-----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, TG1NQgQfXOcd8mj+Y+TWq+uL3YGZ30Hklyd0pIOWWgF4hRr5dBPICnjnPWweLbfO hCnVx2EWOvgIxo1gMi2Mxw== 0000845877-97-000015.txt : 19970815 0000845877-97-000015.hdr.sgml : 19970815 ACCESSION NUMBER: 0000845877-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-17440 FILM NUMBER: 97661498 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 QUARTERLY REPORT As filed with the Securities and Exchange Commission on - ------------------------------------------------------------------------------ August 14, 1997 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 June 30, 1997. Commission File Number 0-17440 FEDERAL AGRICULTURAL MORTGAGE CORPORATION (Exact name of registrant as specified in its charter) Federally chartered instrumentality 52-1578738 Of the United States ---------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. employer identification incorporation or organization) number) 919 18th Street, N.W., Suite 200 Washington, D.C. 20006 ---------------------------------- --------------------------------- (Address of principal executive (Zip code) offices) (202) 872-7700 (Registrant's telephone number, including area code) ---------------------------------------------- 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 August 11, 1997, there were 992,750 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock, and 2,677,681 shares of Class C Non-Voting Common Stock outstanding. 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. 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 1996 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 June 30, 1997 and December 31, 1996 ...3 Consolidated Statements of Operations for the three and six months ended June 30, 1997 and 1996 .....................................4 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 ...........................................5
- -------------------------------------------------------------------------------------------------- FEDERAL AGRICULTURAL MORTGAGE CORPORATION - -------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) June 30, December 31, 1997 1996 ------------------ ------------------ (unaudited) ASSETS: Cash and cash equivalents........................ $ 324,018 $ 68,912 Interest receivable.............................. 16,535 14,821 Guarantee fees receivable........................ 902 745 Loans held for securitization.................... 28,625 12,999 Investments...................................... 606,844 85,799 Farmer Mac I and II Securities, net.............. 427,584 416,501 Farmer Mac I and II payments receivable.......... 2,132 2,421 Prepaid expenses and other assets................ 1,801 568 ================= ================== TOTAL ASSETS................................. $1,408,441 $ 602,766 ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY: LIABILITIES: Debentures, notes and bonds, net: Due within one year........................ $1,068,403 $ 261,054 Due after one year......................... 279,945 285,238 Accrued interest payable......................... 7,975 7,231 Accounts payable and accrued expenses............ 2,525 1,721 Allowance for sold Farmer Mac I Securities ...... 812 317 ----------------- ------------------ TOTAL LIABILITIES............................ 1,359,660 555,561 ----------------- ------------------ STOCKHOLDERS' EQUITY Common stock: Class A Voting, $1 par value, 2,000,000 shares authorized, 991,450 and 990,000 shares issued and outstanding at June 30, 1997 and December 31, 1996, respectively .............................991 990 Class B Voting, $1 par value, 2,000,000 shares authorized, 500,301 and 593,401 shares issued and outstanding at June 30, 1997 and December 31, 1996, respectively .............................500 593 Class C Non-Voting, $1 par value, 4,000,000 shares authorized, 2,677,681 and 2,658,897 shares issued and outstanding at June 30, 1997 and December 31, 1996 .........................................2,678 2,659 Additional paid in capital ................................52,541 52,513 Note receivable for purchase of stock ..................... - (557) Unrealized gain on securities available-for-sale .......... 395 329 Accumulated deficit ...................................... (8,324) (9,322) ----------------- ------------------ TOTAL STOCKHOLDERS' EQUITY .......................... 48,781 47,205 ----------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,408,441 $ 602,766 ================= ================== 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 June 30, Six Months Ended June 30, ------------------------------ ------------------------------- ------------------------------ ------------------------------- 1997 1996 1997 1996 ------------------------------ ------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) INTEREST INCOME: Investments and cash ......... $ 13,334 $ 1,997 $ 19,092 $ 3,466 equivalents Farmer Mac I and II .......... 7,467 7,812 14,847 15,265 Securities Loans held for .............. 501 - 844 - securitization ------------------------------ ------------------------------- TOTAL INTEREST INCOME ..... 21,302 9,809 34,783 18,731 INTEREST EXPENSE ............. 19,474 9,027 31,599 17,422 ------------------------------ ------------------------------- NET INTEREST INCOME ....... 1,828 782 3,184 1,309 OTHER INCOME: Guarantee fees .............. 607 328 1,132 652 Gain on issuance of mortgage-backed ........... 1,053 913 1,519 913 securities, net Miscellaneous ............... 21 16 217 51 ------------------------------ ---------------------------- TOTAL OTHER INCOME ........ 1,681 1,257 2,868 1,616 ------------------------------ --------------------------- OTHER EXPENSES: Compensation and employee ... 1,005 629 1,708 1,160 benefits Professional fees ........... 341 196 689 352 Insurance ................... 59 54 118 105 Rent ........................ 55 34 112 75 Regulatory fees ............. 16 71 31 143 Board of Directors fees and meeting expenses ...... 89 80 179 168 Administrative .............. 262 105 468 188 Provision for losses ........ 340 120 520 142 ------------------------------ ------------------------------ TOTAL OTHER EXPENSES ...... 2,167 1,289 3,825 2,333 ------------------------------ ------------------------------ INCOME BEFORE INCOME TAXES .... 1,342 750 2,227 592 Provision for income taxes .... 36 - 63 - ------------------------------ ------------------------------- NET INCOME $ 1,306 $ 750 $ 2,164 $ 592 ============================== =============================== EARNINGS PER SHARE Classes A and B Voting $ 0.13 $ 0.14 $ 0.22 $ 0.12 Common Stock Class C Non-Voting Common $ 0.39 $ 0.43 $ 0.65 $ 0.35 Stock See accompanying notes to consolidated financial statements.
======================================================================================== ======================================================================================== FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Six Months Ended ------------------------------------ ------------------------------------ June 30, 1997 June 30, 1996 ---------------- ---------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Income from Operations ............................ $ 2,164 $ 592 Adjustments to reconcile net income to cash provided by operating activities: Amortization of premium on Farmer Mac I and II Securities ................................... 1,641 1,844 Discount Note amortization ........................ 19,415 5,355 (Increase) decrease in guarantee fees ............. (157) 104 receivable (Increase) decrease in interest receivable ........ (1,715) 718 Decrease (increase) in Farmer Mac I and II ........ 289 (358) payments receivable (Increase) decrease in prepaid expenses and ....... (1,205) 55 other assets Amortization and depreciation ..................... 60 46 Increase in accounts payable and accrued .......... 804 735 expenses Increase in loans held for securitization ......... (15,626) - Increase (decrease) in accrued interest payable ... 744 (907) Provision for losses .............................. 520 142 Other ............................................. (2) - ---------------- ---------------- Net cash provided by operating activities ......... 6,932 8,326 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Farmer Mac I and II purchases ..................... (42,778) (34,417) Purchases of investments .......................... (549,447) (15,554) Proceeds from maturity of investments ............. 28,471 22,782 Proceeds from Farmer Mac I and II principal ....... 30,030 45,208 repayments Purchases of office equipment ..................... (49) (12) ---------------- ---------------- Net cash (used)/provided by investing activities .. (533,773) 18,007 ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Medium-Term Notes ....... 54,960 9,983 Payments to redeem Medium-Term Notes .............. (18,740) (49,580) Proceeds from issuance of Discount Notes ..........10,325,836 815,032 Discount Notes redeemed ...........................(9,579,455) (780,000) Repurchase of Class B Common Stock ................ (1,396) - Proceeds from issuance of common stock ............ 742 2,611 ---------------- ---------------- Net cash provided/(used) by financing activities .. 781,947 (1,954) ---------------- ---------------- Net increase in cash and cash equivalents ......... 255,106 24,379 Cash and cash equivalents at beginning of period .. 68,912 8,336 ---------------- ---------------- Cash and cash equivalents at end of period ........ $ 324,018 $ 32,715 ================ ================ Supplemental disclosures of cash flow information: Cash paid during the six-month period for: Interest $ 11,539 $ 12,943 Taxes $ 34 $ - See accompanying notes to consolidated financial statements.
