As filed with the Securities and Exchange Commission on
November 14, 1995
__________________________________________________________
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, 1995.
Commission File Number 0-17440
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality
of the United States 52-1578738
____________________________________ _____________________________
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
919 18th Street, N.W., Suite 200,
Washington, D.C. 20006
___________________________________ ____________________________
(Address of principal executive (Zip code)
offices)
(202) 872-7700
(Registrant's telephone number, including area code)
_____________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
As of November 14, 1995, there were 670,000 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock, and 1,170,301
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 (the "Corporation" or "Farmer Mac") have
been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Such interim consolidated financial
statements reflect all normal and recurring adjustments that are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. Certain information and footnote disclosures
normally included in annual consolidated financial statements have been
condensed or omitted as permitted by such rules and regulations. Management
believes that the disclosures are adequate to present fairly the consolidated
financial position, consolidated results of operations and consolidated cash
flows at the dates and for the periods presented. These condensed financial
statements should be read in conjunction with the audited 1994 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
as of September 30, 1995, December 31, 1994 and September 30, 1994 is included
herein.
Consolidated Balance Sheets.............................. 3
Consolidated Statements of Operations.................... 4
Consolidated Statements of Cash Flows.................... 5
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1995 December 31, 1994
(unaudited)
ASSETS:
Cash and cash equivalents..... $ 111,502 $ 73,129
Interest receivable........... 10,964 14,023
Guarantee fees receivable..... 432 454
Farmer Mac I and II payments
receivable................... 4,367 1,196
Investments, net.............. 72,620 10,727
Farmer Mac I and II portfolio. 418,200 377,395
Office equipment, net......... 75 98
Prepaid expenses and other
assets....................... 409 216
TOTAL ASSETS........... $ 618,569 $ 477,238
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Allowance for Farmer Mac
Securities not held in
portfolio..................... $ 107 $ 81
Accounts payable and accrued
expenses...................... 638 972
Accrued interest payable on
Medium-Term Notes............. 6,840 7,450
Debentures, notes and bonds,
net:
Due within one year...... 328,391 168,307
Due after one year....... 271,017 288,209
TOTAL LIABILITIES........ 606,993 465,019
STOCKHOLDERS' EQUITY:
Common stock:
Class A Voting, $1 par value,
no maximum authorization,
670,000 shares issued and
outstanding.................. 670 670
Class B Voting, $1 par value,
no maximum authorization,
500,301 shares issued and
outstanding................. 500 500
Class C Non-Voting, $1 par
value, no maximum
authorization, 1,170,301
shares issued and
outstanding................. 1,170 1,170
Additional paid in capital... 19,331 19,331
Unrealized gain on securities
available for sale.......... 84 --
Accumulated deficit.......... (10,179) (9,452)
TOTAL STOCKHOLDERS' EQUITY. 11,576 12,219
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........ $ 618,569 $ 477,238
See accompanying notes to consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Three Months Ended September 30 Nine Months Ended September 30
1995 1994 1995 1994
(unaudited) (unaudited) (unaudited) (unaudited)
INTEREST INCOME:
Investments and cash
equivalents.......... $ 2,356 $ 1,188 $ 5,179 $ 3,800
Farmer Mac I and II
portfolio............ 7,550 6,611 21,364 19,733
TOTAL INTEREST INCOME.. 9,906 7,799 26,543 23,533
INTEREST EXPENSE...... 9,493 7,493 25,498 22,681
NET INTEREST INCOME.. 413 306 1,045 852
OTHER INCOME:
Guarantee fees........ 293 260 887 785
Miscellaneous......... 64 28 135 150
TOTAL OTHER INCOME.. 357 288 1,022 935
OTHER EXPENSES:
Compensation and
employee benefits..... 455 461 1,431 1,568
Professional fees...... 160 67 343 265
Insurance ............. 54 35 162 107
Rent................... 41 44 125 138
Regulatory fees........ 33 70 217 210
Board of Directors
fees and meeting
expenses.............. 60 60 235 218
Administrative........ 101 122 281 344
TOTAL OTHER EXPENSES. 904 859 2,794 2,850
NET LOSS................ $ (134) $ (265) $ (727) $ (1,063)
NET LOSS PER SHARE...... $(0.06) $(0.11) $(0.31) $ (0.45)
See accompanying notes to consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended
September 30, 1995 September 30, 1994
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Loss from Operations............ $ (727) $ (1,063)
Adjustments to reconcile loss
to net cash provided by
operating activities:
