As filed with the Securities and Exchange Commission on - ----------------------------------------------------------------------- May 15, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - ----------------------------------------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997. Commission File Number 0-17440 FEDERAL AGRICULTURAL MORTGAGE CORPORATION (Exact name of registrant as specified in its charter) Federally chartered instrumentality 52-1578738 of the United States ---------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. employer identification incorporation or organization) number) 919 18th Street, N.W., Suite 200, 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 May 15, 1996, there were 990,600 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock, and 2,677,681 shares of Class C Non-Voting Common Stock outstanding.
PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The following interim consolidated financial statements of the Federal Agricultural Mortgage Corporation (the "Corporation" or "Farmer Mac") have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Such interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted as permitted by such rules and regulations. Management believes that the disclosures are adequate to present fairly the consolidated financial position, consolidated results of operations and consolidated cash flows at the dates and for the periods presented. These condensed financial statements should be read in conjunction with the audited 1996 financial statements of Farmer Mac. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. The following information concerning Farmer Mac's financial statements is included herein. <TABLE> <CAPTION> <S> <C> Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 3 Consolidated Statements of Operations for the three months ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996 5 </TABLE>
<TABLE> <CAPTION> - ------------------------------------------------------------------------------ FEDERAL AGRICULTURAL MORTGAGE CORPORATION - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 1997 1996 ------------------ ------------------ <S> <C> <C> (unaudited) ASSETS: Cash and cash equivalents $ 252,649 $ 68,912 Interest receivable 11,281 14,821 Guarantee fees receivable 560 745 Loans held for securitization 8,974 12,999 Investments 511,733 85,799 Farmer Mac I and II Securities, net 414,236 416,501 Farmer Mac I and II payments receivable 5,012 2,421 Prepaid expenses and other assets 872 568 ================= ================== TOTAL ASSETS $ 1,205,317 $ 602,766 ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY: LIABILITIES: Debentures, notes and bonds, net: Due within one year $ 861,013 $ 261,054 Due after one year 288,326 285,238 Accrued interest payable 6,770 7,231 Accounts payable and accrued expenses 1,504 1,721 Allowance for sold Farmer Mac I & II Securities 484 317 ----------------- ------------------ TOTAL LIABILITIES 1,158,097 555,561 ----------------- ------------------ STOCKHOLDERS' EQUITY Common stock: Class A Voting, $1 par value, 2,000,000 shares authorized, 990,000 shares issued and outstanding at March 31, 1997 990 990 and December 31, 1996 Class B Voting, $1 par value, 2,000,000 shares authorized, 500,301 and 593,401 shares issued and outstanding at March 500 593 31, 1997 and December 31, 1996, respectively Class C Non-Voting, $1 par value, 4,000,000 shares authorized, 2,677,681 and 2,658,897 shares issued and 2,678 2,659 outstanding at March 31, 1997 and December 31, 1996 Additional paid in capital 52,501 52,513 Note receivable for purchase of stock - (557) Unrealized gain on securities available-for-sale 181 329 Accumulated deficit (9,630) (9,322) ----------------- ------------------ TOTAL STOCKHOLDERS' EQUITY 47,220 47,205 ----------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,205,317 $ 602,766 ================= ================== See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Amounts) Three Months Ended March 31 ------------------------------ 1997 1996 ------------------------------ <S> <C> <C> (unaudited) INTEREST INCOME: Farmer Mac I and II securities $ 7,381 $ 7,452 Investments and cash equivalents 5,758 1,469 Loans held for securitization 343 - ------------------------------ TOTAL INTEREST INCOME 13,482 8,921 INTEREST EXPENSE 12,125 8,394 ------------------------------ NET INTEREST INCOME 1,357 527 OTHER INCOME: Guarantee fees 525 324 Gain on issuance of mortgage-backed 466 - securities, net Miscellaneous 196 35 ------------------------------ TOTAL OTHER INCOME 1,187 359 OTHER EXPENSES: Compensation and employee 703 531 benefits Professional fees 348 157 Marketing and advertising 7 11 Insurance 59 51 Rent 57 41 Regulatory fees 16 71 Board of Directors fees and meeting 90 88 Expenses Administrative 198 73 Provision for losses 180 21 ------------------------------ TOTAL OTHER EXPENSES 1,658 1,044 ------------------------------ INCOME/(LOSS) BEFORE INCOME TAXES 886 (158) Provision for income taxes 28 - ------------------------------ NET INCOME/(LOSS) $ 858 $ (158) ============================== EARNINGS/(LOSS) PER SHARE: Class A and B Voting Common Stock $ 0.09 $ (0.03) Class C Non-Voting Common Stock $ 0.26 $ (0.10) See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> FEDERAL AGRICULTURAL MORTGAGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Three Months Ended ------------------------------------ March 31, 1997 March 31, 1996 ---------------- ---------------- (unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Income (loss) from Operations $ 858 $ (158) Adjustments to reconcile net loss to cash provided by operating activities: Amortization of premium on Farmer Mac I and II 684 942 Securities Discount Note amortization 6,291 2,309 Decrease in guarantee fees receivable 185 240 Decrease in interest receivable 3,540 5,988 Increase in Farmer Mac I and II payments receivable (2,591) (6,031) Increase in prepaid expenses and other assets (304) (113) Amortization and depreciation 22 45 Decrease in accounts payable and accrued expenses (217) (25) Decrease in loans held for securitization 4,025 - Decrease in accrued interest payable on Medium-Term Notes (461) (1,731) Provision for losses on Farmer Mac I Program 180 27 Other - (20) ---------------- ---------------- Net cash provided by operating activities 12,212 1,473 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Farmer Mac I and II purchases (18,583) (15,033) Purchases of investments (429,484) (11,645) Proceeds from maturity of investments 3,406 994 Proceeds from Farmer Mac I and II principal 20,152 30,190 repayments Purchases of office equipment (9) (3) ---------------- ---------------- Net cash used by investing activities (424,518) 4,503 ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Medium-Term Notes 34,965 - Payments to redeem Medium-Term Notes (9,240) (29,280) Proceeds from issuance of Discount Notes 3,330,067 371,505 Discount Notes redeemed (2,759,055) (282,000) Repurchase of Class B Common Stock (1,396) - Proceeds from issuance of common stock 702 - ---------------- ---------------- Net cash provided by financing activities 596,043 60,225 ---------------- ---------------- ---------------- Net increase in cash and cash equivalents 183,737 66,201 Cash and cash equivalents at beginning of period 68,912 8,336 ================ ================ Cash and cash equivalents at end of period $ 252,649 $ 74,537 ================ ================ Supplemental disclosures of cash flow information: Cash paid during the three-month period for: Interest $ 6,278 $ 7,800 Taxes 14 - See accompanying notes to consolidated financial statements. </TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Accounting Policies. (a) Principles of Consolidation ......Financial information at and for the three months ended March 31, 1997 is consolidated to include the accounts of Farmer Mac and its two wholly owned subsidiaries, Farmer Mac Mortgage Securities Corporation and Farmer Mac Acceptance Corporation. All material intercompany transactions have been eliminated in consolidation. (b) Reclassifications Certain reclassifications of the 1996 information were made to conform with the 1997 presentation. Note 2. Off-Balance Sheet Farmer Mac Guaranteed Securities. Farmer Mac issues guarantees in the normal course of business to fulfill its statutory purpose of increasing liquidity for agricultural mortgage lenders. Farmer Mac guarantees the timely payment of principal and interest on securities issued under the Farmer Mac I and Farmer Mac II Programs. The following table sets forth the outstanding principal balances of Farmer Mac Guaranteed Securities issued under the Farmer Mac I and Farmer Mac II Programs and not held in its portfolio. <TABLE> <CAPTION> March 31, 1997 December 31, 1996 ----------------------- ---------------------- (In Thousands) <S> <C> <C> Farmer Mac I $ 253,365 $ 214,424 Farmer Mac II $ 15,073 $ 11,606 </TABLE> At March 31, 1997, the $253.4 million of Farmer Mac I Securities included $195.8 million of agricultural mortgage-backed securities ("AMBS") issued under Farmer Mac's expanded legislative authorities for which Farmer Mac bears the risk of first loss. Note 3. Commitments At March 31, 1997, Farmer Mac had committed to purchase $14.3 million of Qualified Loans through the Farmer Mac I cash window and had committed to sell forward $10.3 million of AMBS for settlements in April 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Overview. Farmer Mac reported net income for the three months ended March 31, 1997 of $858 thousand, compared with a net loss of $158 thousand for the first quarter of 1996. Earnings per share for the first quarter of 1997 for Class A and B Voting Common Stocks were $0.09 and for Class C Non-Voting Common Stock were $0.26, compared with losses per share for the first quarter of 1996 of $0.03 for Class A and B Voting Common Stock and $0.10 for Class C Non-Voting Common Stock, as adjusted to reflect the 3-to-1 dividend and liquidation ratio applicable to each share of Class C Non-Voting Common Stock relative to each share of Voting Common Stock. The $1.0 million increase in net income from March 31, 1996 to March 31, 1997 was largely attributable to an increase in the issuance