================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ (unaudited) Note 1. Accounting Policies. (a) Principles of Consolidation Financial information at and for the three and six months ended June 30, 1997 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) Earnings Per Share Earnings per share are computed using the weighted average number of common shares outstanding, including the fully dilutive effect of common stock equivalents and the effect of the 3-to-1 dividend and liquidation rights ratio applicable to each share of Class C Non-Voting Common Stock relative to each share of Voting Common Stock. The following table sets forth the weighted average shares outstanding for the periods indicated.
Three Months Ended Six Months Ended June June 30, 30, ----------------------- ----------------------- 1997 1996 1997 1996 ----------------------- ----------- ----------- (In Thousands) Class A Voting Common Stock 991 958 991 814 Class B Voting Common Stock 500 593 515 581 Class C Non-Voting Common Stock 2,846 1,218 2,847 1,211
(c) Reclassifications Certain reclassifications of the 1996 information were made to conform with the 1997 presentation. Note 2. Off-Balance Sheet Farmer Mac Guaranteed Securities. Farmer Mac issues guarantees in the normal course of business to fulfill its statutory purpose of increasing liquidity for agricultural mortgage lenders. Farmer Mac guarantees the timely payment of principal and interest on securities issued under the Farmer Mac I and Farmer Mac II Programs. The following table sets forth the outstanding principal balances of Farmer Mac Guaranteed Securities issued under the Farmer Mac I and II Programs and not held in its portfolio.
June 30, 1997 December 31, 1996 -------------------- ------------------- (Dollars in Thousands) Farmer Mac I $ 319,084 $ 214,424 Farmer Mac II $ 18,029 $ 11,606
At June 30, 1997, the $319.1 million of Farmer Mac I Securities included $266.8 million of agricultural mortgage-backed securities ("AMBS") issued under Farmer Mac's expanded legislative authorities for which Farmer Mac bears the risk of first loss. The remaining Farmer Mac I Securities were issued prior to the 1996 enactment of the Corporation's revised legislative authorities and are supported by unguaranteed subordinated interests, which represented 10% of the initial balance of the loans underlying the securities. The loans underlying the Farmer Mac II Securities are backed by the "full faith and credit" of the United States by virtue of the USDA guarantee of principal and interest on such loans. For further information regarding outstanding Farmer Mac Guaranteed Securities, including those held in portfolio, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Supplemental Information." Note 3. Commitments. At June 30, 1997, Farmer Mac had committed to purchase $10.2 million of Qualified Loans through the Farmer Mac I cash window. With respect to outstanding commitments to purchase Qualified Loans and the $28.6 million in loans held for securitization at June 30, 1997, Farmer Mac had committed to sell forward $26.5 million of AMBS for future settlement. The $12.3 million net purchase position at June 30, 1997, consisted of adjustable-rate and fixed-rate loans. The Corporation manages interest-rate risk related to the fixed-rate loans not offset by forward sale commitments through off-balance sheet derivative financial instruments, such as futures contracts, as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Asset and Liability Management." For information regarding commitments entered into during the period, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Supplemental Information." Note 4. Interest Rate Swaps and Hedge Instruments. Interest rate swaps are entered into with the express intent of synthetically creating interest-earning assets and debt instruments. As such, the net differential received or paid is recorded as an adjustment to interest income or expense on the associated assets or liabilities on an accural basis. Futures contracts are used to manage interest-rate risk exposure related to commitments to purchase Qualified Loans and loans held for securitization. Futures contracts that are designated to and that substantially offset changes in the value of the hedged loans are marked-to-market with the unrealized gains or losses deferred as an adjustment to the cost basis of the loans. When the futures contracts are terminated, the realized gains or losses are deferred and amortized over the lives of the hedged loans. Gains and losses on futures contracts that do not substantially offset changes in the value of the hedged loans are recognized currently. Substantial offset of changes in the value of the hedged loan is deemed to occur when the change in the value of the futures contract offsets 80% to 125% of the change in value of the loan. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Farmer Mac regularly communicates information concerning its business activities to investors, securities analysts, the news media and others as part of its normal operations. Some of these communications include forward looking statements pertaining to management's current expectations as to Farmer Mac's future business plans, results of operations and/or financial condition. Forward looking statements are typically accompanied by, and identified with, such terms as "anticipates," "believes," "expects," "intends," "should" and similar phrases. Management's expectations for the Corporation's future necessarily involve a number of assumptions and estimates and various factors could cause actual results to differ materially from these expectations. The following management's discussion and analysis includes forward looking statements addressing the Corporation's prospects for earnings, loan volume and securitization growth; trends in net interest income and provision for losses; changes in capital position; and other business and financial matters. Among the factors that could cause actual results to differ from the expectations expressed herein are the following: substantial changes in interest rates, agricultural land values, commodity prices and 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; 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; legislative or regulatory restrictions on Farmer Mac's investment authority; the availability of debt funding in sufficient quantities and at attractive spreads 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 to Farmer Mac; the willingness of investors to invest in agricultural mortgage-backed securities versus other investments; competition in the origination or purchase of agricultural mortgage loans and the sale of agricultural mortgage-backed and debt securities; the imposition of significant risk-based capital requirements; or changes in the Corporation's status as a government-sponsored enterprise. Given the foregoing potential risks and uncertainties, no undue reliance should be placed on any forward looking statements expressed herein. Furthermore, Farmer Mac undertakes no obligation to publicly release the result of revisions to any forward looking statements that may be made to reflect any future events or circumstances. Results of Operations Overview. Farmer Mac's net income for the six months ended June 30, 1997 was $2.2 million, an increase of $1.6 million as compared to net income of $0.6 million for the six months ended June 30, 1996. For the three months ended June 30, 1997, Farmer Mac's net income was $1.3 million, a $0.5 million increase as compared to $0.8 million for the three months ended June 30, 1996. The increases in net income were largely attributable to an increase in: net interest income, principally resulting from the growth in cash and cash equivalents, investments and loans held for securitization; an increase in the gain on issuance of mortgage-backed securities; and an increase in guarantee fee income resulting from increased guarantee fee rates and an increase in the outstanding balance of Farmer Mac I and II Securities. Earnings per share for the six months ended June 30, 1997 for Classes A and B Voting Common Stock were $0.22 and for Class C Non-Voting Common Stock were $0.65, compared with earnings per share for the six months ended June 30, 1996 of $0.12 for Classes A and B Voting Common Stock and $0.35 for Class C Non-Voting Common Stock, as