Amortization of premium on
Farmer Mac I and II
portfolio .................... 3,648 5,378
Depreciation and amortization.. 6,712 3,238
Decrease in guarantee fees
receivable................... 22 207
Decrease in interest
receivable......... ......... 3,059 5,633
(Increase) decrease in Farmer
Mac I and II payments
receivable.................. (3,171) 51
Increase in prepaid expenses
and other assets............ (193) (58)
Amortization of debt issuance
costs....................... 150 194
(Decrease) increase in
accounts payable and accrued
expenses.................... (334) 91
Decrease in accrued interest
payable on medium term notes. (610) (1,291)
Provision for losses on
Farmer Mac I Program......... 76 71
Net cash provided by operating
activities................... 8,632 12,451
CASH FLOWS FROM
INVESTING ACTIVITIES:
Farmer Mac I and II purchases.. (83,624) (38,306)
Purchases of investments....... (76,285) (43,836)
Proceeds from maturity of
investments................... 14,461 47,542
Proceeds from Farmer Mac I
and II principal repayments... 39,121 55,493
Purchases of office equipment.. (8) (40)
Net cash (used) provided by
investing activities.......... (106,335) 20,853
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance of
Medium-Term Notes............. 48,584 -
Payments to redeem Medium-Term
Notes......................... (30,395) (55,155)
Proceeds from issuance of
Discount Notes................. 2,255,637 556,972
Discount Notes redeemed........ (2,137,750) (554,500)
Net cash provided (used)
by financing activities....... 136,076 (52,683)
Net increase (decrease) in
cash and cash equivalents..... 38,373 (19,379)
Cash and cash equivalents at
beginning of period........... 73,129 75,767
Cash and cash equivalents at
end of period................. $ 111,502 $ 56,388
Supplemental disclosures of
cash flow information:
Cash paid during the nine-
month period for:
Interest................... $ 19,293 $ 20,610
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.ACCOUNTING POLICIES
(a) Principles of Consolidation
Financial information at and for the nine and three months ended
September 30, 1995 is consolidated to include the accounts of Farmer Mac and
its two wholly owned subsidiaries, Farmer Mac Mortgage Securities Corporation
and Farmer Mac Acceptance Corporation. All material intercompany transactions
have been eliminated in consolidation.
(b) Reclassifications
Certain reclassifications of the 1994 information were made to
conform with the 1995 presentation.
NOTE 2. OFF-BALANCE SHEET FARMER MAC GUARANTEED SECURITIES.
Farmer Mac is a party to transactions involving financial instruments
with off-balance sheet risk. These transactions include guarantees by Farmer
Mac of securities not held in its portfolio. Farmer Mac issues guarantees in
the normal course of business to fulfill its statutory purpose of increasing
liquidity for agricultural mortgage lenders. Farmer Mac guarantees the timely
payment of principal and interest on securities issued under the Farmer Mac I
and Farmer Mac II Programs. The following table sets forth the outstanding
principal balances of Farmer Mac Guaranteed Securities issued under the Farmer
Mac I and Farmer Mac II Programs and not held in its portfolio.
September 30, 1995 September 30, 1994
(In Thousands)
Farmer Mac I........ $ 99,476 $ 100,330
Farmer Mac II....... 4,512 $ 5,735
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDIDITY AND CAPITAL RESOURCES
Farmer Mac's primary sources of liquidity are issuances of debt
obligations, and principal and interest payments received on mortgages
underlying securities purchased by Farmer Mac under the Farmer Mac I and
Farmer Mac II Programs. Farmer Mac's Board has authorized up to $1.5 billion
of Discount Notes and Medium-Term Notes to be issued and outstanding at any
one time. Funds from the borrowings may be used in the Farmer Mac I and
Farmer Mac II Programs to cover transaction costs, guarantee payments and the
costs of purchasing Farmer Mac Guaranteed Securities and Guaranteed Portions
issued in the Farmer Mac I and Farmer Mac II Programs and to retire existing
Notes. Funds from the borrowings also may be used for liquidity purposes. At
September 30, 1995, Farmer Mac had $599.4 million of Discount Notes and
Medium-Term Notes (net of unamortized debt issuance costs, discounts and
premiums) outstanding, a $142.9 million increase from December 31, 1994.
During the first nine months of 1995, Farmer Mac issued an aggregate of $2.3
billion of Discount Notes and $48.6 million of Medium-Term Notes and redeemed
$2.1 billion of Discount Notes and $30.4 million of Medium-Term Notes.
The $38.4 million increase in cash and cash equivalents from December
31, 1994 to September 30, 1995 resulted from the increase in certain liquidity
portfolio investments, primarily short-term commercial paper, certificates of
deposit, and bankers acceptances. Investments increased $61.9 million from
December 31, 1994 to September 30, 1995, as a result of an increase in Farmer
Mac's portfolio of mortgage-backed securities that are available for sale.
