
loans that are approaching their anticipated peak default years and the adverse
conditions continuing to affect the agricultural economy, particularly low
wheat, corn and soybean commodity prices. The effect of the aforementioned
factors on the portfolio can be seen in the following table, which segregates
the post-1996 Act delinquencies at September 30, 1999 by year of origination,
geographic region and commodity.
<PAGE>
<TABLE>
<CAPTION>
Distribution of
Post-1996 Act Delinquency
Loans Rate
-------------------- -----------------
<S> <C> <C>
By year of origination:
Pre-1995 26% 0.19%
1995 1% 0.00%
1996 11% 3.51%
1997 12% 4.25%
1998 25% 2.52%
1999 25% 0.00%
----------------
Total 100% 1.56%
----------------
By geographic region: (1)
Mid-north 12% 1.40%
Mid-south 4% 2.44%
Northeast 2% 0.00%
Northwest 52% 1.76%
Southeast 1% 0.00%
Southwest 29% 1.35%
----------------
Total 100% 1.56%
----------------
By commodity:
Crops 55% 1.97%
Livestock 20% 1.40%
Permanent plantings 23% 0.85%
Other 2% 0.37%
----------------
Total 100% 1.56%
----------------
(1)Geographic regions-Mid-North (IA, IL, IN, MI, MN, MO, WI); Mid-South (KS, OK,
TX);Northeast(CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY, OH, PA, RI, TN, VA, VT,
WV);Northwest(ID, MT, ND, NE, OR, SD, WA, WY); Southeast (AL, AR, FL, GA, LA,
MS,SC);and Southwest (AZ, CA, CO, NM, NV, UT).
</TABLE>
Farmer Mac maintains a reserve to cover credit losses incurred on
post-1996 Act loans. The following schedule summarizes the change in the reserve
for loan losses for the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1999 1998 1999 1998
------------ ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Beginning balance $ 4,915 $ 2,267 $ 3,259 $ 1,645
Provision for losses 782 498 2,442 1,120
Net recoveries (charge-offs) - - (4) -
----------- ---------- ----------- -----------
Ending balance $ 5,697 $ 2,765 $ 5,697 $ 2,765
----------- ---------- ----------- -----------
</TABLE>
Although credit losses are expected to be incurred on the existing
post-1996 Act Farmer Mac I delinquencies, Farmer Mac expects those losses to be
within current reserve levels based on the collateral values supporting the
loans. The following table summarizes the post-1996 Act delinquencies by
loan-to-value ratio (calculated by dividing the current loan principal balance
by the original appraised value):
<TABLE>
<CAPTION>
Distribution of
Post-1996 Act
Delinquencies
----------------
<S> <C>
By loan-to-value ratio:
0.00% to 40.00% 7%
40.01% to 50.00% 14%
50.01% to 60.00% 44%
60.01% to 70.00% 35%
70.01% to 80.00% 0%
----------------
Total 100%
----------------
</TABLE>
As of September 30, 1999, the weighted average loan-to-value ratio of
post-1996 Act loans was approximately 50%.
Other Matters
Year 2000. The year 2000 problem relates to the inability of some computer
programs to process date-sensitive information due to the use of two digits
(rather than four) to define the applicable year. As a result, these computer
programs may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. The year 2000
date change potentially could affect Farmer Mac's internal information
technology (IT) and non-IT systems, as well as systems utilized by its external
vendors. Farmer Mac's internal IT systems, which are "PC software-based," are
used to perform critical business processes including purchases of Qualified
Loans; sale of AMBS; issuance of debt securities; payments to debt security and
AMBS investors; and financial reporting to investors and stockholders. Certain
vendors also perform critical business processes by servicing the loans held or
securitized by Farmer Mac and administering the guaranteed securities issued by
Farmer Mac. Failure of IT and/or vendor systems to handle the year 2000 date
change could result in Farmer Mac being unable to perform critical business
processes and expose Farmer Mac to significant business risk. Less critical to
Farmer Mac's operations are non-IT systems, which include telephones, facsimile
machines and systems used to maintain building operations.
