-----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, S9dpSfe2nHr/ldn6m9H3ngwnSBGtLHYeIjwazqyoj38Pb/Ry6Tsv5NBpAkTx6iZ2 w3MQc3ioknSFvSaJ7pCOyQ== 0000845877-98-000014.txt : 19980817 0000845877-98-000014.hdr.sgml : 19980817 ACCESSION NUMBER: 0000845877-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 000-17440 FILM NUMBER: 98688712 BUSINESS ADDRESS: STREET 1: 919 18TH ST N W STREET 2: STE 200 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2028727700 MAIL ADDRESS: STREET 1: 919 18TH STREET NW STREET 2: SUITE 200 CITY: WASHINGTON STATE: DC ZIP: 20006 10-Q 1 10-Q As filed with the Securities and Exchange Commission on - ------------------------------------------------------------------------------ August 14, 1998 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, 1998. Commission File Number 0-17440 FEDERAL AGRICULTURAL MORTGAGE CORPORATION (Exact name of registrant as specified in its charter) Federally chartered instrumentality 52-1578738 Of the United States (State or other jurisdiction of (I.R.S. employer identification incorporation or organization) number) 919 18th Street, N.W., Suite 200, 20006 Washington, D.C. (Address of principal executive (Zip code) offices) (202) 872-7700 (Registrant's telephone number, including area code) ---------------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. As of August 10, 1998, there were 1,019,880 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 3,090,487 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 1997 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, 1998 and December 31, 1997........ 3 Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1997.................................. 4 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997.................................................... 5
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED BALANCE SHEETS June 30, December 31, 1998 1997 --------------- -------------- (in thousands) Assets: Cash and cash equivalents $ 345,740 $ 177,617 Investment securities 651,379 656,737 Farmer Mac guaranteed securities 468,159 442,311 Loans held for securitization 98,448 47,177 Interest receivable 18,454 19,968 Guarantee fees receivable 1,414 1,474 Prepaid expenses and other assets 4,012 2,851 --------------- -------------- --------------- -------------- Total Assets $1,587,606 $1,348,135 --------------- -------------- --------------- -------------- Liabilities and Stockholders' Equity: Liabilities: Notes payable, net: Due within one year $1,199,909 $ 856,028 Due after one year 293,993 402,803 Accrued interest payable 7,998 9,783 Accounts payable and accrued expenses 4,464 2,815 Reserve for losses on guaranteed securities 2,267 1,645 --------------- -------------- Total liabilities 1,508,631 1,273,074 Stockholders' Equity: Common stock: Class A Voting, $1 par value, no maximum authorization, 1,016,180 and 1,000,100 shares issued and outstanding at June 30, 1998 and December 31, 1997 1,016 1,000 Class B Voting, $1 par value, no maximum authorization, 500,301 shares issued and outstanding at June 30, 1998 and December 31, 1997 500 500 Class C Non-Voting, $1 par value, no maximum authorization, 3,090,307 and 3,078,214 shares issued and outstanding at June 30, 1998 and December 31, 1997 3,090 3,078 Additional paid-in capital 75,943 75,148 Unrealized gain on securities available for sale 768 1,198 Accumulated deficit (2,342) (5,863) --------------- -------------- Total stockholders' equity 78,975 75,061 --------------- -------------- Total Liabilities and Stockholders' Equity $1,587,606 $1,348,135 --------------- -------------- --------------- -------------- See accompanying notes to consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended ------------------------- ------------------------- ------------------------- ------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ----------- ------------ ------------ ----------- (in thousands, except per share amounts) Interest income: Farmer Mac guaranteed securities $ 8,113 $ 7,467 $ 15,977 $ 14,847 Investments and cash equivalents 15,724 13,334 30,358 19,092 Loans held for securitization 1,600 501 2,577 844 ----------- ------------ ------------ ----------- Total interest income 25,437 21,302 48,912 34,783 Interest expense 22,964 19,474 44,004 31,599 ----------- ------------ ------------ ----------- Net interest income 2,473 1,828 4,908 3,184 Other income: Guarantee fees 841 607 1,597 1,132 Gain on issuance of AMBS, net 552 1,053 980 1,519 Miscellaneous 14 21 62 217 ----------- ------------ ------------ ----------- Total other income 1,407 1,681 2,639 2,868 Other expenses: Compensation and employee benefits 1,028 1,005 1,834 1,708 Professional fees 423 341 791 689 Board of Directors fees and expenses 100 89 176 179 Rent 57 55 113 112 Regulatory fees 165 16 331 31 General and administrative 276 321 618 586 Provision for loan losses 362 340 622 520 ----------- ------------ ------------ ----------- Total other expenses 2,411 2,167 4,485 3,825 Income before income taxes 1,469 1,342 3,062 2,227 Income tax (benefit)/provision (306) 36 (458) 63 ----------- ------------ ------------ ----------- Net income $ 1,775 $ 1,306 $ 3,520 $ 2,164 ----------- ------------ ------------ ----------- ----------- ------------ ------------ ----------- Earnings per share: Classes A and B Voting Common Stock Basic earnings per share $ 0.16 $ 0.14 $ 0.33 $ 0.23 Diluted earnings per share $ 0.16 $ 0.13 $ 0.32 $ 0.22 Class C Non-Voting Common Stock Basic earnings per share $ 0.49 $ 0.41 $ 0.98 $ 0.68 Diluted earnings per share $ 0.48 $ 0.40 $ 0.95 $ 0.66 See accompanying notes to consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, ------------------------------- ------------------------------- 1998 1997 -------------- -------------- ------------------------------- (in thousands) Cash flows from operating activities: Net income $ 3,520 $ 2,164 Adjustments to reconcile net income to cash (used in) provided by operating activities: Amortization of premium on Farmer Mac guaranteed securities 732 1,641 Discount note amortization 30,578 19,415 Decrease (increase) in guarantee fees receivable 60 (157) Decrease (increase) in interest receivable 1,514 (1,715) Increase in prepaid expenses and other assets (1,148) (1,205) Amortization and depreciation 210 349 Increase in accounts payable and accrued expenses 1,649 802 Increase in loans held for securitization (51,271) (15,626) (Decrease) increase in accrued interest payable (1,785) 744 Provision for loan losses 622 520 -------------- -------------- Net cash (used in) provided by operating activities (15,319) 6,932 Cash flows from investing activities: Purchases of available-for-sale investments (213,905) (342,419) Purchases of investment securities (4,017) (207,028) Purchases of Farmer Mac guaranteed securities (45,758) (42,778) Proceeds from repayment of available-for-sale investments 193,477 17,244 Proceeds from repayment of investment securities 29,220 11,227 Proceeds from repayment of Farmer Mac guaranteed securities 19,178 30,030 Purchases of office equipment (41) (49) -------------- -------------- -------------- -------------- Net cash used by investing activities (21,846) (533,773) Cash flow from financing activities: Proceeds from issuance of discount notes 13,539,609 10,325,836 Proceeds from issuance of medium-term notes 14,960 54,960 Payments to redeem discount notes (13,238,585) (9,579,455) Payments to redeem medium-term notes (111,520) (18,740) Proceeds from common stock issuance 824 742 Purchase and retirement of stock - (1,396) -------------- -------------- Net cash provided by financing activities 205,288 781,947 -------------- -------------- Net increase in cash and cash equivalents 168,123 255,106 Cash and cash equivalents at beginning of period 177,617 68,912 -------------- -------------- Cash and cash equivalents at end of period $ 345,740 $ 324,018 -------------- -------------- -------------- -------------- Supplemental information: Cash paid for: Interest $ 17,406 $ 11,539 Income Taxes $ 206 $ 34 Non-cash activity: AMBS issued in exchange for Qualified Loans $ 32,755 $ -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Accounting Policies. (a) Principles of Consolidation Financial information at and for the three and six months ended June 30, 1998 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 Basic earnings per share is based on the weighted average shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding adjusted to include all dilutive potential common stock. The computation of earnings per share reflects the 3-to-1 dividend and liquidation preference applicable to each share of Class C Non-Voting Common Stock relative to each share of Class A and Class B Voting Common Stock. The following schedule reconciles basic and diluted earnings per share for the three and six months ended June 30, 1998 and 1997. Three Months Ended June 30, ---------------------------------------------------------------------------------------- 1998 1997 ------------------------------------------- ------------------------------------------- Effect of Effect of Basic stock Diluted Basic Stock Diluted EPS options EPS EPS Options EPS ------------- ---------------- ------------ ------------- ------------ ----------- (in thousands, except per share amounts) Net income $ 1,775 $ - $ 1,775 $ 1,306 $ - $ 1,306 Weighted average shares: Classes A and B 1,512 - 1,512 1,491 - 1,491 Class C 3,083 140 3,223 2,678 110 2,787 Earnings per share: Classes A and B $ 0.16 $ 0.16 $ 0.14 $ 0.13 Class C $ 0.49 $ 0.48 $ 0.41 $ 0.40