adjusted to reflect the 3-to-1 dividend and liquidation rights ratio applicable to each share of Class C Non-Voting Common Stock relative to each share of Voting Common Stock. Earnings per share for the three months ended June 30, 1997 for Classes A and B Voting Common Stock were $0.13 and for Class C Non-Voting Common Stock were $0.39, compared with earnings per share for the three months ended June 30, 1996 of $0.14 for Classes A and B Voting Common Stock and $0.43 for Class C Non-Voting Common Stock, as adjusted. During the second quarter of 1997, Farmer Mac continued to expand operations under its revised legislative authorities. Approximately $71.6 million of AMBS, backed by loans acquired through the cash window, were sold to capital market investors. An additional $20.7 million of AMBS were sold in July 1997, with an additional $22.6 million committed for sale in September 1997. To date, Farmer Mac has approved and authorized 131 sellers based in 24 states to submit loans for sale through the cash window and currently has under review an additional 30 applications. Farmer Mac is continuing to expand its seller network by focusing its marketing initiatives on regional banks and non-traditional agricultural mortgage lenders, such as agricultural suppliers and mortgage bankers. In the former regard, Farmer Mac recently approved Glendale Federal Bank, FSB and Wells Fargo Bank, N.A. as Farmer Mac sellers. Both entities are large, California-based financial institutions whose participation should expand the network of Farmer Mac sellers into the communities they serve and increase the number of outlets offering Farmer Mac Qualified Loans. Farmer Mac is currently working with several other large financial institutions to secure their participation in its program. Both seller and geographic distribution continue to broaden with the expanding seller network. As of June 30, 1997, only two sellers each represented 10% or more of the total principal balance of loans submitted for purchase through the cash window, with no one seller accounting for more than 11% of cash window volume. Although the states comprising the Pacific region continue to provide the largest source of volume, the relative level of business from Mountain and Corn Belt states is steadily increasing. Since the opening of the cash window in July 1996, over $345.8 million of loans have been submitted to Farmer Mac for approval, of which approximately 38% ($130.7 million) have been securitized and sold, 8% ($26.6 million) have been purchased and are pending securitization, and 17% ($59.1 million) are in various stages of the pipeline. The remaining 37% ($129.4 million) of loans have been either denied by Farmer Mac for credit reasons or withdrawn by the seller/servicer. In addition to purchasing loans through the cash window, Farmer Mac is continuing to discuss and negotiate with portfolio holders of agricultural loans regarding the acquisition of loans through outright purchases or in exchange for Farmer Mac-guaranteed securities, although no such transactions have been consummated to date. In early 1997, Farmer Mac undertook a strategy to increase its presence in the capital markets, particularly the debt markets, in order to attract more investors to its debt and mortgage-backed securities and thereby improve the liquidity of its securities and reduce its borrowing and securitization costs. In implementing this debt strategy, the Board and management believed that increasing Farmer Mac's presence in the capital markets would improve the pricing of its AMBS, and thereby enhance the attractiveness of the loan products offered through its programs for the benefit of agricultural lenders and borrowers. Since the strategy's implementation, the Corporation has experienced a tightening of its AMBS spreads relative to other comparable agency securities and anticipates continued improvements in pricing as liquidity and investor recognition increase through the expanded debt issuances. The Corporation's eventual objective for the proceeds of its increased debt issuances is investment of those proceeds in Qualified Loans purchased under the Farmer Mac programs. During the phase-in of that objective, Farmer Mac will be investing a portion of those proceeds in high quality, short-term and longer-term floating-rate interest-earning assets, which have generated, and should continue to generate, increased net interest income. Changes in interest rates or restrictions on the Corporation's authorized investments, as well as the availability of debt funding, could adversely affect improvements in pricing and cause results to differ from management's expectations. Notwithstanding the increase in Farmer Mac's business activity and the improvements in its financial performance since the enactment of the legislative revisions to its statutory charter in early 1996, Farmer Mac still faces many challenges, particularly that of continuing to expand its business in the highly static market for agricultural and rural home mortgage loans. While the programs it operates are now more accessible to agricultural lenders and offer competitive loan rates and terms, they continue to receive only gradual acceptance in the agricultural lending community for a number of reasons that have been reported previously. For Farmer Mac to succeed over the long term in realizing its business development and profitability goals, lenders must be convinced of the benefits of selling loans to Farmer Mac and must be willing to adapt their business practices to sell loans into the secondary market in significant volume. Set forth below is a discussion of certain specific items of the income statement and balance sheet. Average Balances, Income and Expense, Yield and Rates. The following table provides, for the periods indicated, information regarding interest-earning assets and interest-bearing liabilities.
Six Months Ended June 30, --------------------------------------------------------- 1997 1996 ------------------------ --------------------------- (Dollars in Thousands) Average Income/ Average Average Income/ Average BalancesExpense Yield/Rate Balances Expense Yield/Rate Assets ------------------------------------------------------------------------------------------- Interest-earning assets: Farmer Mac I and II ....... $ 417,265 $ 14,847 7.12% $ 407,425 $ 15,265 7.49% Securities Investments and cash 586,005 19,092 6.52% 141,719 3,466 4.89% equivalents Loans held for 19,195 844 8.79% securitization - -------------------------------------------------------------------------------------------- Total interest-earning ....$1,022,465 $ 34,783 6.80% 549,144 $ 18,731 6.82% assets Other assets ............... 55,589 27,928 ------------------------------------------------------------------------------------------- .............................$1,078,054 $ 577,072 =========================================================================================== Liabilities and Stockholders' Equity ------------------------------------------------------------------------------------------- Interest-bearing liabilities: Debentures, notes and bonds, net ............$ 997,998 $ 31,599 6.33% $ 543,608 $ 17,422 6.41% Other liabilities ......... 35,180 20,709 Stockholders'equity ....... 44,876 12,755 ------------------------------------------------------------------------------------------- .............................$1,078,054 $ 577,072 =========================================================================================== Net interest income/spread .. $ 3,184 .47% $ 1,309 .41% =========================================================================================== Net yield on ................ .62% .48% interest-earning assets ===========================================================================================
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.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 --------------------------------------------- Increase or(Decrease) Due to Rate Volume Total ------------ -------------- ------------ (in thousands) Income from interest-earning assets: Farmer Mac I and II Securities $ (804) $ 386 $ (418) Investments and cash equivalents 1,497 14,129 15,626 Loans held for securitization - 844 844 ------------ -------------- ------------ Total income from 693 15,359 16,052 interest-earning assets Expense on interest-bearing (208) 14,385 14,177 liabilities ------------ -------------- ------------ Change in net interest income $ 901 $ 974 $ 1,875 ============ ============== ============