To manage the risks related to the year 2000 date change, Farmer Mac
adopted a Year 2000 Compliance Plan consisting of four phases: system inventory,
system remediation, critical vendor testing and contingency planning. Farmer Mac
has completed all phases of the plan and believes that its systems, as well as
those of its critical vendors, will be able to perform critical business
functions after December 31, 1999. In the event of a system failure, Farmer Mac
has developed (and tested) contingency plans, which primarily rely on
instituting manual procedures, to complete critical business processes. Farmer
Mac will continue to monitor the compliance status of its internal systems and
the status of its critical vendors throughout the remainder of 1999.
Currently, management believes that the year 2000 date change does not
expose Farmer Mac to significant business risk or material loss of revenue, if
any, based on its assessment of Farmer Mac's internal systems and critical
vendors. Costs to complete its year 2000 readiness efforts have totaled
approximately $150 thousand. This amount includes the use of outside consultants
to help Farmer Mac evaluate the readiness of internal IT systems and critical
vendors. Farmer Mac does not expect to incur any additional costs during the
remainder of 1999.
<PAGE>
Supplemental Information
The following tables set forth quarterly activity regarding: commitments to
purchase loans; purchases and guarantees of loans; AMBS issuances;
delinquencies; and outstanding guarantees.
<TABLE>
<CAPTION>
Commitments to Purchase or Guarantee Farmer Mac I Loans (1) (2)
-------------------------------------------------------------------------------------------------------
Long-Term 5 and 7 Year
Fixed Rates Balloons ARMs Total Outstanding
------------- ---------------- -------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C>
For the quarter ended:
September 30, 1999 $ 26,623 $ 19,384 $ 34,170 $ 80,177 $ 17,010
June 30, 1999 56,010 17,025 48,791 121,826 12,069
March 31, 1999 137,200 14,774 45,249 197,223 22,501
December 31, 1998 170,233 13,020 380,394 563,647 431,544
September 30, 1998 50,446 7,333 26,830 84,609 23,611
For the year ended:
December 31, 1998 302,227 48,412 502,283 852,922 431,544
December 31, 1997 102,773 100,972 33,103 236,848 10,800
</TABLE>
<TABLE>
<CAPTION>
Purchases and Guarantees of Farmer Mac I Loans (1) (2)
----------------------------------------------------------------------------------------
Long-Term
Fixed Rates Balloons ARMs Total
------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
For the quarter ended:
September 30, 1999 $ 26,670 $ 14,862 $ 29,029 $ 70,561
June 30, 1999 58,406 16,975 52,244 127,625
March 31, 1999 257,632 15,817 329,099 602,548
December 31, 1998 50,280 10,634 93,020 153,934
September 30, 1998 46,713 12,782 27,454 86,949
For the year ended:
December 31, 1998 164,436 48,086 211,737 424,259
December 31, 1997 103,335 100,874 26,304 230,513
</TABLE>
<TABLE>
<CAPTION>
Farmer Mac I AMBS Issuances (1) (3)
----------------------------------------------------------------------------------------
Long-Term 5 and 7 Year
Fixed Rates Balloons ARMs Total
--------------- ----------------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C>
For the quarter ended:
September 30, 1999 $ 95,121 $ 33,532 $ 24,744 $ 153,397
June 30, 1999 1,018 - 44,397 45,415
March 31, 1999 134,405 16,271 191,307 341,983
December 31, 1998 44,448 8,448 51,566 104,462
September 30, 1998 53,635 13,337 - 66,972
For the year ended:
December 31, 1998 165,383 51,941 84,322 301,646
December 31, 1997 132,383 65,121 - 197,504
</TABLE>
<TABLE>
<CAPTION>
Farmer Mac I Delinquencies (4) (5)
- ------------------------------------------------------------------------------------
Post-1996
As of: Act Pre-1996 Act Total
----------- ----------------- ---------------
<S> <C> <C> <C>
September 30, 1999 1.56% 3.48% 1.72%
June 30, 1999 1.03% 1.44% 1.07%
March 31, 1999 1.59% 3.71% 1.81%