Six Months Ended June 30, ---------------------------------------------------------------------------------------- 1998 1997 ------------------------------------------- ------------------------------------------- Effect of Effect of Basic stock Diluted Basic stock Diluted EPS options EPS EPS options EPS ------------- ---------------- ------------ ------------- ------------ ----------- (in thousands, except per share amounts) Net income $ 3,520 $ - $ 3,520 $ 2,164 $ - $ 2,164 Weighted average shares: Classes A and B 1,509 - 1,509 1,506 - 1,506 Class C 3,081 140 3,221 2,675 113 2,788 Classes A and B $ 0.33 $ 0.32 $ 0.23 $ 0.22 Class C $ 0.98 $ 0.95 $ 0.68 $ 0.66
(c) Reclassifications Certain reclassifications of the 1997 information were made to conform to the 1998 presentation. Note 2. Off-Balance Sheet Financial Instruments. In the ordinary course of its business, Farmer Mac incurs off-balance sheet risk in connection with the issuance of commitments to purchase and sell Qualified Loans. At June 30, 1998, outstanding commitments to purchase Qualified Loans totaled $31.7 million. At that same date, outstanding commitments to sell Qualified Loans as agricultural mortgage-backed securities (AMBS) totaled $25.6 million. For information regarding the off-balance sheet risks associated with Farmer Mac Guaranteed Securities not held in portfolio, and with interest-rate contracts and hedge instruments, which are used to manage exposures inherent in Farmer Mac's loan pipeline and investment activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management." Note 3. Comprehensive Income In first quarter 1998, Farmer Mac adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income is comprised of net income plus other changes in stockholders' equity not resulting from investments by or distributions to stockholders. The following table sets forth comprehensive income for the three and six months ended June 30, 1998 and 1997. Three Months Ended June 30, Six Months Ended June 30, ----------------------------------------------------------- ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------- (in thousands) Net income $ 1,775 $ 1,306 $ 3,520 $ 2,164 Unrealized (loss) gain on securities available-for-sale (458) 214 (430) 66 ------------- ------------- ------------- ------------- Comprehensive income $ 1,317 $ 1,520 $ 3,090 $ 2,230 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements made in this Form 10-Q are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 pertaining to management's current expectations as to Farmer Mac's future financial results, business prospects and business developments. Forward-looking statements 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, estimates and the evaluation of risks and uncertainties. Various factors could cause actual results or events to differ materially from these expectations as expressed or implied by the forward-looking statements. The following management's discussion and analysis includes forward-looking statements addressing the Corporation's prospects for earnings and growth in loan purchase, guarantee and securitization volume; trends in net interest income and provision for losses; changes in capital position; year 2000 readiness efforts and other business and financial matters. Some of the factors that could cause Farmer Mac's actual results to differ materially from management's expectations expressed herein include: uncertainties regarding the rate and direction of development of the secondary market for agricultural mortgage loans; the possible establishment of additional statutory or regulatory restrictions applicable to Farmer Mac, such as the imposition of regulatory risk-based capital requirements in excess of statutory minimum and critical capital levels or restrictions on Farmer Mac's investment authority; substantial changes in interest rates, 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; the non-compliance of Farmer Mac's internal systems or the systems of critical vendors with respect to the year 2000 date change; legislative or regulatory developments or interpretations of Farmer Mac's statutory charter that could adversely affect Farmer Mac or the ability of certain lenders to participate in its programs or the terms of any such participation; the availability of debt funding in sufficient quantities and at favorable rates to support continued growth; the rate of growth in agricultural mortgage indebtedness; the size of the agricultural mortgage market; borrower preferences for fixed-rate agricultural mortgage indebtedness; the willingness of lenders to sell agricultural mortgage loans; the willingness of investors to invest in agricultural mortgage-backed securities; competition in the origination or purchase of agricultural mortgage loans and the sale of agricultural mortgage-backed and debt securities; or changes in 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 results of revisions to any forward-looking statements that may be made to reflect any future events or circumstances. Results of Operations Overview. Net income totaled $1.8 million for second quarter 1998. Net income for second quarter 1998 included a $325 thousand tax benefit associated with the future use of previously deferred tax benefits. Excluding the effect of the tax benefit, net income would have been $1.5 million for second quarter 1998, an increase of $144 thousand compared to net income of $1.3 million for second quarter 1997. Year-to-date 1998 net income totaled $3.5 million, which included a tax benefit of $525 thousand. Excluding the effect of the tax benefit, year-to-date net income would have been $3.0 million, compared to net income of $2.2 million for the same period a year ago. Diluted earnings per share for second quarter 1998 were $0.16 for Classes A and B Common Stock and $0.48 for Class C Common Stock. Excluding the effect of the foregoing tax benefit, earnings per share for second quarter 1998 would have been $0.13 for Classes A and B Common Stock and $0.39 for Class C Common Stock, as compared to $0.13 and $0.40, respectively, for second quarter 1997. Year-to-date 1998 diluted earnings per share were $0.32 for Classes A and B Common Stock and $0.95 for Class C Common Stock. Excluding the effect of the tax benefit, year-to-date earnings would have been $0.27 for Classes A and B Common Stock and $0.80 for Class C Common Stock, compared to $0.22 and $0.66 for the same period a year ago. Earnings per share reflect the 3-to-1 dividend and liquidation preference accorded to Class C Common Stock compared to Classes A and B Common Stock. The increases in net income from second quarter 1997 to second quarter 1998 and year-to-date 1997 to year-to-date 1998 are attributable to increases in total revenue (net interest income, guarantee fees, gain on issuance of AMBS and miscellaneous income) as a result of increases in net interest income. Net interest income is comprised of income from program assets (Farmer Mac I and II Securities and loans held for securitization) and non-program assets (cash and cash equivalents and investment securities). Although income from program assets continues to be the primary source of net interest income, the most significant contribution to the increases in net interest income from second quarter 1997 to second quarter 1998 and year-to-date 1997 to year-to-date 1998 has been income from non-program assets. In connection with the implementation of Farmer Mac's expanded debt issuance strategy, which is intended to attract more investors to its debt and mortgage-backed securities and thereby improve the liquidity of those securities and reduce its borrowing and securitization costs, Farmer Mac