The $40.8 million increase in the Farmer Mac I and II portfolios is largely
attributable to the purchase of $36.8 million of Farmer Mac I Securities and
$44.2 million of Farmer Mac II Securities and Guaranteed Portions, which was
offset by $39.1 million in principal payments and prepayments received since
December 31, 1994.
Proceeds of any future Note issuances are expected to be used by the
Corporation primarily to fund purchases of Farmer Mac Guaranteed Securities
and Guaranteed Portions under the Farmer Mac I and Farmer Mac II Programs and
to maintain Farmer Mac's liquidity position.
At September 30, 1995, Farmer Mac's total loss allowance was $370
thousand. The Farmer Mac I and II portfolio is shown net of its applicable
allowance of $263 thousand at September 30, 1995, representing an increase of
$50 thousand from year-end 1994; the allowance for Farmer Mac Guaranteed
Securities not held by Farmer Mac was $107 thousand at September 30, 1995,
representing an increase of $26 thousand from year-end 1994. Future additions
to this allowance will be charged to earnings and the amounts in the allowance
account will be used to cover payments of claims under Farmer Mac guarantees.
Farmer Mac considers the amounts in the allowance account to be adequate to
cover its exposure to guarantee payments in the Farmer Mac I Program. Before
Farmer Mac is required to make a guarantee payment on Farmer Mac I Securities,
full recourse must be taken against a reserve or subordinated interest
initially established in an amount equal to at least ten percent (10%) of the
original pool balance.
At September 30, 1995, a total of five loans aggregating $2.2 million
were 90 days or more past due, three loans totaling $385 thousand were in
foreclosure and title to one loan with an outstanding principal balance of
$615 thousand had been acquired by a trust in the Farmer Mac I Program. The
nine loans combined represent 0.86% of the aggregate principal amount of
outstanding Farmer Mac I Securities at September 30, 1995. Management
believes that no losses will be incurred by Farmer Mac as a result of the
loans in foreclosure or the real estate owned by the trust. No loss allowance
has been made specifically for the Farmer Mac II Program because the
Guaranteed Portions are backed by the full faith and credit of the United
States and are not exposed to credit losses.
At September 30, 1995, Farmer Mac's regulatory required minimum capital
was $7.6 million and its actual capital level was $11.6 million. At December
31, 1994, Farmer Mac's regulatory required minimum capital was $4.8 million,
and its actual capital level was $12.2 million. Beginning in December 1996,
higher statutory minimum capital requirements are scheduled to become
effective, significantly increasing the required amount of Farmer Mac's
regulatory capital. If those requirements had been in effect at September 30,
1995, Farmer Mac's actual capital would have been $4.4 million less than the
total minimum capital required. As previously reported, the Board has
authorized and management is actively pursuing a legislative initiative to
obtain revisions to the Farmer Mac charter critical to the Corporation's
ability to grow, become profitable and play a significant role in the U.S.
agricultural credit industry for the benefit of its stockholders and the
borrowers it serves. That initiative, if successful, would, among other
things, delay beyond 1996 the implementation of the higher regulatory capital
requirements. Farmer Mac's proposed legislation, which was considered by the
Senate Agriculture Committee at a meeting on July 18, 1995, has been included
by the Committee in a draft bill entitled "The Farm Credit Improvements Act of
1995." It is expected that this bill, together with other agricultural
legislation pending before the Committee, will be combined into an omnibus
Senate Farm Bill. In the House of Representatives, a bill entitled the
"Farmer Mac Reform Act of 1995" (H.R. 2130), with provisions substantially
similar to those in the draft Senate bill, was introduced in July 1995 and was
referred to the House Agriculture Committee; however, no Committee action has
yet been taken on this bill.
In light of the debate in Congress over budget and other significant
national issues, it is uncertain whether an omnibus Farm Bill or any pending
agricultural credit legislative proposals, including the Farmer Mac
legislation, will be enacted by Congress in 1995 or thereafter. Other factors
in addition to the status of the Congressional calendar may affect the
progress of the Farmer Mac legislation. In that regard, on October 31, 1995,
the Farm Credit Council, the organization representing the Farm Credit System
(the "FCS") on legislative matters, issued a policy paper stating that "[i]n
the absence of System [FCS] modernization legislation, the Council will oppose
Farmer Mac legislation moving forward." Certain members of Congress involved
with agricultural issues recently indicated that the FCS proposal for
"modernization legislation," which would grant FCS institutions broader
lending authorities, was not likely to be enacted during 1995.
Notwithstanding the position of the Farm Credit Council, Farmer Mac has
informed various members of Congress of the importance of enactment of Farmer
Mac legislation in 1995.