of Farmer Mac I Securities, resulting in a $466 thousand gain; an increase in the outstanding balance of Farmer Mac I and II Securities, resulting in an increase of $201 thousand in guarantee fee income; and an increase in interest income from cash and cash equivalents, investments and loans held for securitization. During the first quarter of 1997, Farmer Mac continued to expand operations under its revised legislative authorities. Approximately $49.4 million of AMBS, backed by loans acquired through the cash window, were sold to capital markets investors, resulting in gains on sale commensurate with those from previous transactions. Approximately $38.0 million of guaranteed securities were sold in April 1997, with an additional $33.0 million scheduled for sale in May 1997. To date, Farmer Mac has approved and authorized 120 sellers from 24 states to submit loans for sale through the cash window and currently has under review another 20 applications. Management is continuing to expand the seller network by focusing its marketing initiatives on "super-regional" banks and non-traditional agricultural mortgage lenders, such as agricultural suppliers and mortgage bankers. Over $282.0 million of loans have been submitted to Farmer Mac for approval since the opening of the cash window in July 1996, of which approximately 27% have been securitized and sold, 14% have been purchased and are pending securitization, and 25% are in various stages of the pipeline. The remaining 33% of loans have been either denied by Farmer Mac for credit reasons or withdrawn by the seller/servicer. With the expanded seller network, both seller and geographic distribution continue to broaden. Only two sellers represent more than 10% each of the total principal balance of loans submitted for purchase through the cash window. Although the states comprising the Pacific region continue to provide the largest source of volume, the level of business from Mountain and Corn Belt states continues to increase. In addition to purchasing loans through the cash window, Farmer Mac is continuing to pursue with portfolio holders of agricultural loans the acquisition of loans through negotiated bulk purchases and swap transactions, although there can be no assurance that any such transactions actually will be consummated. During the first quarter of 1997, Farmer Mac also undertook a strategy to increase its presence in the capital markets, particularly the debt markets, in order to attract more investors to its debt and mortgage-backed securities and thereby improve the liquidity of its securities and reduce its borrowing and securitization costs. The Board and management believed that increasing Farmer Mac's presence in the capital markets would improve the pricing of its AMBS, and thereby enhance the attractiveness of the loan products offered through its programs for the benefit of agricultural lenders and borrowers. Since the implementation of the debt strategy, the Corporation has experienced a tightening of its AMBS spreads relative to other comparable agency securities and anticipates continued improvements in pricing as liquidity and investor recognition increase through the expanded debt issuances. The Corporation's eventual objective for the proceeds of its increased debt issuances is investment of those proceeds in Qualified Loans purchased under the Farmer Mac programs. During the phase-in of that objective, Farmer Mac will be investing a portion of those proceeds in high quality interest-earning assets, which have generated, and should continue to generate, increased interest income. Notwithstanding the increase in Farmer Mac's business activity and the significant improvements in its financial performance since the enactment of the legislative revisions to its statutory charter in early 1996, Farmer Mac still faces many challenges, particularly that of continuing to expand its business in the highly static market for agricultural and rural home mortgage loans. While the programs it operates are now more accessible to agricultural lenders and offer competitive loan rates and terms, they continue to receive only gradual acceptance in the agricultural lending community for a number of reasons that have been reported previously. For Farmer Mac to succeed over the long term through the realization of its business development and profitability goals, lenders must be convinced of the benefits of selling loans to Farmer Mac and must be willing to adapt their business practices to sell loans into the secondary market in significant volume. Set forth below is a discussion of certain specific items of the income statement and balance sheet. Net Interest Income. Net interest income totaled $1.4 million for the three months ended March 31, 1997, an $830 thousand increase from the three months ended March 31, 1996. The increase was largely attributable to an increase in the average balance of investments (primarily floating rate agency mortgage-backed securities and other short-term investments) and cash equivalents, a result of the implementation of Farmer Mac's expanded debt issuance strategy.