has increased the size of its non-program investment portfolio (cash and cash equivalents and investment securities). The proceeds of these increased debt issuances have been invested primarily in high quality, short- and long-term floating rate investments, which have generated significant amounts of net interest income. It is Farmer Mac's objective that, as guarantee volume increases, revenue from non-program assets will decline as a percentage of total revenue. During the phase-in of that objective, the term of which is dependent upon growth in Farmer Mac's core business, Farmer Mac expects income from non-program assets to continue to be a significant contributor to net interest income and total revenue. In addition to increased net interest income, Farmer Mac has also realized increased guarantee fee income as a result of increased guarantee volume and the higher guarantee fee rate applicable to Farmer Mac I Securities since enactment of its revised legislative authorities. As of June 30, 1998, outstanding Farmer Mac I and II Guaranteed Securities totaled $979.9 million, compared to $755.1 million as of June 30, 1997. While Farmer Mac's financial condition has improved, future improvements in operating results will depend largely upon growth in Farmer Mac's core business (guarantee fee income and interest income on program assets). Growth in the core business is dependent upon an increase in the volume of loans acquired or funded through Farmer Mac's programs. Farmer Mac purchased $183.4 million of Qualified Loans during year-to-date 1998 and had outstanding commitments to purchase an additional $31.7 million at June 30, 1998. During the same period a year ago, purchases totaled $135.4 million and outstanding commitments to purchase Qualified Loans totaled $10.2 million. In addition, the outstanding balance of loans in Farmer Mac's "pipeline" that have been submitted for approval or approved but not yet committed for purchase totaled $148.2 million at June 30, 1998, compared to $57.6 million at June 30, 1997. Not all loans in the pipeline are purchased, as some are denied for credit reasons or withdrawn by the seller. As part of its efforts to further increase business volume, Farmer Mac has begun to attract the interest of non-traditional agricultural real estate lenders, particularly mortgage bankers and agricultural equipment companies, for whom Farmer Mac believes the advantages of its programs would result in diversification of income sources and more efficient utilization of their existing facilities and personnel at low marginal costs through access to their established customer base. Several of the mortgage banks and large regional banks approved as Farmer Mac sellers during the previous three quarters have indicated that their programs are ready or near ready to begin selling loans to Farmer Mac during the second half of 1998. Based on management's evaluation of the business potential of its programs and their existing and prospective participants, Farmer Mac expects to continue to add resources, including additional field personnel and other employees dedicated to customer service, to support these institutions' efforts in establishing and expanding a secondary market presence in the areas they serve, and to attract more sellers who offer the prospect of active participation in Farmer Mac's programs. Because many of these institutions are, or will be, new to the Farmer Mac programs, however, management cannot predict the timing or the level of their participation. Farmer Mac continues to face the challenge of expanding its business in what has been a highly static market for agricultural and rural home mortgage loans. While the revisions to Farmer Mac's charter that permit it to operate in a manner more similar to Fannie Mae and Freddie Mac do not ensure the long-term success of Farmer Mac's programs, those programs are now receiving steadily greater acceptance among an increasingly diverse group of lenders. This reflects the competitive rates, terms and products offered and the advantages Farmer Mac believes its programs provide. For Farmer Mac to succeed in realizing its business development and profitability goals over the long term, agricultural mortgage lenders, whether traditional or non-traditional, must recognize the benefits of selling loans to Farmer Mac and must modify their business practices accordingly. Set forth below is a discussion of certain items of the income statement and balance sheet. Average Balances, Income and Expense, Yield and Rates. The following table provides information regarding interest-earning assets and interest-bearing liabilities for the periods indicated. Six Months Ended June 30, ---------------------------------------------------------------------------- 1998 1997 ------------------------------------- -------------------------------------- Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate (dollars in thousands) Assets: Farmer Mac guaranteed securities $ 452,512 $ 15,977 7.04% $ 423,057 $ 14,847 7.00% Cash and cash equivalents 355,824 9,808 5.48% 278,266 7,624 5.45% Investments 683,018 20,550 6.01% 375,574 11,468 6.10% Loans held for securitization 73,905 2,577 6.97% 24,989 844 6.75% -------------- ----------- ---------- -------------- ------------ ---------- Total interest earning assets 1,565,259 48,912 6.23% 1,101,886 34,783 6.30% Other assets 22,046 24,780 -------------- ------------- Total assets 1,587,305 1,126,666 -------------- -------------- -------------- -------------- Liabilities and Stockholder's Equity: Notes payable, net 1,498,373 44,004 5.85% 1,071,004 31,599 5.88% Other liabilities 12,219 8,079 -------------- -------------- -------------- -------------- Total liabilities 1,510,592 1,079,083 Stockholders' equity 76,713 47,583 -------------- ----------- ---------- -------------- ------------ ---------- -------------- ----------- ---------- -------------- ------------ ---------- Total liabilities and stockholders' equity 1,587,305 1,126,666 -------------- -------------- Net interest income/spread 4,908 0.38% 3,184 0.42% ----------- ---------- ------------ ---------- ----------- ---------- ------------ ---------- Net yield on interest-earning assets 0.63% 0.58% ---------- ---------- ---------- ----------
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, 1998 Compared to Six Months Ended June 30, 1997 ------------------------------------------- Increase/(Decrease) Due to ------------------------------------------- Rate Volume Total ------------- ------------- ------------- (in thousands) Income from interest-earning assets Farmer Mac guaranteed securities $ 83 $ 1,047 $ 1,130 Cash and cash equivalents 46 2,138 2,184 Investments (178) 9,260 9,082 Loans held for securitization 29 1,704 1,733 ------------- ------------- ------------- Total (20) 14,149 14,129 Expense from interest-bearing liabilities (166) 12,571 12,405 ------------- ------------- ------------- Change in net interest income $ 146 $ 1,578 $ 1,724 ------------- ------------- ------------- ------------- ------------- -------------
Net Interest Income. Net interest income for second quarter and year-to-date 1998 was $2.5 million and $4.9 million, respectively, compared to $1.8 million and $3.2 million for the same periods in 1997. The increases were attributable to increases in the balance of program and non-program assets. Program assets increased due to increases in Farmer Mac II Securities held in portfolio and loans held for securitization. Farmer Mac II Securities held in portfolio totaled $281.3 million as of June 30, 1998 compared to $226.5 million as of June 30, 1997. Loans held for securitization increased due to increased Farmer Mac I cash window activity, particularly increases in variable rate loan purchases, which Farmer Mac does not currently include in its AMBS issuances. Non-program assets increased as a result of Farmer Mac's debt issuance strategy, as previously discussed (see "- Overview"). Other Income. Other income totaled $1.4 million for second quarter 1998 and $2.6 million for year-to-date 1998, compared to $1.7 million and $2.9 million in 1997. Guarantee fee income increased $234 thousand from second quarter 1997 to second quarter 1998 and $465 thousand from year-to-date 1997 to year-to-date 1998, as a result of an increase in the balance of outstanding guaranteed securities and the increased guarantee fee rate applicable to Farmer Mac I Securities issued under Farmer Mac's revised legislative authorities (50 basis points compared to 25 basis points on Farmer Mac I Securities issued prior to the revised authorities). Although AMBS issuances