Absent the enactment of Farmer Mac legislation in 1995, management
believes that Farmer Mac may begin to encounter certain adverse developments
in its business environment as the December 1996 date on which higher capital
requirements would be imposed approaches. Among other things, the unremedied
pendency of such new capital requirements may have a material adverse impact
on the terms upon which Farmer Mac could raise capital, borrow (by possibly
increasing the interest rates that future Farmer Mac debt obligations would
bear) or engage in transactions with third parties. Unless an alternative
business strategy that improves the Corporation's results of operations can be
identified and implemented, the foregoing conditions could have a material
adverse impact on Farmer Mac's ongoing financial condition. Even if the
legislation is enacted, there is no assurance that it will include any or all
of the revisions Farmer Mac seeks and not include provisions adverse to Farmer
Mac. In addition, there can be no assurance that if legislation is enacted,
the volume of any business generated under a revised charter will result in
profitability for Farmer Mac or that Farmer Mac will be able to raise capital,
either from retained earnings or from external sources, such as an offering of
common or preferred stock, sufficient to allow Farmer Mac to comply with
future capital requirements.
If Farmer Mac were unable to satisfy the higher capital requirements,
whenever they become effective, the Director of the Office of Secondary Market
Oversight, the regulatory office within the FCA responsible for Farmer Mac
matters, would be required to take the mandatory supervisory measures and
authorized to take the optional supervisory measures previously reported,
depending upon the capital level in which Farmer Mac is then classified. The
imposition of supervisory measures could have a material adverse impact on
Farmer Mac's results of operations, thus, seriously further impairing Farmer
Mac's ability to comply with higher capital standards. Ultimately, if a
conservator were to be appointed for Farmer Mac, stockholders could lose some
or all of the value of their equity investment in Farmer Mac, and creditors
could experience a reduced level of recovery on their claims.
RESULTS OF OPERATIONS
General. Farmer Mac reported a net loss for the nine months ended
September 30, 1995 of $727 thousand, a decrease of $336 thousand from the $1.1
million loss reported for the nine months ended September 30, 1994. The
decrease in loss is attributable to an increase in the net interest spread on
interest-earning assets, an increase in income from guarantee fees and a
reduction in other expenses. The net spread on Farmer Mac's interest-earning
assets increased 8 basis points (0.08%) as the average rate on Farmer Mac's
interest-earning assets increased more than the increase in the rate on Farmer
Mac's interest-bearing liabilities for the comparable periods. Other expenses
declined $56 thousand, largely as a result of the decline in compensation and
employee benefits and administrative expenses, which were partially offset by
increases in professional fees and insurance expense.
For the three months ended September 30, 1995, Farmer Mac incurred a
loss of $134 thousand, which represents a $131 thousand decrease in Farmer
Mac's loss as compared to the three months ended September 30, 1994. The
decrease in loss is largely attributable to the increases in net interest
income and other income relative to the three months ended September 30, 1994.
Improvements in Farmer Mac's operating results will depend upon the
volume of new guarantee transactions. While the Agricultural Real Estate and
Farmer Mac II Programs have generated interest income and guarantee fee
income, the volume of guarantee transactions has not been sufficient to
generate income in excess of operating expenses, which has required Farmer Mac
to continue to use its capital to fund operations. The use of capital to fund
operations has continued to reduce Farmer Mac's stockholders' equity, which
has decreased $643 thousand (net of unrealized gain on securities available
for sale) from December 31, 1994 to September 30, 1995.
A number of factors have continued to constrain participation in Farmer
Mac's programs, and cause its core business activities to remain unprofitable.
Those factors include: the excess liquidity of many agricultural lenders; the
attractiveness of loans (otherwise qualified under the Farmer Mac programs) as
investments; the disinclination of lenders to offer, and the lack of borrower
demand for, long-term, fixed rate agricultural real estate loans as a result
of the higher profitability and lower interest rates associated with short-
term lending; various restrictive provisions in Farmer Mac's charter (unlike
the charters of Fannie Mae, Freddie Mac and Sallie Mae), including those that
preclude Farmer Mac from controlling the pooling process and those that
require the creation of a 10% subordinated interest or reserve in connection
with Farmer Mac guarantee transactions; and the unfavorable capital treatment
afforded banks and Farm Credit institutions holding subordinated securities
created in guarantee transactions.
The Western Farm Credit Bank, in accordance with the terms of its
strategic alliance with Farmer Mac, has begun purchasing agricultural real
estate loans from its nationwide network of originators and sellers under the
pooler name "National AgriMortgage Funding" (AgFunding). AgFunding reports
that its program has been well received by lenders and that its network is
growing steadily. With regard to the former Prudential Securities/Equitable
Agri-Business open window program, Farmer Mac has been informed by Equitable
that it has been in discussions with a prospective partner regarding the
continuation of that program, but that it has not yet contracted with it.