Average Balances, Income and Expense, Yields and Rates. The following table presents, for the periods indicated, information regarding interest income on average interest-earning assets and related yields, as well as interest expense on average interest-bearing liabilities and related rates paid. The average balances were calculated by averaging month-end balances. <TABLE> <CAPTION> Three Months Ended March 31, --------------------------------------------------------- 1997 1996 ------------------------ --------------------------- (Dollars in Thousands) Average Income/ Average Average Income/ Average Balances Expense Rate Balances Expense Rate Assets ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Interest-earning assets: Farmer Mac I and II Securities $414,918 $ 7,381 7.12% $410,884 $ 7,452 7.25% Investments and cash Equivalents 350,121 5,758 6.58% 123,444 1,469 4.76% Loans held for securitization 14,944 343 9.18% - - -------------------------------------------------------------------------------------------- Total interest-earning assets 779,983 13,482 6.91% 534,328 8,921 6.68% Other assets 84,927 13,565 -------- -------- $864,910 $547,893 ------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Interest-bearing liabilities: Debentures, notes and bonds, net $744,399$ 12,125 6.52% $ 531,456 $ 8,394 6.32% Other liabilities $ 78,184 4,870 Stockholders' equity 42,327 11,567 ------------------------------------------------------------------------------------------- $864,910 $ 547,893 ---------------------------------------------------------- --------------------------- Net interest income/spread $ 1,357 .39% $ 527 0.36% ---------------------------------------------------------- --------------------------- Net yield on interest-earning assets .70% 0.40% </TABLE> 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. <TABLE> <CAPTION> Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 --------------------------------------------- Increase or (Decrease) Due to Rate Volume Total ------------ -------------- ------------ (in thousands) Income from interest-earning assets: <S> <C> <C> <C> Farmer Mac I and II Securities.... $ (146) $ 75 $ (71) Investments and cash equivalents.. 739 3,550 4,289 Loans held for securitization..... - 343 343 ------------ -------------- ------------ Total income from interest-earning assets............. 593 3,968 4,561 Expense on interest-bearing liabilities......................... 270 3,461 3,731 ------------ ------------ ------------ Change in net interest income....... $ 323 $ 507 $ 830 ============ ============== ============ </TABLE> Interest income totaled $13.5 million for the three months ended March 31, 1997, a $4.6 million increase from the three months ended March 31, 1996. The increase was attributable to an increase in the average balance of investments and cash equivalents and loans held for securitization. Interest expense for the three months ended March 31, 1997 amounted to $12.1 million, an increase of $3.7 million from the three months ended March 31, 1996. The increase was largely attributable to an increase in the average outstanding balance of interest-bearing liabilities as a result of the implementation of Farmer Mac's expanded debt issuance strategy. Asset and Liability Management. In light of Farmer Mac's increased activity in the capital debt markets, Farmer Mac has begun to use off-balance sheet derivative financial instruments to manage its exposure to interest rate risk; such instruments are not used for trading or speculative purposes. Off-balance sheet instruments primarily include interest rate contracts (interest rate swaps, caps, floors and corridors), futures and options with indices that directly correlate to on-balance sheet assets and liabilities. Interest rate swaps are contractual agreements between two parties for the exchange of periodic payments based on a notional principal amount and agreed upon rates that may be fixed or variable. Farmer Mac's interest rate swaps are executed in conjunction with specific debt issuances or asset purchases. These swaps, when combined with the underlying liability or asset, synthetically create debt and asset yields that produce lower effective debt costs or higher effective asset yields than those available through direct debt issuances or asset purchases. At March 31, 1997, Farmer Mac had $226.4 million in notional amount of derivatives outstanding, all of which represent interest rate swaps acquired for asset and liability management purposes. While derivative financial instruments reduce Farmer Mac's exposure to interest rate risk, they increase its exposure to credit risk. Credit risk arises from the possibility that a counterparty will be unable to perform according to the terms of the contract and is equal to the fair value gain on the instrument if the counterparty fails to perform. The credit risk is normally a small percentage of the notional amount and fluctuates as interest rates move up or down. Farmer Mac mitigates this risk by subjecting the transactions to the same rigorous approval and