Net Interest Income. Net interest income totaled $3.2 million for the six months ended June 30, 1997 compared to $1.3 million for the same period in 1996. The $1.9 million increase was due to an increase in the average balance of interest-earning assets combined with an increase in net interest yield. The increase in the average balance of interest-earning assets was primarily due to an increase in the average balance of investments and cash equivalents resulting from the implementation of Farmer Mac's expanded debt issuance strategy. The increase in net interest yield was due to a shift in the composition of the investment portfolio from short-term, highly liquid investments to longer-term floating-rate investments which generally have higher spreads. The shift toward longer-term investments was primarily attributable to growth in floating-rate agency securities. Net interest income totaled $1.8 million for the three months ended June 30, 1997, a $1.0 million increase from the $0.8 million for the three months ended June 30, 1996. The increase was due to an increase in the average balance of the interest-earning assets and related net interest yield, as discussed above. Asset and Liability Management. Farmer Mac enters into off-balance sheet derivative financial instruments, primarily interest rate swaps, as an end-user and not for trading or speculative purposes. In light of Farmer Mac's increased activity in the capital debt markets, Farmer Mac has begun to use interest rate swaps to synthetically create debt instruments and interest-earning assets. Interest rate swaps are contractual agreements between two parties for the exchange of periodic payments based on a notional principal amount and agreed upon rates that may be fixed or variable. These swaps, when combined with the underlying liability or asset, synthetically create debt and asset yields that should produce lower effective debt costs or higher effective asset yields than those available through direct debt issuances or asset purchases. At June 30, 1997, Farmer Mac had $245.0 million in notional amount of interest rate swaps outstanding. To a lesser extent, the Corporation uses off-balance sheet derivative financial instruments to reduce its exposure to interest-rate risk related to outstanding commitments to purchase Qualified Loans. From the time Farmer Mac issues a commitment to purchase a Qualified Loan until those Qualified Loans are securitized, Farmer Mac is subject to the risk that interest rate changes during that period may materially affect the value of those Qualified Loans. To mitigate that risk, the Corporation enters into forward sale commitments and futures contracts. As of June 30, 1997, Farmer Mac had entered into forward sale commitments and futures contracts totaling $26.5 million and $400 thousand, respectively. While derivative financial instruments reduce Farmer Mac's exposure to interest-rate risk, they increase its exposure to credit risk. Credit risk arises from the possibility that a counterparty will be unable to perform according to the terms of the contract and is equal to the fair value gain on the instrument if the counterparty fails to perform. The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. Farmer Mac mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by using International Swaps and Derivatives Association documentation and by requiring the posting of securities as collateral under certain circumstances to reduce exposure. Collateral is delivered by either party when the fair value of a particular transaction on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. Other Income. Other income totaled $2.9 million for the six months ended June 30, 1997, an increase of $1.3 million from the six months ended June 30, 1996. The increase was primarily due to an increase in guarantee fee income and gain on the issuance of mortgage-backed securities. Guarantee fees totaled $1.1 million for the six months ended June 30, 1997, an increase of $480 thousand from the six months ended June 30, 1996. This increase resulted from an increase in the balance of outstanding guaranteed securities for the comparable period and the increased guarantee fee rate (to 50 basis points from 25 basis points) applicable to Farmer Mac I Securities issued under the revised legislative authorities. At June 30, 1997, Farmer Mac had $755.1 million of guaranteed securities outstanding (including Farmer Mac I and II Securities held in portfolio) as compared to $598.4 million at June 30, 1996. Of those amounts, $266.8 million and $120.7 million were issued under the revised authorities as of June 30, 1997 and June 30, 1996, respectively. The gain on issuance of mortgage-backed securities totaled $1.5 million and $0.9 million, respectively, for the six months ended June 30, 1997 and 1996, resulting from the issuance of $121.0 million and $120.7 million of AMBS during the six months ended June 30, 1997 and 1996. The gain on issuance for the six months ended June 30, 1996 is net of accrued expenses related to a dispute with Western Farm Credit Bank ("WFCB"), which was subsequently resolved. For the three months ended June 30, 1997, other income totaled $1.7 million, an increase of $0.4 million from the three months ended June 30, 1996. The increase was primarily attributable to an increase in guarantee fees, as discussed above. Other Expenses. Other expenses totaled $3.8 million and $2.2 million, respectively, for the six and three months ended June 30, 1997, as compared to $2.3 million and $1.3 million for the six and three months ended June 30, 1996. The increases over the six and three month comparable periods were due to increases in compensation and employee benefits, professional fees, administrative expenses and the provision for losses resulting from the continued implementation of Farmer Mac's 1996 legislative authorities and increased cash window activity. The increase in compensation and employee benefits, the principal component of other expenses, was also due to annual incentive compensation paid to senior management in the second quarter of 1997. Income Tax Expense. As a result of the utilization of net operating loss carryforwards, Farmer Mac's tax expense was limited to $63 thousand and $36 thousand for the six and three months ended June 30, 1997, respectively. No income tax expense was recognized during the six or three months ended June 30, 1996. Financial Condition and Capital At June 30, 1997, assets totaled $1.4 billion, as compared to $602.8 million at December 31, 1996. The increase was largely attributable to the implementation of the Corporation's expanded debt issuance strategy, resulting in a $776.2 million increase from December 31, 1996 to June 30, 1997 in cash and cash equivalents and investments, which were funded by Discount Notes with similar terms to maturity or rate resets. At June 30, 1997, Farmer Mac had $1.3 billion of Discount Notes and Medium-Term Notes (net of unamortized debt issuance costs, discounts and premiums) outstanding, as compared to $546.3 million at December 31, 1996. This $802.1 million increase was the result of the implementation of Farmer Mac's debt issuance strategy. During the first six months of 1997, Farmer Mac issued $10.3 billion of Discount Notes and $55.0 million of Medium-Term Notes and redeemed $9.6 billion of Discount Notes and $18.7 million of Medium-Term Notes. Farmer Mac maintains an allowance for loan losses to cover anticipated losses under the Farmer Mac I Program. At June 30, 1997, the allowance for losses on guaranteed securities held in portfolio and those sold to investors totaled $1.2 million, compared to $0.7 million at December 31, 1996. The Farmer Mac I Securities held in portfolio are shown net of their applicable allowance of $0.4 million at June 30, 1997. The allowance for Farmer Mac I Securities sold to investors was $0.8 million at June 30, 1997, representing an increase of $0.5 million from year-end 1996. This increase was attributable to an increase in the outstanding balance of AMBS (as to which Farmer Mac bears the risk of first loss) sold to investors. No loss allowance has been made for the Farmer Mac II Program because the Guaranteed Portions are backed by