December 31, 1998 0.70% 3.77% 1.31%
September 30, 1998 0.85% 0.47% 0.76%
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Outstanding Guarantees (5)
- ----------------------------------------------------------------------------------------------------------------------
Farmer Mac I
---------------------------------------------
Post-1996 Act Pre-1996 Farmer Held in
-------------------------
AMBS LTSPC Act Mac II Total Portfolio (6)
--------- ------------ ---------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of:
September 30, 1999 $1,118,266 $ 367,934 $ 130,452 $ 377,663 $1,994,315 $1,190,741
June 30, 1999 984,538 375,915 142,842 367,250 1,870,545 1,046,303
March 31, 1999 946,011 390,520 157,710 345,927 1,840,168 800,669
December 31, 1998 621,169 - 174,783 336,914 1,132,866 535,290
September 30, 1998 524,527 - 189,169 323,608 1,037,304 479,828
(1) Includes loans guaranteed by Farmer Mac through swap transactions. Such
transactions totaled $73.6 million in first quarter 1999, $51.6 million in
fourth quarter 1998, and $32.8 million in second quarter 1998 (committed to
in first quarter 1998).
(2) Includes a guarantee transaction committed to in fourth quarter 1998 and
executed in first quarter 1999 covering a pool of loans totaling $407.7
million. The transaction, referred to as a long-term standby purchase
commitment (LTSPC), obligates Farmer Mac to purchase loans within the pool
at par when they become four or more months delinquent. In exchange, Farmer
Mac receives an annual commitment fee on the outstanding balance of the
pool over the life of the loans.
(3) Includes AMBS issued and retained by Farmer Mac. Such transactions totaled
$153.4 million in third quarter 1999, $45.4 million in second quarter 1999,
$268.4 million in first quarter 1999, $52.9 million in fourth quarter 1998
and $22.7 million in third quarter 1998.
(4) Includes loans 90 days or more past due, in foreclosure or in bankruptcy.
(5) Pre-1996 Act loans back securities that are supported by unguaranteed
subordinated interests representing approximately 10 percent of the balance
of the loans. Farmer Mac assumes 100 percent of the credit risk on
post-1996 Act loans. Farmer Mac II loans are guaranteed by the U.S.
Department of Agriculture.
(6) Included in total outstanding guarantees.
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The registrant is not a party to any material pending legal proceedings.
Item 2. Changes in Securities.
(a) Effective August 2, 1999, after obtaining the consent of the holders
of its Class C Non-Voting Common Stock, Farmer Mac amended its Bylaws
to eliminate the three-to-one preference with respect to dividends
and liquidation proceeds which had been applicable to each share of
Class C Non-Voting Common Stock relative to each share of Voting
Common Stock. In conjunction with this Bylaw amendment, Farmer Mac
effected a three-for-one split of its Class C Non-Voting Common
Stock.
(b) Not Applicable.
(c) Farmer Mac is a federally chartered instrumentality of the United
States and its Common Stock is exempt from registration pursuant to
Section 3(a)(2) of the Securities Act of 1933.
Under the direct stock purchase program pursuant to which Farmer Mac
offered up to 100,000 shares of Class A Voting Common Stock to
interested eligible investors, Farmer Mac sold an aggregate of 1,600
shares of Class A Common Stock to eight financial institutions in the
quarter ended September 30, 1999. The aggregate offering price for the
sales was approximately $25,344. Farmer Mac expects to terminate this
program during the 1999 fourth quarter.
Pursuant to Farmer Mac's policy which permits Directors of Farmer Mac
to elect to receive shares of Class C Non-Voting Common Stock in lieu
of their annual cash retainers, on July 9, 1999, Farmer Mac issued an
aggregate of 408 shares of its Class C Non-Voting Common Stock at an
issue price of $22.875 per share to the 10 Directors who elected to
receive such stock in lieu of their cash retainers.