With regard to the joint Fannie Mae, AgFirst (formerly, the Farm Credit Bank
of Columbia) and Farmer Mac rural housing initiative, a press release
announcing the program was issued by Fannie Mae on June 20, 1995. Since that
time, AgFirst has been approving sellers for participation in the program and,
more recently, has been accepting loans for registration, issuing rate locks
and purchasing loans. There is no assurance that these programs, even if
successful, will generate sufficient volume to result in any Farmer Mac
guarantee transactions.
Farmer Mac's future profitability will be affected not only by guarantee
volume but also by any payments Farmer Mac must make on its guarantees;
payments it must make on its Notes; the income it earns on its investment
securities, its mortgage portfolio and other funds it is holding; and its
administrative expenses. Losses, if any, on guarantees will be affected by
many circumstances, including agricultural growing conditions, agricultural
market conditions, changes in government agricultural support policies and the
general economy. The primary sources of funding for the payment of claims
made under guarantees are the fees Farmer Mac charges for providing its
guarantees, together with Farmer Mac's loss allowance, invested capital and
the proceeds of any other debt issuances.
As previously noted, the failure to obtain the legislative revisions to
Farmer Mac's charter could adversely affect the Corporation's future results
of operations as the December 1996 date on which higher capital requirements
would be imposed approaches. Even if Farmer Mac's legislative initiative is
successful and Congress revises the Farmer Mac charter, Farmer Mac's future
will still be dependent upon continued, more effective and significantly
increased utilization of its programs by its Class A and Class B stockholders.
Average Balances, Income and Expense, Yields and Rates. The following
table presents, for the periods indicated, information regarding interest
income on average interest-earning assets and related yields, as well as
interest expense on average interest-bearing liabilities and related rates
paid. The average balances were calculated by averaging month-end balances.
Nine Months Ended September 30,
1995 1994
(Dollars in Thousands)
Average Income/ Average Average Income/ Average
Balances Expense Rate Balances Expense Rate
Assets
Interest-earning assets:
Farmer Mac I and II portfolio...... $391,067 $21,364 7.28% $382,658 $19,733 6.88%
Investments and cash equivalents... 120,624 5,179 5.72% 104,934 3,800 4.83%
Total interest-earning assets...... 511,691 26,543 6.92% 487,592 23,533 6.43%
Other assets........................ 11,724 10,924
$523,415 $498,516
Liabilities and Stockholders'
Equity
Interest-bearing liabilities:
Debentures, notes and bonds,
Net.............................. $504,834 $25,498 6.73% $478,340 $22,681 6.32%
Other liabilities.................. 6,764 7,106
Stockholders' equity............... 11,817 13,070
$523,415 $498,516
Net interest income/spread.......... $1,045 .19% $ 852 0.11%
Net yield on interest-earning
assets............................ .27% 0.23%
Rate/Volume Analysis. The table below sets forth certain information
regarding the changes in the components of Farmer Mac's net interest income
for the periods indicated. For each category, information is provided on
changes attributable to (a) changes in volume (change in volume multiplied by
old rate); (b) changes in rate (change in rate multiplied by old volume); and
(c) the total. Combined rate/volume variances, a third element of the
calculation, are allocated based on their relative size.
Nine Months Ended September 30, 1995
Compared to Nine Months Ended September 30, 1994
Increase or (Decrease) Due to
Rate Volume Total
(in thousands)
Income from interest-earning
assets:
Farmer Mac I and II portfolio.... $ 1,190 $ 441 $ 1,631
Investments and cash equivalents. 764 615 1,379
Total income from interest-earning
assets......................... 1,954 1,056 3,010
Expense on interest-bearing
liabilities........................ 1,523 1,294 2,817
Change in net interest income..... $ 431 $ (238) $ 193
PERIOD ENDED SEPTEMBER 30, 1995
COMPARED TO PERIOD ENDED SEPTEMBER 30, 1994
Net Interest Income. Net interest income totaled $1.0 million for the
nine months ended September 30, 1995, a $193 thousand increase from the nine
months ended September 30, 1994. The increase in net interest income is
attributable to an 8 basis point (0.08%) increase in the net interest spread,
largely the result of the shift in the composition of interest-earning assets
from lower yielding fixed rate assets originated several years ago to more
recently issued higher yielding adjustable rate assets.
Net interest income totaled $413 thousand for the three months ended
September 30, 1995, a $107 thousand increase from the three months ended
September 30, 1994. The increase in net interest income is largely
attributable to a 9 basis point (0.09%) increase in the net interest spread
from the three months ended September 30, 1994 to the three months ended
September 30, 1995, primarily a result of an increase in the average rate of
cash equivalents and investments.