the full faith and credit of the United States and are not exposed to credit losses. Management evaluates the adequacy of the allowance for loan losses on a quarterly basis and considers a number of factors, including: historical charge-off and recovery activity (noting any particular trends in preceding periods); trends in delinquencies, bankruptcies and non-performing loans; trends in loan volume and size of credit risks; current and anticipated economic conditions; the condition of agricultural segments and geographic areas experiencing or expected to experience particular economic adversities, particularly areas where Farmer Mac may have a geographic or commodity concentration; the degree of risk inherent in the composition of the guaranteed portfolio; quality control reviews; and underwriting standards. Farmer Mac considers the amounts in the allowance account to be adequate to cover its exposure to guarantee payments in the Farmer Mac I Program. At June 30, 1997, loans that were 90 days or more past due and loans that were in foreclosure or bankruptcy represented 0.1% of the principal amount of all loans underlying Farmer Mac Guaranteed Securities. Management believes that no losses will be incurred by Farmer Mac on these loans because of the existence of the 10% subordinated interests with respect to the related securities. For further information on delinquencies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Supplemental Information." At June 30, 1997, Farmer Mac's stockholders' equity totaled $48.8 million, an increase of $1.6 million from December 31, 1996. Certain transactions related to the settlement with WFCB, which affected stockholders' equity during the first half of 1997, included: the repurchase (and subsequent cancellation) of 93,100 shares of Class B Voting Common Stock; the issuance of 18,784 shares of Class C Non-Voting Common Stock to WFCB pursuant to the exercise of warrants previously issued to WFCB; and the repayment of the $557 thousand note receivable due from WFCB with interest. Farmer Mac also commenced a direct stock purchase program to offer approximately 100,000 shares of Class A Voting Common Stock to interested eligible investors pursuant to which approximately 1,450 shares had been issued at June 30, 1997. By statute, Farmer Mac's Class A Voting Common Stock can only be held by banks, insurance companies and other financial entities that are not members of the Farm Credit System. At June 30, 1997 and December 31, 1996, Farmer Mac's regulatory required minimum capital was $33.2 million and $7.4 million, respectively, compared with actual capital of $48.8 million and $47.2 million. Farmer Mac has not paid and does not expect to pay dividends on its common stock in the near future. Dividends on the common stock are subject to determination and declaration by the Board. There is no preference between holders of the Voting Common Stock and Class C Non-Voting Common Stock relating to dividends. The ratio of dividends paid on each share of Class C Non-Voting Common Stock to each share of Voting Common Stock, however, will be three-to-one. If dividends are to be paid to holders of the Voting Common Stock, such per share dividends to holders of Class A and Class B Voting Common Stock will be equal. New Accounting Standards In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 requires the disclosure of basic earnings per share, calculated as net income divided by the weighted average shares outstanding, in addition to diluted earnings per share. This Statement is effective for financial statements issued for periods ending after December 15, 1997. In addition, the FASB issued SFAS No. 130, "Reporting of Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in June 1997. SFAS No. 130 requires companies to report comprehensive income in the financial statements. Comprehensive income includes net income and other changes in stockholders' equity from nonowner sources, such as unrealized gains or losses on available-for-sale securities. SFAS No. 131 requires public companies to report certain information about operating segments. These Statements are effective for fiscal years beginning after December 15, 1997. Management believes that the adoption of these Statements will not have a material effect on Farmer Mac's financial results. Supplemental Information The following tables set forth quarterly activity regarding: mandatory commitments to purchase loans; purchases of loans; AMBS issuances; delinquencies; and outstanding guaranteed securities issued under the Farmer Mac I and II Programs.
Mandatory Commitments to Purchase Loans - ---------------------------------------------------------------------------------------- (Dollars in Thousands) - ---------------------------------------------------------------------------------------- Fixed-Rate Loans ---------------------------------------- For the 1,3 and 5 quarter ended: 15 Year 7 Year 5 Year Year ARMs Total Balloon Balloon ------------ ------------ ------------ ------------ ------------ June 30, 1997 $ 19,196 $ 2,485 $ 54,980 $ 9,283 $ 85,944 March 31, 1997 37,471 - 14,234 3,325 55,030 December 31, 1996 15,417 - 11,693 - 27,110 September 30, 1996 13,457 - 7,986 - 21,443 ------------ ------------ ------------ ------------ ------------ $ 85,541 $ 2,485 $ 88,893 $ 12,608 $189,527 Purchases of Loans - ---------------------------------------------------------------------------------------- (Dollars in Thousands) - ---------------------------------------------------------------------------------------- Fixed-Rate Loans ---------------------------------------- For the 1,3 and 5 quarter ended: 15 Year 7 Year 5 Year Year ARMs Total Balloon Balloon ------------ ------------ ------------ ------------ ------------ June 30, 1997 $ 26,325 $ 2,485 $ 53,483 $ 8,990 $ 91,283 March 31, 1997 29,647 - 13,678 840 44,165 December 31, 1996 22,299 - 14,006 - 36,305 September 30, 1996 2,331 - 3,000 - 5,331 ------------ ------------ ------------ ------------ ------------ $ 80,602 $ 2,485 $ 84,167 $ 9,830 $177,084 AMBS Issuances - ---------------------------------------------------------------------------------------- (Dollars in Thousands) - ---------------------------------------------------------------------------------------- Fixed-Rate Loans ---------------------------------------- For the 1,3 and 5 quarter ended: 15 Year 7 Year 5 Year Year ARMs Total Balloon Balloon ------------ ------------ ------------ ------------ ------------ June 30, 1997 $ 57,569 $ 2,485 $ 11,578 $ - $ 71,632 March 31, 1997 32,255 - 17,105 - 49,360 December 31, 1996 16,766 - 10,702 - 27,468 September 30, 1996 - - - - - ------------ ------------ ------------ ------------ ------------ $106,590 $ 2,485 $ 39,385 $ $ 148,460 -
Delinquencies (1) - --------------------------------------------------------- Farmer Mac I Securities -------------------------- As of: AMBS Other (2) Total ------------ ------------ ------------ June 30, 1997 - 0.21% 0.10% March 31, 1997 - 0.66% 0.39% December 31, 1996 - 1.11% 0.73% September 30, 1996 - 2.84% 2.04% (1) Includes loans 90 days or more past due and loans in foreclosure or bankruptcy. (2) Includes loans underlying securities issued prior to the 1996 enactment of the Corporation's revised legislative authorities. These securities are supported by unguaranteed subordinated interests, which represented 10% of the initial balance of the loans underlying the securities.
Outstanding Guaranteed Mortgage Securities - --------------------------------------------------------------------------------- (Dollars in Thousands) - --------------------------------------------------------------------------------- Farmer Mac I Held in ------------------------ As of: AMBS Other (1) Farmer Mac Total Portfolio II (2) ------------------------ ------------ ----------- ------------- June 30, 1997 $ 266,838 $ 243,775 $ 244,502 $ 755,115 $ 418,002 March 31, 1997 195,792 252,134 224,197 672,123 403,685 December 31, 1996 148,918 271,341 211,024 631,283 405,253 September 30, 1996 120,559 287,334 190,269 598,162 395,728 (1) Includes securities issued prior to the 1996 enactment of the Corporation's revised legislative authorities. These securities are supported by unguaranteed subordinated interests, which represented 10% of the initial balance of the loans underlying the securities. (2) Included in total outstanding guaranteed mortgage securities.
