-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMog1mHpd++LMJxj8BxOCTfOsLn1xsK1TM7EiGCy9tVyVnyQSMHNFhu4ds848c0w JHJW0OcC7lpeQ7FwMB5BVQ== 0000845877-99-000031.txt : 19991115 0000845877-99-000031.hdr.sgml : 19991115 ACCESSION NUMBER: 0000845877-99-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERAL AGRICULTURAL MORTGAGE CORP CENTRAL INDEX KEY: 0000845877 STANDARD INDUSTRIAL CLASSIFICATION: FEDERAL & FEDERALLY-SPONSORED CREDIT AGENCIES [6111] IRS NUMBER: 521578738 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14951 FILM NUMBER: 99747443 BUSINESS ADDRESS: STREET 1: 919 18TH ST N W STREET 2: STE 200 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2028727700 MAIL ADDRESS: STREET 1: 919 18TH STREET NW STREET 2: SUITE 200 CITY: WASHINGTON STATE: DC ZIP: 20006 10-Q 1 10-Q 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. 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 FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 ---------------- ----------------- (in thousands) 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 ---------------- -----------------
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended ------------------------- ------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1999 1998 1999 1998 --------------------------------------------------- (in thousands, except per share amounts) 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.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, --------------------------------- 1999 1998 ---------------- --------------- (in thousands) 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.
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:
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) 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
(e) Reclassifications Certain reclassifications of prior period information were made to conform to the current period presentation. 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.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 1999 1998 1999 1998 ----------- ------------ ------------ ------------ (in thousands) 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 ----------- ------------ ------------ ------------
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.
Nine Months Ended September 30, ------------------------------------------------------------------------------ 1999 1998 ------------------------------------------------------------------------------ Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate ----------- -------------- ----------- ------------- ----------- ----------- (dollars in thousands) 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% ----------- ----------- ---------- ------------
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.
Comparson of Nine Months Ended September 30, 1999 and 1998 ----------------------------------------------- Increase/(Decrease) Due to ----------------------------------------------- Rate Volume Total ------------- ------------- ------------- (in thousands) 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 ------------- ------------- -------------
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. Business Volume. The following table sets forth the amount of Farmer Mac I loans purchased or guaranteed, and AMBS issued during the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------- ------------- ------------- (in thousands) 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 ------------ ------------ ------------ -------------
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. 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.
September 30, 1999 December 31, 1998 ------------------------------------------ ------------------------------------------ On-Balance Off-Balance On-Balance Off-Balance Sheet Sheet Total Sheet Sheet Total ------------- ------------- -------------- ------------- ------------- -------------- (in thousands) 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 ------------- ------------ ------------- ------------ ------------ -------------
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:
Percentage Change in FVE from Base Case ----------------------------------- Interest Rate September 30, December 31, Scenario 1999 1998 ---------------- ----------------- ----------------- + 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%
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.
September 30, December 31, 1999 1998 --------------- --------------- (in thousands) 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 ------------- -------------
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.
Distribution of Post-1996 Act Delinquency Loans Rate -------------------- ----------------- 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).
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:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------- 1999 1998 1999 1998 ------------ ---------- ----------- ----------- (in thousands) 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 ----------- ---------- ----------- -----------
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):
Distribution of Post-1996 Act Delinquencies ---------------- 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% ----------------
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. 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.
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) 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
Purchases and Guarantees of Farmer Mac I Loans (1) (2) ---------------------------------------------------------------------------------------- Long-Term Fixed Rates Balloons ARMs Total ------------- --------------- -------------- -------------- (in thousands) 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
Farmer Mac I AMBS Issuances (1) (3) ---------------------------------------------------------------------------------------- Long-Term 5 and 7 Year Fixed Rates Balloons ARMs Total --------------- ----------------- ----------- ------------ (in thousands) 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
Farmer Mac I Delinquencies (4) (5) - ------------------------------------------------------------------------------------ Post-1996 As of: Act Pre-1996 Act Total ----------- ----------------- --------------- 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%
Outstanding Guarantees (5) - ---------------------------------------------------------------------------------------------------------------------- Farmer Mac I --------------------------------------------- Post-1996 Act Pre-1996 Farmer Held in ------------------------- AMBS LTSPC Act Mac II Total Portfolio (6) --------- ------------ ---------------- --------------- -------------- -------------- (in thousands) 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.
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. 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. +* 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. +* 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. +* 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. +* 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. +* 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. 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) 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) EX-27 2 FDS SCHEDULE
5 1,000 9-mos Dec-31-1999 Sep-30-1999 506,217 2,112,684 32,409 0 0 549,916 265 0 2,681,464 1,881,146 707,200 0 0 10,868 76,553 2,681,464 98,689 103,807 0 0 6,399 2,442 87,349 7,617 2,588 5,029 0 0 0 5,029 .46 .45
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