Interest Income. Interest income totaled $26.5 million and $9.9 million
for the nine and three months ended September 30, 1995, an increase of $3.0
million and $2.1 million as compared to the nine and three months ended
September 30, 1994. The $3.0 million increase in interest income is
attributable to three factors: (i) an increase in market interest rates as
compared to the relative period in the prior year; (ii) a shift in the
composition of interest-earning assets from lower yielding assets originated
several years ago to more recently originated higher yielding adjustable rate
assets; and (iii) the increased level of yield maintenance income over the
accelerated level of premium amortization.
During the nine months ended September 30, 1995, prepayments of mortgage
loans underlying the Farmer Mac I Securities totaled $15.7 million, as
compared to $25.0 million for the nine months ended September 30, 1994. As a
result of these prepayments, Farmer Mac recognized $548 thousand of interest
income from yield maintenance payments in the nine months ended September 30,
1995, as compared to $1.6 million in the nine months ended September 30, 1994,
and accelerated the level of premium amortization by $294 thousand in the nine
months ended September 30, 1995, as compared to $1.8 million in the nine
months ended September 30, 1994.
The $2.1 million increase in interest income from the three months ended
September 30, 1994 to the three months ended September 30, 1995 is largely
attributable to the increase in the average balance of the Farmer Mac I and II
portfolio, a result of the purchase of $36.8 million of Farmer Mac I
Securities and $44.2 million of Farmer Mac II Securities and Guaranteed
Portions during 1995.
Interest Expense. Interest expense for the nine and three months ended
September 30, 1995 amounted to $25.5 million and $9.5 million, respectively,
an increase of $2.8 million and $2.0 million from the nine and three months
ended September 30, 1994. The $2.8 million increase in interest expense is
attributable to the 41 basis point (0.41%) increase in the average cost of
interest-bearing liabilities, a result of the increase in average interest
rates and the increase in outstanding debt from September 30, 1994 to
September 30, 1995.
Other Income. Other income totaled $1.0 million and $357 thousand for
the nine and three months ended September 30, 1995, an increase of $87
thousand and $69 thousand from the nine and three months ended September 30,
1994. Guarantee fee income, the principal component of other income,
increased $102 thousand and $33 thousand from the nine and three months ended
September 30, 1994 to the nine and three months ended September 30, 1995. The
increase in guarantee fee income is attributable to the increased level of
guarantee volume for the comparable periods. As of September 30, 1995, Farmer
Mac had $506.7 million of Farmer Mac Guaranteed Securities and Guaranteed
Portions outstanding as compared to $463.5 million as of September 30, 1994.
Miscellaneous income, composed primarily of transaction fees generated
from the Farmer Mac II Program, decreased $15 thousand from the nine months
ended September 30, 1994 to the nine months ended September 30, 1995 and
increased $36 thousand from the three months ended September 30, 1994 to the
three months ended September 30, 1995. The changes in transaction fees
resulted from the level of issuances of Farmer Mac II Securities and purchases
of Guaranteed Portions under the Farmer Mac II Program, as well as the
reduction in the average transaction fees charged for the comparable periods.
Farmer Mac issued $40.7 million of Farmer Mac II Securities and purchased $3.5
million of Guaranteed Portions for the nine months ended September 30, 1995,
as compared to the issuance of $38.2 million of Farmer Mac II Securities for
the nine months ended September 30, 1994. For the three months ended
September 30, 1995, Farmer Mac issued $20.8 million of Farmer Mac II
Securities as compared to $8.0 million for the three months ended September
30, 1994.
Other Expenses. Other expenses totaled $2.8 million and $904 thousand
for the nine and three months ended September 30, 1995, a decrease of $56
thousand from the nine months ended September 30, 1994 and an increase of $45
thousand from the three months ended September 30, 1994 to the three months
ended September 30, 1995. The $56 thousand reduction in other expenses is
attributable to decreases in compensation and employee benefits and
administrative expenses, which were partially offset by increases in
professional fees and insurance.
Compensation and employee benefits decreased $137 thousand from the nine
months ended September 30, 1994 to the nine months ended September 30, 1995,
largely a result of the decrease in the amount of incentive compensation paid
to management during the comparable periods.
Administrative expenses decreased $63 thousand from the nine months
ended September 30, 1994 to the nine months ended September 30, 1995, a result
of a reduction in travel related expenses and advertising costs, both of which
resulted from less pooler activity.
Professional fees, comprised of fees for legal, accounting and
consulting services, increased $78 thousand from the nine months ended
September 30, 1994 to the nine months ended September 30, 1995, primarily a
result of expenses associated with the utilization of consultants to assist
with the development and implementation of the legislative initiative to
obtain revisions to the Farmer Mac charter.