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. (a) Farmer Mac's Annual Meeting of Stockholders was held on June 12, 1997. (b) Not Applicable. (c) (1) Election of Directors - Class A Nominees
Number of Shares For Withheld Dean 767,241 3,100 Hemingway 767,241 3,100 Johnson 766,641 3,700 Mulder 767,041 3,300 Nolan 767,241 3,100 - Class B Nominees Number of Shares For Withheld Graff 495,551 100 McCarthy 495,301 350 Nelson 495,201 450 Raines 495,101 550 Rhodes 495,201 450
(2) Selection of Independent Auditors (KPMG Peat Marwick LLP) Class A Stockholders: Number of Shares For 765,941 Against 3,500 Abstain 900 Class B Stockholders: Number of Shares ---------------- For 495,551 Against 0 Abstain 100 (d) 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-K filed March 27, 1997). +* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to Form 10-Q filed August 14, 1992). +* 10.1.1 - Amendment No. 1 to Stock Option Plan (Previously filed as Exhibit 10.2 to Form 10-Q filed August 16, 1993). ------------------ * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan. +* 10.1.2 - 1996 Stock Option Plan (Form 10-Q filed August 14, 1996). +* 10.1.3 - 1997 Stock Option Plan (Form 10-Q filed May 15, 1997). +** 10.1.4 - Amended and Restated 1997 Incentive 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 June 1, 1993 between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993). +* 10.2.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1994). +* 10.2.4 - Amendment No. 4 dated as of February 8, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-K filed March 29, 1996). +* 10.2.5 - Amendment No. 5 dated as of June 13, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-Q filed August 14, 1996). +* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.1 - Amendment dated December 14, 1989 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.7 to Form 10-K filed April 1, 1991). ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.3.3 - Amendment to Employment Contract dated as of June 1, 1993 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993). +* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.11 to Form 10-K filed March 30, 1994). +* 10.3.5 - Amendment No. 5 dated as of June 1, 1994 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed August 15, 1994). +* 10.3.6 - Amendment No. 6 dated as of June 1, 1995 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14, 1995). +* 10.3.7 - Amendment No. 7 dated as of February 8, 1996 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-K filed March 29, 1996). +* 10.3.8 - Amendment No. 8 dated as of June 13, 1996 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14, 1996). +* 10.4 - Employment Agreement dated June 13, 1989 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.6 to Form 10-K filed April 1, 1990). +* 10.4.1 - Amendment No. 1 dated February 14, 1991 to Employment Agreement between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.9 to Form 10-K filed April 1, 1991). +* 10.4.2 - Amendment to Employment Contract dated as of June 1, 1993 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed November 15, 1993). +* 10.4.3 - Amendment No. 3 dated June 1, 1993 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1994). +* 10.4.4 - Amendment No. 4 dated as of June 1, 1994 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed August 15, 1994). +* 10.4.5 - Amendment No. 5 dated as of June 1, 1995 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1995). +* 10.4.6 - Amendment No. 6 dated as of February 8, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-K filed March 29, 1996). +* 10.4.7 - Amendment No. 7 dated as of June 13, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1996). +* 10.5 - Employment Agreement dated April 29, 1994 between Charles M. Lewis and the Registrant (Previously filed as Exhibit 10.18 to Form 10-Q filed August 15, 1994). +* 10.5.1 - Amendment No. 1 dated as of June 1, 1995 to Employment Contract between Charles M. Lewis and the Registrant (Form 10-Q filed August 14, 1995). +* 10.5.2 - Amendment No. 2 dated as of February 8, 1996 to Employment Contract between Charles M.Lewis and the Registrant (Form 10-K filed March 29, 1996). +* 10.5.3 - Amendment No. 3 dated as of June 13, 1996 to Employment Contract between Charles M. Lewis and the Registrant (Form 10-K filed March 29, 1996). -------------------------- * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan. +* 10.6 - Employment Agreement dated October 7, 1991 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1992). +* 10.6.1 - Amendment to Employment Contract dated as of June 1, 1993 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993). +* 10.6.2 - Amendment No. 2 dated June 1, 1993 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.21 to Form 10-K filed March 30, 1994). +* 10.6.3 - Amendment No. 3 dated June 1, 1994 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.22 to Form 10-K filed August 15, 1994). +* 10.6.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed August 14, 1995). +* 10.6.5 - Amendment No. 5 dated as of February 8, 1996 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-K filed March 29, 1996). +* 10.6.6 - Amendment No. 6 dated as of June 13, 1996 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed August 14, 1996). +* 10.7 - Employment Agreement dated March 15, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed May 17, 1993). +* 10.7.1 - Amendment to Employment Contract dated as of June 1, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.19 to Form 10-Q filed November 15, 1993). - ------------------ * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan. +* 10.7.2 - Amendment No. 2 dated June 1, 1993 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.25 to Form 10-K filed March 30, 1994). +* 10.7.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.26 to Form 10-Q filed August 15, 1994). +* 10.7.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1995). +* 10.7.5 - Amendment No. 5 dated as of February 8, 1996 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-K filed March 29, 1996). +* 10.7.6 - Amendment No. 6 dated as of June 13, 1996 to Employment Contrac between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1996). * 10.8 - Lease Agreement, dated September 30, 1991 between 919 Eighteenth Street, N.W. Associates Limited Partnership and the Registrant (Previously filed as Exhibit 10.20 to Form 10-K filed March 30, 1992). * 21 - Subsidiaries. 21.1 - Farmer Mac Mortgage Securities Corporation, a Delaware Corporation. 21.2 - Farmer Mac Acceptance Corporation, a Delaware Corporation. * 99.1 - Map of U.S. Department of Agriculture (USDA) Regions (Previously filed as Exhibit 1.1 to Form 10-K filed April 1, 1991). (b) Reports on Form 8-K. The Registrant has not filed any reports on Form 8-K on March 11, 1997, to include a press release announcing its financial results for the year ended December 31, 1996. - ------------------------- * 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 August 14, 1997 By: /s/ Henry D. Edelman Henry D. Edelman President and Chief Executive Officer (Principal Executive Office) /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 EX-10 2 INCENTIVE COMPENSATION PLAN Exhibit Description +** 10.1.4 - Amended and Restated 1997 Incentive Compensation Plan. Exhibit 10.1.4 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AMENDED AND RESTATED 1997 INCENTIVE PLAN 1. Purpose of the Plan The purposes of this Amended and Restated 1997 Incentive Plan (the "Plan") are to encourage stock ownership by directors, officers, and key employees of the Federal Agricultural Mortgage Corporation (the "Company") and its subsidiaries, to provide an incentive for such individuals to expand and improve the profits and prosperity of the Company and its subsidiaries, and to assist the Company and its subsidiaries in attracting and retaining directors and key personnel through the grant of Options (as defined herein) to purchase shares of the Company's Class C nonvoting common stock, par value $1.00 per share (the "Common Stock"). 2. Persons Eligible Under Plan Any person who is an officer or employee of the Company or any subsidiary (as defined in Sections 424(f) and 424(g) of the Internal Revenue Code of 1986, as amended (a "Subsidiary"), shall be eligible for awards under the Plan (a "Participant"). Any member of the Board of Directors (the "Board") of the Company (a "Director") who is not also an employee of the Company shall be eligible to receive any awards only under Section 15 of the Plan ("Director Options"). 3. Stock Subject to Plan Subject to Section 10, the maximum number of shares that may be the subject of awards under the Plan shall be 250,000 shares of the Company's Common Stock, which shall be made available either from authorized but unissued Common Stock or from Common Stock reacquired by the Company, including shares purchased in the open market. If any award granted under the Plan is canceled, forfeited, or otherwise terminates or expires for any reason without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such award may again be the subject of grants under the Plan. 4. Administration of Plan (a) Except for the provisions of Section 15 (which to the maximum extent feasible shall be self-effectuating), the Plan shall be administered by (i) the Board of Directors for any purpose under the Plan, (ii) a committee of the Board consisting of two or more Directors, each of whom is a "Non-Employee Director" under Securities Exchange Act Rule 16b-3, for any purpose under the Plan, or (iii) a committee of the Board consisting of two or more Directors (whether or not any such Director is a "Non-Employee Director") for purposes of any award under the Plan to an employee other than an officer subject to Section 16 of the Securities Exchange Act of 1934 (it being understood and agreed that references herein to the "Committee" shall mean the Board or either committee referred to above, as the case may be). (b) Subject to the express provisions of the Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of the Plan, including, without limitation, the following:Stock then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. (i) interpret