On August 5, 1999, Farmer Mac issued 3,000 restricted shares of its
Class C Non-Voting Common Stock to two non-officer employees of Farmer
Mac as incentive compensation; and on September 10, 1999, Farmer Mac
issued 2,600 restricted shares of its Class C Non-Voting Common Stock
to five non-officer employees of Farmer Mac as incentive compensation.
(d) Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
<PAGE>
Item 4. Submission of Matters to a Vote of Stockholders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
* 3.1 - Title VIII of the Farm Credit Act of 1971, as most recently
amended by the Farm Credit System Reform Act of 1996, P.L.
104-105 (Form 10-K filed March 29, 1996).
* 3.2 - Amended and restated Bylaws of the Registrant (Form 10-Q filed
August 12, 1999).
+* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to Form
10-Q filed November 10, 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).
+* 10.1.2 - 1996 Stock Option Plan (Form 10-Q filed November 10, 1996).
+* 10.1.3 - Amended and Restated 1997 Stock Option Plan.
+* 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 as of January 10, 1991 to Employment
Contract 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 September
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 September 1, 1994 to
Employment Contract between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-Q filed November
15, 1994).
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 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 September 13, 1996 to Employment
Contract between Henry D. Edelman and the Registrant (Form 10-Q
filed November 10, 1996).
+* 10.2.6 - Amendment No. 6 dated as of August 7, 1997 to Employment
Contract between Henry D. Edelman and the Registrant (Form 10-Q
filed November 14, 1997).
+* 10.2.7 - Amendment No. 7 dated as of September 4, 1998 to Employment
Contract between Henry D. Edelman and the Registrant (Form 10-Q
filed August 14, 1998).
+* 10.2.8 - Amendment No. 8 dated as of September 3, 1999 to Employment
Contract between Henry D. Edelman and the Registrant (Form 10-Q
filed August 12, 1999).
+* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E.
Corsiglia and the Registrant (Previously filed as Exhibit 10.5
to Form 10-K filed February 14, 1990).
+* 10.3.1 - Amendment dated December 14, 1989 to Employment Agreement
between Nancy E. Corsiglia and the Registrant (Previously
filed as Exhibit 10.5 to Form 10-K filed February 14, 1990).
+* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment
Agreement between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.7 to Form 10-K filed April 1,
1991).
+* 10.3.3 - Amendment to Employment Contract dated as of September
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 September 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 September 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).
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.3.6 - Amendment No. 6 dated as of September 1, 1995 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form
10-Q filed November 10, 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 September 13, 1996 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form
10-Q filed November 10, 1996).
+* 10.3.9 - Amendment No.9 dated as of August 7, 1997 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed
November 14, 1997).
+* 10.3.10- Amendment No. 10 dated as of September 4, 1998 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form
10-Q filed August 14, 1998).
+* 10.3.11- Amendment No. 11 dated as of September 3, 1999 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form
10-Q filed August 12, 1999).
+* 10.4 - Employment Agreement dated September 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 September 1, 1993
between Thomas R. Clark and the Registrant (Previously filed as
Exhibit 10.12 to Form 10-Q filed November 15, 1993).
+* 10.4. - Amendment No. 3 dated September 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 September 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).
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.4.5 - Amendment No. 5 dated as of September 1, 1995 to Employment
Contract between Thomas R. Clark and the Registrant (Form 10-Q
filed November 10, 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 September 13, 1996 to Employment
Contract between Thomas R. Clark and the Registrant (Form 10-Q
filed November 10, 1996).
+* 10.4.8 - Amendment No. 8 dated as of August 7, 1997 to Employment
Contract between Thomas R. Clark and the Registrant (Form 10-Q
filed November 14, 1997).
+* 10.4.9 - Amendment No. 9 dated as of September 4, 1998 to Employment
Contract between Thomas R. Clark and the Registrant (Form 10-Q
filed August 14, 1998).