increased during the three and six months ended June 30, 1998 as compared to the same periods in 1997, gain on AMBS issuances decreased due to the composition of the AMBS issuances. During second quarter 1998, Farmer Mac issued $88.8 million of AMBS compared to $71.6 million during second quarter 1997. Of the $88.8 million of AMBS issued in second quarter 1998, $32.8 million were issued in exchange for Qualified Loans in a "swap" transaction, for which no gain is realized. A $552 thousand gain was realized on the remaining $56.0 million of AMBS issued to capital markets investors. The $1.1 million gain on issuance of AMBS realized in second quarter 1997 included $320 thousand of additional sales proceeds related to first quarter 1997 issuances. For year-to-date 1998, Farmer Mac AMBS issuances were $130.2 million, of which $97.4 million were cash issuances, compared to total AMBS issuances of $121.0 million for year-to-date 1997. Gains resulting from those issuances totaled $1.0 million and $1.5 million, respectively. Other Expenses. Other expenses totaled $2.4 million for second quarter 1998 and $4.5 million for year-to-date 1998, compared to $2.2 million for second quarter 1997 and $3.8 million for year-to-date 1997. The increase was attributable to increased regulatory fees, as well as increased professional fees, compensation and other costs related to expanded operations under Farmer Mac's revised authorities. Farmer Mac's provision for losses, a component of other expenses, totaled $362 thousand for second quarter 1998 and $622 thousand for year-to-date 1998, compared to $340 thousand for second quarter 1997 and $520 thousand for year-to-date 1997. The increases in the provision for losses were due to increases in the balance of guaranteed securities. Income Tax Expense. For second quarter and year-to-date 1998, Farmer Mac recorded tax benefits of $306 thousand and $458 thousand, including tax benefits of $325 thousand and $525 thousand, respectively, related to the expected future use of previously deferred tax benefits. Deferred tax benefits that arose in prior years had not been recognized due to uncertainty regarding the level of future profitability. As certainty regarding future profitability has increased, however, Farmer Mac has recognized the previously deferred tax benefits. As of June 30, 1998, previously deferred tax benefits have been fully recognized. Accordingly, Farmer Mac's effective tax rate in future periods will approximate its statutory tax rate of 34 percent. Balance Sheet Review At June 30, 1998, total assets were $1.6 billion compared to $1.3 billion at December 31, 1997. The increase in assets, and corresponding increase in notes payable, was due to increases in both program and non-program assets. Non-program assets will fluctuate from period to period based on investment opportunities and the Corporation's liquidity needs and investment policy guidelines. For a discussion of the increase in program assets, see "- Net Interest Income." Liquidity and Capital Resources Liquidity. Farmer Mac's business programs create funding needs that are driven by the purchase of Qualified Loans, payment of principal and interest on Farmer Mac Guaranteed Securities and the maturities of debt. Farmer Mac's primary sources of funds to meet these needs are issuances of debt obligations, principal and interest payments on mortgages underlying Farmer Mac Guaranteed Securities and net operating cash flows. Because of Farmer Mac's regular participation in the capital markets and its status as a government-sponsored enterprise, Farmer Mac has been able to access the capital markets at favorable rates. Farmer Mac also maintains a portfolio of cash equivalents, comprised of commercial paper and other short-term investments, to draw upon as necessary. At June 30, 1998 and December 31, 1997, Farmer Mac's cash and cash equivalents totaled $345.7 million and $177.6 million, respectively. Capital. At June 30, 1998, Farmer Mac's stockholders' equity totaled $79.0 million, an increase of $3.9 million from December 31, 1997. This increase was primarily due to net income earned during the first and second quarters of 1998 and, to a lesser extent, the issuance of Class A and C Common Stock during the period. Farmer Mac commenced a direct stock purchase program in early 1997 to offer Class A Common Stock to interested eligible investors pursuant to which approximately 16,080 shares were issued during year-to-date 1998. 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, 1998 and December 31, 1997, Farmer Mac's regulatory required minimum capital was $41.5 million and $30.0 million, compared with actual capital of $79.0 million and $75.1 million, respectively. 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 Classes A and B Voting Common Stock and Class C Non-Voting Common Stock relating to declaration of dividends. The ratio of dividends paid on each share of Class C Non-Voting Common Stock to each share of Classes A and B Voting Common Stock, however, will be three-to-one. If dividends are to be paid to holders of the Voting Common Stock, such per share dividends to holders of Class A and Class B Voting Common Stock will be equal. Risk Management Credit Risk. Farmer Mac guarantees the timely payment of principal and interest on securities issued under the Farmer Mac I and Farmer Mac II Programs. Farmer Mac also assumes credit risk on Qualified Loans purchased through the Farmer Mac I cash window and held in portfolio pending securitization. The following table sets forth the outstanding principal balance of the securities issued and loans held for sale through the Farmer Mac programs. June 30, 1998 December 31, 1997 ----------------------------------------- ----------------------------------------- On-Balance Off-Balance On-Balance Off-Balance Sheet Sheet Total Sheet Sheet Total ----------------------------------------- ----------------------------------------- (in thousands) Farmer Mac I AMBS $ - $ 462,987 $ 462,987 $ - $ 341,213 $ 341,213 Other Farmer Mac I Securities 179,777 29,653 209,430 184,356 44,548 228,904 Loans held for securitization 98,448 - 98,448 47,177 - 47,177 Farmer Mac II Securities 281,327 32,341 313,668 249,451 23,326 272,777 ------------- ------------- ------------- ------------- ------------- ------------- Total $ 559,552 $ 524,981 $ 1,084,533 $ 480,984 $ 409,087 $ 890,071 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Farmer Mac I AMBS represent securities issued under Farmer Mac's revised legislative authorities and for which Farmer Mac bears the risk of first loss. "Other Farmer Mac I Securities" includes securities issued prior to the 1996 enactment of those authorities; these securities are supported by unguaranteed subordinated interests, which represented 10% of the initial balance of the loans underlying the security at the time of issuance. Also included in Other Farmer Mac I Securities are $6.2 million of AgVantage bonds purchased during first and second quarter 1998. AgVantage bonds, which are general obligations of the issuers, are secured by eligible collateral in an amount ranging from 120% to 150% of the bonds' outstanding principal amount. Eligible collateral consists of Qualified Loans having an aggregate principal balance at least equal to 100% of the bonds' outstanding principal amount and cash or securities issued by the U.S. Treasury or guaranteed by an agency or instrumentality of the United States. Loans held for securitization expose Farmer Mac to the same credit risk as Farmer Mac I AMBS. The loans underlying Farmer Mac II Securities are backed by the "full faith and credit" of the United States by virtue of the Secretary of Agriculture's guarantee of principal and interest on such loans. For further information regarding the outstanding balance of Farmer Mac Guaranteed Securities, see "- Supplemental Information." At June 30, 1998, loans 90 days or more past due or in bankruptcy represented 0.71% of the principal balance of all loans backing Farmer Mac I Guaranteed Securities and the loans held for securitization, compared to 0.26% and 0.10% at December 31, 1997 and June 30, 1997. The increase in delinquencies is due to the growing number of loans held or securitized by Farmer Mac that are approaching their anticipated peak default years. Farmer Mac anticipates that the level of delinquencies will fluctuate from quarter to quarter with higher delinquency rates reported in the first and third quarters of each year due to the semiannual payment characteristics of most Farmer Mac loans. On average, Farmer Mac anticipates that delinquency levels