and construe the Plan and the terms and conditions of any award hereunder; (ii) adopt, amend, and rescind rules and regulations for the administration of the Plan; (iii)determine which persons meet the eligibility requirements of Section 2 hereof and to which of such eligible persons, if any, awards will be granted hereunder; (iv) grant awards to eligible persons and determine the terms and conditions thereof, including, but not limited to, the number of shares of Common Stock issuable pursuant thereto, the time not more than 10 years after the date of an award at which time the award shall expire or (if not vested) terminate, and the conditions upon which awards become exerciseable or vest or shall expire or terminate, and the consideration, if any, to be paid upon receipt, exercise or vesting of awards; (v) determine whether, and the extent to which, ajustments are required pursuant to Section 10 hereof; (vi) determine the circumstances under which, consistent with the provisions of Section 11, any outstanding award may be amended; (vii)exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (viii)generally, exercise such powers and perform such acts as deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. (c) Any action taken by, or inaction of the Company, the Board, or the Committee relating or pursuant to the Plan, shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons. No member of the Board or officer of the Company shall be liable for any such action or inaction of: (i) the entity or body; (ii) another person; or (iii) except in circumstances involving bad faith, himself or herself. In making any determination or in taking or not taking any action under the Plan, the Board and the Committee may obtain and may rely upon the advice of experts, including professional advisors to the Company. (d) The Committee may delegate ministerial, non-discretionary functions to individuals who are officers or other employees of the Company. 5. Awards (a) Awards under the Plan shall consist of options ("Options") to purchase the Common Stock of the Company and shall be evidenced by agreements (the "Award Agreements") in such form as the Committee shall approve. (b) Except for purposes of Section 15, the exercise price per share shall be 100% of the Fair Market Value of one share of Common Stock on the date immediately preceding the date the Option is granted (the "Exercise Price"), subject to adjustment only as provided in Section 10 of the Plan. As used in the Plan, the term "Fair Market Value" shall mean the closing price of the Company's Common Stock as reported on the National Association of Securities Dealers Automated Quotations system ("NASDAQ"), or such other market on which the Common Stock may be listed or traded, as determined by the Committee. If there is not a closing price quotation for the date as of which Fair Market Value is to be determined, then the Fair Market Value shall be determined by reference to the closing price quotation for the next preceding day on which a closing price quotation is available. 6. Exercise of Options (a) Options may be exercised in whole or in part at such time or times as shall be determined by the Committee and set forth in the applicable Award Agreement. A Participant electing to exercise an Option shall give written notice to the Company of such election and of the number of shares he or she has elected to purchase, and shall at the time of exercise tender the full Exercise Price for those shares. (b) The Exercise Price shall be payable in cash or by check; provided, however, that to the extent provided in the applicable Award Agreement, the Participant may pay the Exercise Price in whole or in part (i) by delivering to the Company shares of the Common Stock owned by him and having a Fair Market Value on the date of exercise equal to the Exercise Price of the Option or (ii) by reducing the number of shares of Common Stock issuable or payable upon the exercise of an Option by the number of shares of Common Stock having a Fair Market Value on the date of exercise equal to the Exercise Price of the Option. In addition, the Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures (other than share withholding) which are, from time to time, deemed acceptable. No fractional shares of Common Stock shall be issued upon exercise of an Option and the number of shares of Common Stock that may be purchased upon exercise shall be rounded to the nearest number of whole shares. (c) At such times as a Participant recognizes taxable income in connection with the receipt of shares of Common Stock hereunder (a "Taxable Event"), the Participant shall pay to the Company the amount of taxes required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance of such shares. In satisfaction of the obligation to pay the Withholding Taxes to the Company, the Participant may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the shares of Common Stock then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. 7. Right of First Refusal The Committee may, in its discretion, include in any Award Agreement relating to an Option granted under the Plan a condition that the Participant shall agree to grant the Company a Right of First Refusal, which, if so included, shall have the following terms and conditions: (a) The Participant shall give the Company written notice (the "Offer Notice") of the Participant's intention to sell any shares of Common Stock acquired (or to be acquired) upon exercise of an Option (the "Offered Shares"). The Company shall have three business days (the "Exercise Period") following receipt of the Offer Notice to determine whether to exercise its Right of First Refusal, which may be exercised either as to all or as to none of the Offered Shares. By the end of the Exercise Period, the Company shall have given written notice to the Participant of its election to exercise (the "Acceptance notice") or not to exercise (the "Rejection Notice") its Right of First Refusal. The Participant shall tender the Offered Shares to the Company within 10 business days after receipt of an Acceptance Notice. Upon receipt of a Rejection Notice, the Participant may sell the Offered Shares free and clear of such Right of First Refusal. (b) The price to be paid by the Company for the Offered Shares shall be the average of the closing price of the Company's Common Stock as reported on NASDAQ (or such other market on which the Common Stock may be listed or traded, as determined by the Committee) for the three business days immediately preceding the date of the Company's receipt of the Offer Notice or, if no such transactions occurred on those days, the average of the bid and asked prices for the Common Stock on such days. 8. Transfer Restrictions Unless otherwise permitted in the applicable Award Agreement, any Option granted under the Plan shall not be transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order, and during a Participant's lifetime shall be exercisable only by the Participant or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the legal representatives, heirs and successors of the Participant. 9. Termination of Employment (a) Except as provided in the Award Agreement and as provided in Sections 9(b), (c) or (d) below, if a Participant ceases for any reason to be employed by the Company or any of its Subsidiaries (unless such termination of employment was for "Cause"), the Participant may, at any time within 90 days after the effective date of such termination of employment, exercise his or her Options to the extent that he or she would be entitled to exercise them on such date, but in no event shall any Option be exercisable more than 10 years from the date it was granted; provided, however, that the Committee shall have the discretion to determine whether Options not yet exercisable at the date of termination of employment shall become immediately exercisable for 90 days thereafter. The Committee shall determine, subject to applicable law, whether a leave of absence shall constitute a termination of service. (b) If a Participant ceases to be employed by the Company or any of its Subsidiaries for "Cause," the Participant's unexercised Options shall terminate immediately. For purposes of this Section 9, "Cause" shall be defined as in the employment agreement, if any, between the Company and such Participant, or, if there is no employment agreement, shall mean (i) the willful failure of the Participant substantially to perform his or her duties, other than any such failure resulting from incapacity due to physical or mental illness or (ii) the willful engagement by the Participant in activities contrary to the best interests of the Company. (c) Unless otherwise provided in the Award Agreement, if a Participant dies while employed by the Company or any of its Subsidiaries, or within 90 days after having retired with the consent of the Company, the shares which the Participant was entitled to exercise on the date of the Participant's death under an Option or Options granted under the Plan may be exercised at any time after the Participant's death by the Participant's beneficiary; provided, however, that no Option may be exercised after the earlier of (i) one (1) year after the Participant's death or (ii) the expiration date specified for the particular Option in the Award Agreement. (d) Unless otherwise provided in the Award Agreement, if a Participant terminates employment by reason of Disability (as defined below), any unexercised Option held by the Participant shall expire one (1) year after the Participant has a termination of employment because of such "Disability" and such Option may only be exercised by the Participant or his or her beneficiary to the extent that the Option was exercisable on the date of termination of employment because of such "Disability;" provided, however, no Option may be exercised after the expiration date specified for the particular Option in the Award Agreement. "Disability" shall mean (a) in the case of a Participant whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Participant and the Company or Subsidiary, which employment agreement includes a