+* 10.4.10- Amendment No. 10 dated as of September 3, 1999 to Employment
Contract between Thomas R. Clark and the Registrant (Form 10-Q
filed August 12, 1999).
+* 10.5 - Employment Contract dated as of September 1, 1997 between Tom D.
Stenson and the Registrant (Previously filed as Exhibit 10.8 to
Form 10-Q filed November 14, 1997).
+* 10.5.1 - Amendment No. 1 dated as of September 4, 1998 to Employment
Contract between Tom D. Stenson and the Registrant (Previously
filed as Exhibit 10.8.1 to Form 10-Q filed August 14, 1998).
+* 10.5.2 - Amendment No. 2 dated as of September 3, 1999 to Employment
Contract between Tom D. Stenson and the Registrant (Form 10-Q
filed August 12, 1999).
+* 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 September 1, 1993
between Michael T. Bennett and the Registrant (Previously
filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993).
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.6.2 - Amendment No. 2 dated September 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 September 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 September 1, 1995 to Employment
Contract between Michael T. Bennett and the Registrant (Form
10-Q filed November 10, 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 September 13, 1996 to Employment
Contract between Michael T. Bennett and the Registrant (Form
10-Q filed November 10, 1996).
+* 10.6.7 - Amendment No.7 dated as of August 7, 1997 to Employment Contract
between Michael T. Bennett and the Registrant (Form 10-Q filed
November 14, 1997).
+* 10.6.8 - Amendment No. 8 dated as of September 4, 1998 to Employment
Contract between Michael T. Bennett and the Registrant (Form
10-Q filed August 14, 1998).
+* 10.6.9 - Amendment No. 9 dated as of September 3, 1999 to Employment
Contract between Michael T. Bennett and the Registrant (Form
10-Q filed August 12, 1999).
+* 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 September 1, 1993
between Christopher A. Dunn and the Registrant (Previously
filed as Exhibit 10.19 to Form 10-Q filed November 15, 1993).
+* 10.7.2 - Amendment No. 2 dated September 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).
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
+* 10.7.3 - Amendment No. 3 dated as of September 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 September 1, 1995 to Employment
Contract between Christopher A. Dunn and the Registrant (Form
10-Q filed November 10, 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 September 13, 1996 to Employment
Contract between Christopher A. Dunn and the Registrant (Form
10-Q filed November 10, 1996).
+* 10.7.7 - Amendment No 7 dated as of August 7, 1997 to Employment Contract
between Christopher A. Dunn and the Registrant (Form 10-Q filed
November 14, 1997).
* 10.9 - 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 (Secretary of
Agriculture's) Regions (Previously filed as Exhibit 1.1 to Form
10-K filed April 1, 1991).
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
* Incorporated by reference to the indicated prior filing.
+ Management contract or compensatory plan.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
November 12, 1999
By: /s/ Henry D. Edelman
--------------------------------------------------
Henry D. Edelman
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Nancy E. Corsiglia
--------------------------------------------------
Nancy E. Corsiglia
Vice President - Treasurer and Chief Financial
Officer
(Principal Financial Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
November 12, 1999
By:
--------------------------------------------------
Henry D. Edelman
President and Chief Executive Officer
(Principal Executive Officer)
--------------------------------------------------
Nancy E. Corsiglia
Vice President - Treasurer and Chief Financial
Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 506,217
<SECURITIES> 2,112,684
<RECEIVABLES> 32,409
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 549,916
<PP&E> 265
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,681,464
<CURRENT-LIABILITIES> 1,881,146
<BONDS> 707,200
0
0
<COMMON> 10,868
<OTHER-SE> 76,553
<TOTAL-LIABILITY-AND-EQUITY> 2,681,464
<SALES> 98,689
<TOTAL-REVENUES> 103,807
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,399
<LOSS-PROVISION> 2,442
<INTEREST-EXPENSE> 87,349
<INCOME-PRETAX> 7,617
<INCOME-TAX> 2,588
<INCOME-CONTINUING> 5,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,029
<EPS-BASIC> .46
<EPS-DILUTED> .45
</TABLE>