during 1998 will be higher than those experienced during 1997 due to the aging of loans held or securitized by Farmer Mac and adverse conditions affecting certain sectors of the agricultural economy. For further information on delinquencies, see"-Supplemental Information." Farmer Mac maintains a reserve for loan losses to cover anticipated losses on Farmer Mac I AMBS (no loss reserve has been made for Farmer Mac I Securities issued prior to the revised authorities because of the unguaranteed subordinated interests or for Farmer Mac II Securities because of the Secretary of Agriculture's guarantee). Management evaluates the adequacy of the reserve 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 believes the reserve for losses on guaranteed securities is adequate to cover losses incurred in the Farmer Mac I Program given the overall credit quality and diversification of loans held or securitized by Farmer Mac. At June 30, 1998, the reserve for losses on AMBS totaled $2.3 million, compared to $1.6 million at December 31, 1997. This increase was attributable to an increase in the outstanding balance of AMBS sold to investors. At June 30, 1998 and December 31, 1997, the reserve for loan losses represented approximately 0.40 percent of the total outstanding balance of Farmer Mac I AMBS and loans held for securitization. Asset and Liability Management. Farmer Mac's asset and liability management objective is to limit the effect of changes in interest rates on the Corporation's equity and earnings to within acceptable risk tolerance levels. In doing so, Farmer Mac enters into off-balance sheet derivative financial instruments. The Corporation uses these instruments as an end-user and not for trading or speculative purposes. The primary off-balance sheet derivative financial instruments used by Farmer Mac are interest-rate contracts, including interest-rate swaps and caps. These contracts are used to synthetically create debt instruments and interest-earning assets. When combined with the underlying liability or asset, the interest-rate contracts synthetically create debt and investments that should produce lower effective debt costs or higher effective asset yields than those available through direct debt issuances or investment purchases. At June 30, 1998, the notional amount of interest-rate contracts outstanding was $491.2 million. To a lesser extent, the Corporation uses futures contracts to reduce its exposure to interest-rate risk related to outstanding commitments to purchase fixed-rate Qualified Loans and fixed-rate loans held for securitization not offset by forward sale commitments. At June 30, 1998, outstanding futures contracts totaled $8.7 million. 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 cost that would be incurred by Farmer Mac to replace the instrument (as measured by the fair value gain on the instrument) should the counterparty default. Credit risk exposure related to off-balance sheet derivative financial instruments 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 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. Either party delivers collateral 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 Matters New Accounting Standard. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). Statement 133 cannot by applied retroactively. Statement 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). Farmer Mac has not yet quantified the impact of adopting Statement 133 on its financial statements and has not determined the timing of or method of adopting Statement 133. However, the Statement could increase volatility in earnings and other comprehensive income. Year 2000. The year 2000 problem relates to the inability of some computer programs to process date-sensitive information due to the use of two digits (rather than four) to define the applicable year. As a result, these computer programs may recoginze a date using "00" as the year 1900 rather than 2000, which could result in miscalculations or system failure. The year 2000 date change potentially could affect Farmer Mac's internal information technology (IT) and non-IT systems, as well as systems utilized by its external vendors. Farmer Mac's internal IT systems, which are "PC software-based," are used to perform critical business processes including purchases of Qualified Loans; sale of AMBS; issuance of debt securities; payments to debt security and AMBS investors; and financial reporting to investors and shareholders. Certain vendors also perform critical business processes by servicing the loans held or securitized by Farmer Mac and administering the guaranteed securities issued by Farmer Mac. Non-IT systems include telephones, facsimile machines and systems used to maintain building operations. Failure of these systems to handle the year 2000 date change properly could result in Farmer Mac being unable to perform critical business processes and expose Farmer Mac to significant business risk. To manage the risks related to the year 2000 date change, Farmer Mac has adopted a Year 2000 Compliance Plan. As specified in the Plan, Farmer Mac has assessed the compliance status of its internal IT and non-IT systems. While testing of internal systems will not be completed until the end of 1998, Farmer Mac has found all but one of these systems to be year 2000 compliant. The process of replacing the one non-compliant system has begun and will be completed by the end of 1998. In addition, the Plan places significant emphasis on vendors that perform critical business processes because of the higher risk associated with ensuring compliance by external vendors. Farmer Mac has been engaged in discussions with these critical vendors regarding their year 2000 readiness efforts and has not identified any significant year 2000 compliance issues. Farmer Mac will continue to monitor their year 2000 readiness efforts and will complete testing with critical vendors in early 1999. To prepare for the possibility that a critical vendor will not be year 2000 compliant, Farmer Mac has developed contingency plans, including Farmer Mac assuming the duties internally or transferring them to a compliant vendor. Currently, management believes that the year 2000 date change will not expose Farmer Mac to significant business risk based on its assessment of Farmer Mac's internal systems and critical vendors, and that total direct costs to complete its year 2000 readiness efforts will not exceed $150 thousand. 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 ----------------------------------------------------------------------- Long-Term 5 and 7 1, 3 and 5 For the quarter Fixed Rate Year Year ARMs Total ended: Balloons -------------------------- -------------------------- (in thousands) June 30, 1998 $ 49,154 $ 22,095 $ 36,731 $ 107,980 March 31, 1998 (1) 32,394 5,964 58,328 96,686 December 31, 1997 23,040 11,157 14,513 48,710 September 30, 1997 23,066 18,116 5,982 47,164 June 30, 1997 19,196 57,465 9,283 85,944
Purchases of Loans ----------------------------------------------------------------------- Long-Term 5 and 7 1, 3 and 5 For the quarter Fixed Rate Year Year ARMs Total ended: Balloons -------------------------- -------------------------- (in thousands) June 30, 1998 (1) $ 41,772 $ 18,571 $ 67,116 $ 127,459 March 31, 1998 25,671 6,099 24,147 55,917 December 31, 1997 28,063 11,250 9,674 48,987 September 30, 1997 19,300 19,978 6,800 46,078 June 30, 1997 26,325 55,968 8,990 91,283
AMBS Issuances ----------------------------------------------------------------------- Long-Term 5 and 7 1, 3 and 5 For the quarter Fixed Rate Year Year ARMs Total ended: Balloons -------------------------- -------------------------- (in thousands) June 30, 1998 (1) $ 35,503 $ 20,555 $ 32,756 $ 88,814 March 31, 1998 31,797 9,601 - 41,398 December 31, 1997 16,373 9,256 - 25,629 September 30, 1997 26,186 24,697 - 50,883 June 30, 1997 57,569 14,063 - 71,632
Delinquencies (2) ----------------------------------------------------------- Farmer Mac I --------------------------- As of: AMBS Other (3) Total ------------- ------------- ------------- June 30, 1998 0.70% 0.74% 0.71% March 31, 1998 1.15% 0.49% 0.92% December 31, 1997 - 0.66% 0.26% September 30, 1997 0.29% 0.93% 0.57% June 30, 1997 - 0.21% 0.10%
Outstanding Guaranteed Securities - -------------------------------------------------------------------- Farmer Mac I ----------------------- Farmer Held in As of: AMBS Other (3) Mac II Total Portfolio(4) ----------- --------------------------------------------- (in thousands) June 30, 1998 $ 462,987 $ 203,230 $ 313,668 $ 979,885 $ 454,904 March 31, 1998 376,797 214,427 290,947 882,171 439,477 December 31, 1997 341,213 228,904 272,777 842,894 433,807 September 30, 1997 316,214 234,085 263,228 813,527 427,395 June 30, 1997 266,838 243,775 244,502 755,115 418,002