monitoring process as is used for on-balance sheet credit transactions, by dealing in the national market with highly rated counterparties, by using International Swaps and Derivatives Association documentation and by requiring the posting of securities as collateral under certain circumstances to reduce exposure. Collateral is delivered by either party when the fair value of a particular transaction on a net basis exceeds an acceptable threshold of exposure. The threshold level is determined based on the strength of the individual counterparty. Other Income. Other income totaled $1.2 million for the three months ended March 31, 1997, an increase of $828 thousand from the three months ended March 31, 1996. Guarantee fee income increased $201 thousand from the three months ended March 31, 1996 to the three months ended March 31, 1997. The increase was primarily a result of the increased balance of outstanding guaranteed securities for the comparable period and the increased guarantee fee rate (to 50 basis points from 25 basis points) applicable to Farmer Mac I Securities issued under the revised legislative authorities. At March 31, 1997, Farmer Mac had $672.1 million of guaranteed securities outstanding as compared to $474.6 million as of March 31, 1996. The gain on issuance of mortgage-backed securities, net of related expenses, totaled $466 thousand for the three months ended March 31, 1997, a result of the issuance and sale of $49.4 million of AMBS during the quarter. No AMBS were issued in the first quarter of 1996. Miscellaneous income totaled $196 thousand for the three months ended March 31, 1997, as compared to $35 thousand for the three months ended March 31, 1996. The $161 thousand increase was largely attributable to the difference between the amount Farmer Mac had accrued for expenses related to the Western Farm Credit Bank (WFCB) litigation and the actual amount incurred during the 1997 first quarter in connection with the settlement of that litigation, which occurred in January 1997. No additional expenses will be incurred as a result of the settlement. Other Expenses. Other expenses totaled $1.7 million for the three months ended March 31, 1997, as compared to $1.0 million for the three months ended March 31, 1996. The $614 thousand increase in other expenses was attributable to increases in compensation and employee benefits, professional fees, administrative expenses and the provision for losses. Compensation and employee benefits increased $172 thousand from the three months ended March 31, 1996 to the three months ended March 31, 1997 because of an increase in staffing. Over that twelve-month period, Farmer Mac hired eight additional employees, primarily in the areas of business development and credit management, to assist with the development of a seller network and to manage the credit risk associated with the cash window program. Professional fees, comprised primarily of fees for the administration of the cash window program, for accounting and for legal services, increased $191 thousand from the three months ended March 31, 1996 to the three months ended March 31, 1997. This increase was largely attributable to costs associated with the administration of the cash window, primarily the credit underwriting of loans submitted for purchase thereunder, since the program was not in place in the first quarter of 1996. The remaining portion of the increase was attributable to increased accounting fees and the use of consultants to assist with the upgrade of Farmer Mac's computer software and hardware technology. Administrative expenses increased $125 thousand from the three months ended March 31, 1996 to the three months ended March 31, 1997, largely as a result of increases in telephone, postage and travel related expenses, all attributable to the implementation of the cash window. The provision for losses increased $159 thousand from the three months ended March 31, 1996 to the three months ended March 31, 1997, as a result of the issuance of the $237.2 million of AMBS since June 1996 for which Farmer Mac assumes the first risk of loss. Income tax expense. As a result of the utilization of net operating loss carryforwards, Farmer Mac's tax expense was limited to $28 thousand for the three months ended March 31, 1997. Financial Condition and Capital At March 31, 1997, assets totaled $1.2 billion, as compared to $602.8 million at December 31, 1996. The increase was largely attributable to the implementation of the Corporation's expanded debt issuance strategy, resulting in a $609.7 million increase from December 31, 1996 to March 31, 1997 in cash and cash equivalents and investments, which were funded by Discount Notes with similar terms to maturity. Net proceeds of the debt issuances were used to increase Farmer Mac's investment and cash equivalents by a corresponding amount. At March 31, 1997, Farmer Mac had $1.1 billion of Discount Notes and Medium-Term Notes (net of unamortized debt issuance costs, discounts and premiums) outstanding, as compared to $546.3 million at December 31, 1996. This $603.0 million increase was the result of the implementation of Farmer Mac's debt issuance strategy. During the first three months of 1997, Farmer Mac issued $3.3 billion of Discount Notes and $35.0 million of Medium-Term Notes and redeemed $2.8 billion of Discount Notes and $9.2 million of Medium-Term Notes. Farmer Mac maintains an allowance for loan losses to cover anticipated losses under the Farmer Mac I Program. At March 31, 1997, the allowance for losses on guaranteed securities held in portfolio and those sold to investors totaled $835 thousand, compared to $655 thousand at December 31, 1996. The Farmer Mac I and II Securities are shown net of their applicable allowance of $351 thousand at March 31, 1997, representing an increase of $13 thousand from year-end 1996; the allowance for Farmer Mac Guaranteed Securities sold to investors was $484 thousand at March 31, 1997, representing an increase of $167 thousand from year-end 1996. This $167 thousand increase was attributable to the issuance of $49.4 million of AMBS (as to which Farmer Mac bears the risk of first loss). No loss allowance has been made for the Farmer Mac II Program because the Guaranteed Portions are backed by the full faith and credit of the United States and are not exposed to credit losses. Management evaluates the adequacy of the allowance for loan losses on a quarterly basis and considers a number of factors, including: historical charge-off and recovery activity (noting any particular trends in preceding periods); trends in delinquencies, bankruptcies and non-performing loans; trends in loan volume and size of credit risks; current and anticipated economic conditions; the condition of agricultural segments and geographic areas experiencing or expected to experience particular economic adversities, particularly areas where Farmer Mac may have a geographic or commodity concentration; the degree of risk inherent in the composition of the guaranteed portfolio; quality control reviews; and underwriting standards. Farmer Mac considers the amounts in the allowance account to be adequate to cover its exposure to guarantee payments in the Farmer Mac I Program. At March 31, 1997, loans that were 90 days or more past due, loans that were in foreclosure or bankruptcy and loans that had been foreclosed upon and the related mortgaged property not yet liquidated ("REO Property") represented 0.4% of the principal amount of all loans underlying Farmer Mac Guaranteed Securities. Management believes that no losses will be incurred by Farmer Mac as a result of the loans in foreclosure or the REO Property because of the existence of the 10% subordinated interests with respect to the related securities. At March 31, 1997, Farmer Mac's stockholders' equity totaled $47.2 million, an increase of $15 thousand from December 31, 1996. The minimal increase in stockholders' equity was attributable to certain transactions that affected stockholders' equity during the first quarter. As part of the settlement of the WFCB litigation, Farmer Mac repurchased (and subsequently canceled) 93,100 shares of Class B common stock; issued 18,784 shares of Class C common stock to WFCB pursuant to the exercise of warrants previously issued to WFCB; and was repaid the $557 thousand note receivable from WFCB with interest. At March 31, 1997 and December 31, 1996, Farmer Mac's regulatory required minimum capital was $27.9 million and $7.4 million, respectively, compared with actual capital of $47.2 million for both periods. Farmer Mac has not paid and does not expect to pay dividends on its common stock in the near future. Dividends on the common stock are subject to determination and declaration by the Board. There is no preference between holders of the Voting Common Stock and Class C Non-Voting Common Stock relating to dividends. The ratio of dividends paid on each share of Class C Non-Voting Common Stock to each share of Voting Common Stock, however, will be three-to-one. If dividends are to be paid to holders of the Voting Common Stock, such per share dividends to holders of Class A and Class B Voting Common Stock will be equal.
PART II - OTHER INFORMATION Item 1. Legal Proceedings. The registrant is not a party to any pending legal proceedings. Item 2. Changes in Securities. Not applicable. Item 3. Defaults upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Stockholders. ------------------------------------------------ Not applicable. Item 5. Other Information. None. Item 6 Exhibits and Reports on Form 8-K. (a)...Exhibits. (a) Exhibits. Description * 3.1 - Title VIII of the Farm Credit Act of 1971, as most recently amended by the Farm Credit System Reform Act of 1996, P.L. 104-105 (Form 10-K filed March 29, 1996). ** 3.2 - Amended and restated Bylaws of the Registrant (Form 10-K filed March 27, 1997). +* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to Form 10-Q filed August 14, 1992). +* 10.1.1 - Amendment No. 1 to Stock Option Plan (Previously filed as Exhibit 10.2 to Form 10-Q filed August 16, 1993). * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan.