Insurance expense increased $55 thousand from the nine months ended
September 30, 1994 to the nine months ended September 30, 1995, largely a
result of an increase in the amount of insurance coverage.
The $45 thousand increase in other expenses from the three months ended
September 30, 1994 to the three months ended September 30, 1995 is largely
attributable to the $93 thousand increase in professional fees relating to the
utilization of consultants to assist with the development and implementation
of the legislative initiative, which was offset by the $37 thousand decrease
in regulatory fees, attributable to a refund of a portion of the 1993-94 Farm
Credit Administration assessment of Farmer Mac.
Dividends. Farmer Mac has not paid and does not expect to pay dividends
on its common stock in the near future. Dividends on the common stock are
subject to determination and declaration by the Board. The Board has adopted
a policy stating that no dividends will be paid on Farmer Mac Voting or Non-
Voting Common Stock until such time as Farmer Mac's stockholders' equity is at
least equal to $22 million (the amount of gross proceeds raised by Farmer Mac
in its initial common stock offering). Thereafter, up to 50% of accumulated
net earnings may be paid out as dividends, provided that stockholders' equity
remains at least equal to $22 million. No preference between holders of the
Voting Common Stock and Class C Non-Voting Common Stock has been established
relating to dividends. The ratio of dividends paid on each share of Class C
Non-Voting Common Stock to each share of Voting Common Stock, however, will be
three-to-one. If dividends are to be paid to holders of the Voting Common
Stock, such per share dividends to holders of Class A and Class B Voting
Common Stock will be equal.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The registrant is not a party to any pending legal proceedings.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Stockholders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Description
* 3.1 - Title VII of Public Law 100-233 (Form 10 filed January 24,
1989).
* 3.2 - Section 1839 of the Food, Agriculture, Conservation and
Trade Act of 1990 (P.L. 101-624) (Form 10-K filed April 1, 1991).
* 3.3 - Section 503 of the Food, Agriculture, Conservation, and
Trade Act Amendments of 1991 (P.L. 102-237) (Form 10-K filed
March 30, 1992).
+ 3.4 - Amended and restated Bylaws of the Registrant.
____________________
+ Filed herewith.
* Incorporated by reference to the indicated prior filing.
# Management contract or compensatory plan.
#* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to Form
10-Q filed August 14, 1992).
#* 10.1.1 - Amendment No. 1 to Stock Option Plan (Previously filed
as Exhibit 10.2 to Form 10-Q filed August 16, 1993).
#* 10.2 - Employment Agreement dated May 5, 1989 between Henry D.
Edelman and the Registrant (Previously filed as Exhibit
10.4 to Form 10-K filed February 14, 1990).
#* 10.2.1 - Amendment No. 1 dated January 10, 1991 to Employment
Agreement between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.4 to Form 10-K filed
April 1, 1991).
#* 10.2.2 - Amendment to Employment Contract dated as of June 1,
1993 between Henry D. Edelman and the Registrant (Previously
filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993).
#* 10.2.3 - Amendment No. 3 dated as of June 1, 1994 to Employment
Contract between Henry D. Edelman and the Registrant
(Previously filed as Exhibit 10.6 to Form 10-Q filed
August 15, 1994).
#* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E.
Corsiglia and the Registrant (Previously filed as Exhibit
10.5 to Form 10-K filed February 14, 1990).
#* 10.3.1 - Amendment dated December 14, 1989 to Employment
Agreement between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.5 to Form 10-K filed
February 14, 1990).
#* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment
Agreement between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.7 to Form 10-K filed
April 1, 1991).
#* 10.3.3 - Amendment to Employment Contract dated as of June 1, 1993
between Nancy E. Corsiglia and the Registrant (Previously filed
as Exhibit 10.9 to Form 10-Q filed November 15, 1993).
#* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Previously filed
as Exhibit 10.11 to Form 10-K filed March 30, 1994).
__________________
* Incorporated by reference to the indicated prior filing.
# Management contract or compensatory plan.
#* 10.3.5 - Amendment No. 5 dated as of June 1, 1994 to Employment
Contract between Nancy E. Corsiglia and the Registrant
(Previously filed as Exhibit 10.12 to Form 10-Q filed
August 15, 1994).
#* 10.3.6 - Amendment No. 6 dated as of June 1, 1995 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q
filed August 14, 1995).
#* 10.4 - Employment Agreement dated June 13, 1989 between Thomas R.
Clark and the Registrant (Previously filed as Exhibit 10.6 to
Form 10-K filed April 1, 1990).