(1)Includes a $32.8 million swap transaction involving 1, 3 and 5 year ARMs. (2)Based on the outstanding balance of the loans. Includes loans 90 days or more past due, in foreclosure or in bankruptcy. (3)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 at issuance. (4) Included in total outstanding guaranteed securities. PART II - OTHER INFORMATION Item 1. Legal Proceedings. The registrant is not a party to any material pending legal proceedings. Item 2. Changes in Securities. (a) Not applicable. (b) Not Applicable. (c)Farmer Mac is a federally chartered instrumentality of the United States and its Common Stock is exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933. Under the direct stock purchase program pursuant to which Farmer Mac is offering approximately 100,000 shares of Class A Voting Common Stock to interested eligible investors, Farmer Mac sold an aggregate of 5,800 shares of Class A Common Stock to 22 financial institutions in the quarter ended June 30, 1998. The aggregate offering price for the sales was approximately $114,163. Pursuant to Farmer Mac's policy which permits Directors of Farmer Mac to elect to receive shares of Class C Non-Voting Common Stock in lieu of their annual cash retainers, on April 23, 1998, Farmer Mac issued an aggregate of 193 shares of its Class C Non-Voting Common Stock at an issue price of $56.00 per share to the nine Directors who elected to receive such stock in lieu of their cash retainers. On June 4, 1998, Farmer Mac issued an aggregate 6,715 shares of its Class C Non-Voting Common Stock at an issue price of $60.00 per share to the officers of Farmer Mac as incentive compensation. (d) Not applicable. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Stockholders. (a) Farmer Mac's Annual Meeting of Stockholders was held on June 4, 1998. (b) Not Applicable. (c) (1) Election of Directors - Class A Nominees Number of Shares For Withheld Hemingway 714,873 5,000 Johnson 714,973 4,900 Mulder 715,973 3,900 Nolan 715,373 4,500 Paul 715,173 4,700
Class B Nominees Number of Shares For Withheld Graff 462,165 400 McCarthy 462,365 200 Nelson 462,365 200 Raines 462,365 200 Rhodes 462,365 200
(2) Selection of Independent Auditors (Arthur Andersen LLP) Class A Stockholders: Number of Shares For 716,773 Against 1,300 Abstain 1,800 Class B Stockholders: Number of Shares For 462,565 Against 0 Abstain 0
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). +* 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 (Form10-Q filed August 14, 1997). +* 10.1.5 - Amended and Restated 1997 Incentive Plan (Form 10-Q filed November 14, 1997). +** 10.1.6 - 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 September 1, 1993 between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993). - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.2.3 - Amendment No. 3 dated as of September 1, 1994 to Employment Contract between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1994). +* 10.2.4 - Amendment No. 4 dated as of February 8, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-K filed March 29, 1996). +* 10.2.5 - Amendment No. 5 dated as of September 13, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-Q filed August 14, 1996). +* 10.2.6 - Amendment No. 6 dated as of August 7, 1997 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-Q filed November 14, 1997). +** 10.2.7 - Amendment No. 7 dated as of June 4, 1998 to Employment Contract between Henry D. Edelman and the Registrant. +* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.1 - Amendment dated December 14, 1989 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.7 to Form 10-K filed April 1, 1991). +* 10.3.3 - Amendment to Employment Contract dated as of September 1, 1993 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993). +* 10.3.4 - Amendment No. 4 dated September 1, 1993 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.11 to Form 10-K filed March 30, 1994). +* 10.3.5 - Amendment No. 5 dated as of September 1, 1994 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed August 15, 1994). - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.3.6 - Amendment No. 6 dated as of September 1, 1995 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed 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 September 13, 1996 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14, 1996). +* 10.3.9 - Amendment No. 9 dated as of August 7, 1997 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed November 14, 1997). +** 10.3.10 - Amendment No. 10 dated as of June 4, 1998 to Employment Contract between Nancy E. Corsiglia and the Registrant. +* 10.4 - Employment Agreement dated September 13, 1989 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.6 to Form 10-K filed April 1, 1990). +* 10.4.1 - Amendment No. 1 dated February 14, 1991 to Employment Agreement between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.9 to Form 10-K filed April 1, 1991). +* 10.4.2 - Amendment to Employment Contract dated as of September 1, 1993 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed November 15, 1993). +* 10.4.3 - Amendment No. 3 dated September 1, 1993 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1994). +* 10.4.4 - Amendment No. 4 dated as of September 1, 1994 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed August 15, 1994). +* 10.4.5 - Amendment No. 5 dated as of September 1, 1995 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1995). - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.4.6 - Amendment No. 6 dated as of February 8, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-K filed March 29, 1996). +* 10.4.7 - Amendment No. 7 dated as of September 13, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1996). +* 10.4.8 - Amendment No. 8 dated as of August 7, 1997 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed November 14, 1997). +** 10.4.9 - Amendment No. 9 dated as of June 4, 1998 to Employment Contract between Thomas R. Clark and the Registrant. +* 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 September 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 September 13, 1996 to Employment Contract between Charles M. Lewis and the Registrant (Form 10-K filed March 29, 1996). +* 10.6 - Employment Agreement dated October 7, 1991 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1992). +* 10.6.1 - Amendment to Employment Contract dated as of September 1, 1993 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993). +* 10.6.2 - Amendment No. 2 dated September 1, 1993 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.21 to Form 10-K filed March 30, 1994). - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.6.3 - Amendment No. 3 dated September 1, 1994 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.22 to Form 10-K filed August 15, 1994). +* 10.6.4 - Amendment No. 4 dated as of September 1, 1995 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed 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 September 13, 1996 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed August 14, 1996). +* 10.6.7 - Amendment No. 7 dated as of August 7, 1997 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed November 14, 1997). +** 10.6.8 - Amendment No. 8 dated as of June 4, 1998 to Employment Contract between Michael T. Bennett and the Registrant. +* 10.7 - Employment Agreement dated March 15, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed May 17, 1993). +* 10.7.1 - Amendment to Employment Contract dated as of September 1, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.19 to Form 10-Q filed November 15, 1993). +* 10.7.2 - Amendment No. 2 dated September 1, 1993 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.25 to Form 10-K filed March 30, 1994). +* 10.7.3 - Amendment No. 3 dated as of September 1, 1994 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.26 to Form 10-Q filed August 15, 1994). +* 10.7.4 - Amendment No. 4 dated as of September 1, 1995 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1995). - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan. +* 10.7.5 - Amendment No. 5 dated as of February 8, 1996 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-K filed March 29, 1996). +* 10.7.6 - Amendment No. 6 dated as of September 13, 1996 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1996). +* 10.7.7 - Amendment No. 7 dated as of August 7, 1997 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-Q filed November 14, 1997). +* 10.8 - Employment Contract dated as of September 1, 1997 between Tom D. Stenson and the Registrant (Form 10-Q filed November 14, 1997). +** 10.8.1 - Amendment No. 1 dated as of June 4, 1998 to Employment Contract between Tom D. Stenson and the Registrant. * 10.9 - Lease Agreement, dated September 30, 1991 between 919 Eighteenth Street, N.W. Associates Limited Partnership and the Registrant (Previously filed as Exhibit 10.20 to Form 10-K filed March 30, 1992). * 21 - Subsidiaries. 