definition of "Disability", the term "Disability" as used in this Plan or any Award Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and (b) in all other cases, the term "Disability" as used in this Plan or any Award Agreement shall mean a physical or mental infirmity which impairs the Participant's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 10. Adjustments (a) In the event of a Change in Capitalization (as defined below) of the Company, the Committee shall conclusively make equitable and appropriate adjustments, if any, to (i) the maximum number and class of shares of Common Stock or other stock or securities with respect to which Options may be granted under the Plan, (ii) the maximum number and class of shares of Common Stock or other stock or securities with respect to which Options may be granted to any Participant during the term of the Plan, (iii) the number and class of shares of Common Stock or other stock or securities which are subject to outstanding Options granted under the Plan and the purchase price therefor, if applicable and (iv) the number and class of shares of Common Stock or other securities in respect of which Director Options are to be granted under Section 15 hereof. (b) If, by reason of a Change in Capitalization, a Participant shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the shares of Common Stock subject to the Option prior to such Change in Capitalization. (c) No adjustment of the number of shares of Common Stock available under the Plan or to which any Option relates that would otherwise be required under this Section 10 shall be made unless and until such adjustment either by itself or with other adjustments not previously made under this Section 10 would require an increase or decrease of at least 1% in the number of shares of Common Stock available under the Plan or to which any Option relates immediately prior to the making of such adjustment (the "Minimum Adjustment"). Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment together with other adjustments required by this Section 10 and not previously made would result in a Minimum Adjustment. Notwithstanding the foregoing, any adjustment required by this Section 10 which otherwise would not result in a Minimum Adjustment shall be made with respect to shares of Common Stock relating to any Option immediately prior to exercise of such Option. No fractional shares of Common Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. (d) "Change in Capitalization" means any increase or reduction in the number of shares of Common Stock, or any change (including, but not limited to, a change in value) in the shares of Common Stock or exchange of shares of Common Stock for a different number or kind of shares or other securities of the Company or another corporation, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend in excess of earnings, property dividend, combination or exchange of shares, change in corporate structure or other substantially similar event. 11. Amendment and Termination of Plan The Board or the Committee, by resolution, may terminate, amend, or revise the Plan with respect to any shares as to which Options have not been granted. Neither the Board nor the Committee may, without the consent of a Participant, alter or impair any award previously granted under the Plan, except as authorized herein. To the extent necessary under applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law. Unless sooner terminated, the Plan shall remain in effect for a period of 10 years from the date of the Plan's adoption by the Board. Termination of the Plan shall not affect any Option previously granted. 12. Effective Date of Plan This Plan shall be effective on the date upon which it is approved by the Board. 13. Governing Law (a) Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the District of Columbia, without giving effect to conflicts of laws principles thereof. (b) The obligation of the Company to sell or deliver the shares of Common Stock with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of the shares of Common Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of the shares of Common Stock, no Options shall be granted or payment made or shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. 14. Multiple Agreements The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Participant during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that individual. 15. Director Options (a) Awards relating to the Common Stock authorized under the Plan shall be made under this section only to Directors. (b) Annually, on the first Business Day following the Company's Annual Meeting of Stockholders, commencing with the Annual Meeting following the date on which the Plan is approved, there shall be granted automatically (without any action by the Committee or the Board) a Director Option to each Director then elected to office to purchase 2,000 shares of Common Stock. "Business Day" shall mean any day, other than Saturday, Sunday, or a day on which the offices of the Federal Government are not open for business. (c) The Exercise Price for shares under each Director Option shall be equal to 100% of the Fair Market Value of a share of Common Stock on the date the Director Option is granted, determined in accordance with Section 5(b) hereof. The Exercise Price of any Director Option granted shall be paid in full at the time of each purchase (a) in cash and/or (b)(i) by delivering to the Company shares of the Common Stock owned by the Director and having a Fair Market Value on the date of exercise equal to the Exercise Price of the Director Option, or (ii) by reducing the number of Shares of Common Stock issuable or payable upon the exercise of a Director Option by the number of shares of Common Stock having a Fair Market Value on the date of exercise equal to the Exercise Price of the Director Option. In addition, the Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures (other than share withholding) which are, from time to time, deemed acceptable. No fractional shares of Common Stock shall be issued upon exercise of an Option and the number of shares of Common Stock that may be purchased upon exercise shall be rounded to the nearest number of whole shares. Each Director Option shall be subject to the Right of First Refusal, as set forth in Section 7. (d) At such times as a Director recognizes taxable income in connection with the receipt of shares of Common Stock hereunder (a "Taxable Event"), the Director shall pay to the Company the amount of taxes required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance of such shares. In satisfaction of the obligation to pay the Withholding Taxes to the Company, the Director may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the shares of Common Stock then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. (e) An annual Director Option grant under Section 15(b) shall become fully vested and exercisable at the rate of one third of the Shares (rounded down to the nearest whole share number) immediately on the date of grant and one third on May 31 of each of the following two years if the Director who is an optionee under the Director Option continues to serve as a Director as of such date. (f) Each Director Option shall terminate on the date which is the tenth anniversary of the date of grant, unless terminated earlier as follows: (i) If a Director's service as a member of the Board terminates for any reason other than Disability, death or Cause (as defined below), the Director may for a period of three (3) months after such termination exercise his or her Option to the extent, and only to the extent, that such Option was vested and exercisable as of the date the Director's service as a member of the Board terminated, after which time the Option shall automatically terminate in full. (ii) If a Director's service as a member of the Board terminates by reason of the Director's resignation or removal from the Board due to Disability (as defined in Section 9(d)), the Director may, for a period of one (1) year after such termination, exercise his or her Option to the extent, and only to the extent, that such Option was vested and exercisable, as of the date the Director's service as a member of the Board terminated, after which time the Option shall automatically terminate in full. (iii) If a Director's service as a member of the Board terminates for Cause, the Option granted to the Director hereunder shall immediately terminate in full and no rights thereunder may be exercised. For purposes of this Section 15, "Cause" shall mean (i) fraud or intentional misrepresentation, (ii) embezzlement, misappropriation or conversion of assets or opportunities of the Company, (iii) conviction of a felony or (iv) willful engagement by the Director in activities contrary to the bests interests of the Company. (iv) If a Director dies while a member of the Board or within three (3) months after termination of service as a Director as described in clause (i) of this Section 15(f) or within twelve (12) months after termination of service as a Director as described in clause (ii) of this Section 15(f), the Option granted to the Director may be exercised at any time within twelve (12) months after the Director's death by the person or persons to whom such rights under the Option shall pass by will, or by the laws of descent or distribution, after which time the Option shall terminate in full; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option was exercisable on the date of death or earlier termination of the Director's service as a member of the Board. (g) If there shall occur any event described in Section 10, then in addition to the matters contemplated thereby, the Director Options then outstanding and future grants thereof shall be automatically adjusted as contemplated by Section 10. (h) The provisions of Sections 1, 2, 3, 7, 8, 10, 11, 12 and 13 are incorporated herein by this reference. Unless the context otherwise requires, the provisions of this Section 15 shall be construed as a separate plan. Originally adopted: February 13, 1997 First Amendment: June 12, 1997 -----END PRIVACY-ENHANCED MESSAGE-----