#* 10.4.1 - Amendment No. 1 dated February 14, 1991 to Employment
Agreement between Thomas R. Clark and the Registrant (Previously
filed as Exhibit 10.9 to Form 10-K filed April 1, 1991).
#* 10.4.2 - Amendment to Employment Contract dated as of June 1,
1993 between Thomas R. Clark and the Registrant (Previously
filed as Exhibit 10.12 to Form 10-Q filed November 15, 1993).
#* 10.4.3 - Amendment No. 3 dated June 1, 1993 to Employment Contract between
Thomas R. Clark and the Registrant (Previously filed as
Exhibit 10.16 to Form 10-K filed March 30, 1994).
#* 10.4.4 - Amendment No. 4 dated as of June 1, 1994 to Employment Contract
between Thomas R. Clark and the Registrant (Previously filed as
Exhibit 10.17 to Form 10-Q filed August 15, 1994).
#* 10.4.5 - Amendment No. 5 dated as of June 1, 1995 to Employment Contract
between Thomas R. Clark and the Registrant (Form 10-Q filed August
14, 1995).
#* 10.5 - Employment Agreement dated April 29, 1994 between Charles M.
Lewis and the Registrant (Previously filed as Exhibit 10.18 to
Form 10-Q filed August 15, 1994).
#* 10.5.1 - Amendment No. 1 dated as of June 1, 1995 to Employment Contract
between Charles M. Lewis and the Registrant (Form 10-Q filed
August 14, 1995) .
__________________
* Incorporated by reference to the indicated prior filing.
# Management contract or compensatory plan.
#* 10.6 - Employment Agreement dated October 7, 1991 between Michael Bennett
and the Registrant (Previously filed as Exhibit 10.16 to
Form 10-K filed March 30, 1992).
#* 10.6.1 - Amendment to Employment Contract dated as of June 1,
1993 between Michael T. Bennett and the Registrant (Previously
filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993).
#* 10.6.2 - Amendment No. 2 dated June 1, 1993 to Employment
Contract between Michael T. Bennett and the Registrant
(Previously filed as Exhibit 10.21 to Form 10-K filed March 30,
1994).
#* 10.6.3 - Amendment No. 3 dated June 1, 1994 to Employment Contract between
Michael T. Bennett and the Registrant (Previously filed as
Exhibit 10.22 to Form 10-K filed August 15, 1994).
#* 10.6.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract
between Michael T. Bennett and the Registrant (Form 10-Q filed
August 14, 1995).
#* 10.7 - Employment Agreement dated March 15, 1993 between Christopher A.
Dunn and the Registrant (Previously filed as Exhibit 10.17 to
Form 10-Q filed May 17, 1993).
#* 10.7.1 - Amendment to Employment Contract dated as of June 1, 1993 between
Christopher A. Dunn and the Registrant (Previously filed as
Exhibit 10.19 to Form 10-Q filed November 15, 1993).
#* 10.7.2 - Amendment No. 2 dated June 1, 1993 to Employment Contract between
Christopher A. Dunn and the Registrant (Previously filed as
Exhibit 10.25 to Form 10-K filed March 30, 1994).
#* 10.7.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract
between Christopher A. Dunn and the Registrant (Previously filed
as Exhibit 10.26 to Form 10-Q filed August 15, 1994).
#* 10.7.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract
between Christopher A. Dunn and the Registrant (Form 10-Q filed
August 14, 1995).
__________________
* Incorporated by reference to the indicated prior filing.
# Management contract or compensatory plan.
* 10.8 - Lease Agreement, dated September 30, 1991 between 919
Eighteenth Street, N.W. Associates Limited Partnership and the
Registrant (Previously filed as Exhibit 10.20 to Form 10-K filed
March 30, 1992).
* 10.9 - Strategic Alliance Agreement, dated November 15, 1994 between
Western Farm Credit Bank and the Registrant, as amended
January 1, 1995 (Previously filed as Exhibit 10.28 to Form 10-K
filed March 31, 1995).
21 - Subsidiaries.
21.1 - Farmer Mac Mortgage Securities Corporation, a Delaware
Corporation.
21.2 - Farmer Mac Acceptance Corporation, a Delaware corporation.
* 99.1 Map of U.S. Department of Agriculture (USDA) Regions
(Previously filed as Exhibit 1.1 to Form 10-K filed April 1, 1991).
(b) Reports on Form 8-K.
The Registrant has not filed any reports on Form 8-K during the
quarter ended September 30, 1995.
___________________
* 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 14, 1995
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)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
_______________________________________
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Exhibit Description
* 3.4 Amended and restated Bylaws of the Registrant.
___________________
* Filed Herewith.
EXHIBIT 3.4
6
3
20
23