21.1 - Farmer Mac Mortgage Securities Corporation, a Delaware Corporation. 21.2 - Farmer Mac Acceptance Corporation, a Delaware Corporation. * 99.1 - Map of U.S. Department of Agriculture (Secretary of Agriculture's) Regions (Previously filed as Exhibit 1.1 to Form 10-K filed April 1, 1991). (b) Reports on Form 8-K. The Registrant did not file any reports on Form 8-K during the quarter ended June 30, 1998. - ------------------ * Incorporated by reference to the indicated prior filing. ** Filed herewith. + 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, 1998 By: /s/ Henry D. Edelman -------------------------------------------------- Henry D. Edelman President and Chief Executive Officer (Principal Executive Officer) /s/ Nancy E. Corsiglia -------------------------------------------------- Nancy E. Corsiglia Vice President - Treasurer and Chief Financial Officer (Principal Financial Officer) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FEDERAL AGRICULTURAL MORTGAGE CORPORATION August 14, 1998 By: -------------------------------------------------- Henry D. Edelman President and Chief Executive Officer (Principal Executive Officer) -------------------------------------------------- Nancy E. Corsiglia Vice President - Treasurer and Chief Financial Officer (Principal Financial Officer) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO FORM 10-Q UNDER FEDERAL AGRICULTURAL MORTGAGE CORPORATION Exhibit Description +** 10.1.6 - Amended and Restated 1997 Incentive Plan. +** 10.2.7 - Amendment No. 7 dated as of June 4, 1998 to Employment Contract between Henry D. Edelman and the Registrant. +** 10.3.10 - Amendment No. 10 dated as of June 4, 1998 to Employment Contract between Nancy E. Corsiglia and the Registrant. +** 10.4.9 - Amendment No. 9 dated as of June 4, 1998 to Employment Contract between Thomas R. Clark and the Registrant. +** 10.6.8 - Amendment No. 8 dated as of June 4, 1998 to Employment Contract between Michael T. Bennett and the Registrant. +** 10.8.1 - Amendment No. 1 dated as of June 4, 1998 to Employment Contract between Tom D. Stenson and the Registrant. ------------------ ** Filed herewith. + Management contract or compensatory plan. EX-10 2 AMENDED AND RESTATED 1997 INCENTIVE PLAN EXHIBIT 10.1.6 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: (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, adjustments 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) The exercise price per share shall be 100% of the Fair Market Value of one share of Common Stock on 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 composite 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 composite 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 composite closing price quotation for the next preceding day on which a composite closing price quotation is available. (c) In connection with establishing the level of Option awards under the Plan, the value of an Option shall be calculated by an independent third party acceptable to the Committee (the "Compensation Consultant") and shall be based on the "Black-Scholes" method of option valuation, as determined by the Compensation Consultant. In calculating the Black-Scholes value of an Option, the average of the composite closing prices of the Company's Common Stock as reported by NASDAQ, or such other market on which the Common Stock may be listed or traded, as determined by the Committee, for the 90-day period preceding such calculation shall be the used by the Compensation Consultant as the "current market price" and "exercise price" inputs to such Black-Scholes calculation, irrespective of the Fair Market Value of a share of Common Stock on the date of calculation. Notwithstanding the foregoing, the Exercise Price of any Option awarded under the Plan shall be the Fair Market Value of one share of Common Stock on the date the Option is granted, as provided in subsection (b) above. 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 (a) 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. (b) Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Options to be granted to an Optionee to be transferred to: (i) the spouse, siblings, parents, children or grandchildren of the Optionee ("Immediate Family Members"); (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members; or (iii) a partnership in which such Immediate Family Members are the only partners; provided, however, that (x) there may be no consideration for any such transfer, (y) the Award Agreement pursuant to which the Options are granted must expressly provide for transferability in a manner consistent with this Section 8 and (z) subsequent transfers of transferred Options shall be prohibited, except those in accordance with the subsection (a) above. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that the term "Optionee" shall be deemed to refer to the transferee. 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 date of the Annual Meeting of Stockholders, commencing with the Annual Meeting in 1998, 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. (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 fifth anniversary of the date of grant (the "Option Termination Date"), unless terminated earlier as follows: (i) If a Director's service as a member of the Board terminates for any reason other than death or Cause (as defined below), the Director may for a period of up to two years after such termination (but not later than the Option Termination Date) 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 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. (iii) If a Director dies while a member of the Board or within 24 months after termination of service as a Director as described in clause (i) 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 (but not later than the Option Termination Date) 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 Second Amendment: August 7, 1997 Third Amendment: February 5, 1998 Fourth Amendment: June 4, 1998 EX-10 3 AMENDMENT NO. 7 EXHIBIT 10.2.7 AMENDMENT NO. 7 TO EMPLOYMENT CONTRACT AGREED, as of the 4th day of June 1998, between the Federal Agricultural Mortgage Corporation (FAMC) and Henry D. Edelman (you), that the existing employment contract between the parties hereto, dated May 5, 1989, as amended by Employment Agreement Amendment No. 1 dated January 10, 1991, Amendment to Employment Agreement dated as of June 1, 1993, Amendment No. 3 to Employment Contract dated as of June 1, 1994, Amendment No. 4 to Employment Contract dated as of February 8, 1996, Amendment No. 5 to Employment Contract dated as of June 13, 1996 and Amendment No. 6 to Employment Contract dated as of August 7, 1997 (collectively, the Agreement), be and hereby is amended as follows: Sections 1, 4 (a) and 9 (a) (iii) of the Agreement are replaced in their entirety with the following new sections: 1. Term. The Term of this Agreement shall continue until June 1, 2002 or any earlier effective date of termination pursuant to Paragraph 9 hereof (the "Term"). 4 (a). Base Salary. You will be paid a base salary (the Base Salary) during the Term of Three Hundred Eighty Thousand Dollars ($380,000) per year, payable in arrears on a bi-weekly basis; and 9 (a) (iii). Farmer Mac may terminate the employment of the Employee without "cause" at any time. Such termination shall become effective on the earlier of June 1, 2002 or two years from the date of notice of such termination. Section 6 of the Agreement is hereby amended by deleting the second sentence thereof and replacing it with the following sentences: "During the first six months of each Planning Year, vacation shall accrue at the rate of four (4) weeks per Planning Year; upon the expiration of such six-month period, all remaining vacation rights for such Planning Year shall accrue immediately. Vacation rights must be exercised with two months after the end of the Planning Year or forfeited." As amended hereby, the Agreement remains in full force and effect. Federal Agricultural Mortgage Corporation Employee By:-------------------------- ------------------------ Chairman of the Board EX-10 4 AMENDMENT NO. 10 EXHIBIT 10.3.10 AMENDMENT NO. 10 TO EMPLOYMENT CONTRACT AGREED, as of the 4th day of June 1998, between the Federal Agricultural Mortgage Corporation (FAMC) and Nancy E. Corsiglia (you) that the existing employment contract between the parties hereto, dated May 11, 1989, as amended by letter dated December 14, 1989, Employment Agreement Amendment No. 2 dated February 14, 1991, Amendment to Employment Agreement dated as of June 1, 1993, Amendment No. 4 to Employment Contract dated as of June 1, 1993, Amendment No. 5 to Employment Contract dated as of June 1, 1994, Amendment No. 6 to Employment Contract dated as of June 1, 1995, Amendment No. 7 to Employment Contract dated as of February 8, 1996, Amendment No. 8 to Employment Contract dated as of June 13, 1996 and Amendment No. 9 to Employment Contract dated as of August 7, 1997 (collectively, the Agreement), be and hereby is amended as follows: Sections 1, 3 (a) and 8 (a) (iii) of the Agreement are replaced in their entirety with the following new sections: 1. Term. The Term of this Agreement shall continue until June 1, 2001 or any earlier effective date of termination pursuant to Paragraph 8 hereof (the "Term"). 3 (a). Base Salary. You will be paid a base salary (the Base Salary) during the Term of Two Hundred Two Thousand and Sixty Dollars ($202,060) per year, payable in arrears on a bi-weekly basis; and 8 (a) (iii). Farmer Mac may terminate your employment without "cause" at any time. Such termination shall become effective on the earlier of June 1, 2001, or two years from the date of notice of such termination. Section 5 of the Agreement is hereby amended by deleting the second sentence thereof and replacing it with the following sentences: "During the first six months of each Planning Year, vacation shall accrue at the rate of four (4) weeks per Planning Year; upon the expiration of such six-month period, all remaining vacation rights for such Planning Year shall accrue immediately. Vacation rights must be exercised with two months after the end of the Planning Year or forfeited." As amended hereby, the Agreement remains in full force and effect. Federal Agricultural Mortgage Corporation Employee By: - -------------------------- President EX-10 5 AMENDMENT NO. 9 EXHIBIT 10.4.9 AMENDMENT NO. 9 TO EMPLOYMENT CONTRACT AGREED, as of the 4th day of June 1998, between the Federal Agricultural Mortgage Corporation (FAMC) and Thomas R. Clark (you), that the existing employment contract between the parties hereto, dated June 13, 1989, as amended by Employment Agreement Amendment No. 1 dated February 14, 1991 and Amendment to Employment Contract dated as of June 1, 1993, Amendment No. 3 to Employment Contract dated as of June 1, 1993, Amendment No. 4 to Employment Contract dated as of June 1, 1994, Amendment No. 5 to Employment Contract dated as of June 1, 1995, Amendment No. 6 to Employment Contract dated as of February 8, 1996, Amendment No. 7 to Employment Contract dated as of June 13, 1996 and Amendment No. 8 to Employment Contract dated as of August 7, 1997 (collectively, the Agreement), be and hereby is amended as follows: Sections 1, 3 (a) and 7 (a) (iii) of the Agreement are replaced in their entirety with the following new sections: 1. Term. The Term of your employment shall continue until June 1, 2001 or any earlier effective date of termination pursuant to Paragraph 7 hereof (the "Term"). 3 (a). Base Salary. You will be paid a base salary (the Base Salary) during the Term of Two Hundred Two Thousand and Sixty Dollars ($202,060) per year, payable in arrears on a bi-weekly basis; and 7 (a) (iii). Farmer Mac may terminate your employment without "cause" at any time. Such termination shall become effective on the earlier of June 1, 2001, or two years from the date of notice of such termination. Section 5 of the Agreement is hereby amended by deleting the second sentence thereof and replacing it with the following sentences: "During the first six months of each Planning Year, vacation shall accrue at the rate of four (4) weeks per Planning Year; upon the expiration of such six-month period, all remaining vacation rights for such Planning Year shall accrue immediately. Vacation rights must be exercised with two months after the end of the Planning Year or forfeited." As amended hereby, the Agreement remains in full force and effect. Federal Agricultural Mortgage Corporation Employee ---------------------------- By: -------------------------- President EX-10 6 AMENDMENT NO. 8 EXHIBIT 10.6.8 AMENDMENT NO. 8 TO EMPLOYMENT CONTRACT AGREED, as of the 4th day of June 1998, between the Federal Agricultural Mortgage Corporation (FAMC) and Michael T. Bennett (the employee), that the existing employment contract between the parties hereto, dated October 7, 1991, as amended by Amendment to Employment Contract dated as of June 1, 1993, Amendment No. 2 to Employment Contract dated as of January 6, 1994 and Amendment No. 3 dated as of June 1, 1994, Amendment No. 4 dated as of June 1, 1995, Amendment No. 5 dated as of February 8, 1996, Amendment No. 6 to Employment Contract dated as of June 13, 1996 and Amendment No. 7 to Employment Contract dated as of August 7, 1997 (collectively, the Agreement), be and hereby is amended as follows: Sections 1, 3 (a) and 7 (a) (3) of the Agreement are replaced in their entirety with the following new sections: 1. Term. The Term of this Agreement shall continue until June 1, 2001 or any earlier effective date of termination pursuant to Paragraph 7 hereof (the "Term"). 3 (a). Base Salary. You will be paid a base salary (the Base Salary) during the Term of Two Hundred Two Thousand Three Hundred and Eighty-Six Dollars ($202,386) per year, payable in arrears on a bi-weekly basis. 7 (a) (3). Farmer Mac may terminate your employment without "cause" at any time. Such termination shall become effective on the earlier of June 1, 2001, or two years from the date of notice of such termination. Section 5 of the Agreement is hereby amended by adding the following after the first sentence of such section: "During the first six months of each Planning Year, vacation shall accrue at the rate of four (4) weeks per Planning Year; upon the expiration of such six-month period, all remaining vacation rights for such Planning Year shall accrue immediately. As amended hereby, the Agreement remains in full force and effect. Federal Agricultural Mortgage Corporation Employee ---------------------------- By:-------------------------- President EX-10 7 AMENDMENT NO. 1 EXHIBIT 10.8.1 AMENDMENT NO. 1 TO EMPLOYMENT CONTRACT AGREED, as of the 4th day of June 1998, between the Federal Agricultural Mortgage Corporation (FAMC) and Tom D. Stenson (the employee), that the existing employment contract between the parties hereto, dated as of September 1, 1997 (the Agreement), be and hereby is amended as follows: Sections 1, 3 (a) and 7 (a) (3) of the Agreement are replaced in their entirety with the following new sections: 1. Term. The Term of this Agreement shall continue until June 1, 2000 or any earlier effective date of termination pursuant to Paragraph 7 hereof (the "Term"). 3 (a). Base Salary. You will be paid a base salary (the Base Salary) during the Term of One Hundred Ninety Thousand Dollars ($190,000) per year, payable in arrears on a bi-weekly basis. 7 (a) (3). Farmer Mac may terminate your employment without "cause" at any time. Such termination shall become effective on the earlier of June 1, 2000, or two years from the date of notice of such termination. Section 5 of the Agreement is hereby amended by adding the following after the first sentence of such section: "During the first six months of each Planning Year, vacation shall accrue at the rate of four (4) weeks per Planning Year; upon the expiration of such six-month period, all remaining vacation rights for such Planning Year shall accrue immediately. As amended hereby, the Agreement remains in full force and effect. Federal Agricultural Mortgage Corporation Employee ---------------------------- By:-------------------------- President EX-27 8
5 Earnings per share represent those for Class C stock. Basic earnings per share for Classes A and B Common Stock are $0.32 for the six months ended June 30, 1998. Diluted earnings per share for Classes A and B Common Stock are $0.32 for the six months ended June 30, 1998. 1,000 6-mos Dec-31-1998 Jun-30-1998 345,740 1,119,538 116,902 0 0 369,475 145 0 1,587,606 1,214,638 293,993 0 0 4,606 74,369 1,587,606 51,551 51,551 0 0 4,485 622 44,004 3,062 (458) 3,520 0 0 0 3,520 0.98 0.95
-----END PRIVACY-ENHANCED MESSAGE-----