+* 10.1.2 - 1996 Stock Option Plan (Form 10-Q filed August 14, 1996). +* 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). +** 10.1.3 - 1997 Stock Option Plan. +* 10.2.1 - Amendment No. 1 dated January 10, 1991 to Employment Agreement between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.4 to Form 10-K filed April 1, 1991). +* 10.2.2 - Amendment to Employment Contract dated as of June 1, 1993 between Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1993). +* 10.2.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract between Henry D. Edelman and the Registrant reviously filed as Exhibit 10.5 to Form 10-Q filed November 15, 1994). +* 10.2.4 - Amendment No. 4 dated as of February 8, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-K filed March 29, 1996). +* 10.2.5 - Amendment No. 5 dated as of June 13, 1996 to Employment Contract between Henry D. Edelman and the Registrant (Form 10-Q filed August 14, 1996). +* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.1 - Amendment dated December 14, 1989 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed February 14, 1990). +* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment Agreement between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.7 to Form 10-K filed April 1, 1991). - ---------------------- * Incorporated by reference to the indicated prior filing. ** Filed herewith. + Management contract or compensatory plan.
+* 10.3.3 - Amendment to Employment Contract dated as of June 1, 1993 between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.9 to Form 10-Q filed November 15, 1993). +* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.11 to Form 10-K filed March 30, 1994). +* 10.3.5 - Amendment No. 5 dated as of June 1, 1994 to Employment Contract between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed August 15, 1994). +* 10.3.6 - Amendment No. 6 dated as of June 1, 1995 to Employment Contract between Nancy E. orsiglia and the Registrant (Form 10-Q filed August 14, 1995). +* 10.3.7 - Amendment No. 7 dated as of February 8, 1996 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-K filed March 29, 1996). +* 10.3.8 - Amendment No. 8 dated as of June 13, 1996 to Employment Contract between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14, 1996). +* 10.4 - Employment Agreement dated June 13, 1989 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.6 to Form 10-K filed April 1, 1990). +* 10.4.1 - Amendment No. 1 dated February 14, 1991 to Employment Agreement between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.9 to Form 10-K filed April 1, 1991). +* 10.4.2 - Amendment to Employment Contract dated as of June 1, 1993 between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.12 to Form 10-Q filed November 15, 1993). - --------------------------------- * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan.
+* 10.4.3 - Amendment No. 3 dated June 1, 1993 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1994). +* 10.4.4 - Amendment No. 4 dated as of June 1, 1994 to Employment Contract between Thomas R. Clark and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed August 15, 1994). +* 10.4.5 - Amendment No. 5 dated as of June 1, 1995 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1995). +* 10.4.6 - Amendment No. 6 dated as of February 8, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-K filed March 29, 1996). +* 10.4.7 - Amendment No. 7 dated as of June 13, 1996 to Employment Contract between Thomas R. Clark and the Registrant (Form 10-Q filed August 14, 1996). +* 10.5 - Employment Agreement dated April 29, 1994 between Charles M. Lewis and the Registrant (Previously filed as Exhibit 10.18 to Form 10-Q filed August 15, 1994). +* 10.5.1 - Amendment No. 1 dated as of June 1, 1995 to Employment Contract between Charles M. Lewis and the Registrant (Form 10-Q filed August 14, 1995). +* 10.5.2 - Amendment No. 2 dated as of February 8, 1996 to Employment Contract between Charles M.Lewis and the Registrant (Form 10-K filed March 29, 1996). +* 10.5.3 - Amendment No. 3 dated as of June 13, 1996 to Employment Contract between Charles M. Lewis and the Registrant (Form 10-K filed March 29, 1996). - -------------------------- * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan.
+* 10.6 - Employment Agreement dated October 7, 1991 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.16 to Form 10-K filed March 30, 1992). +* 10.6.1 - Amendment to Employment Contract dated as of June 1, 1993 between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed November 15, 1993). +* 10.6.2 - Amendment No. 2 dated June 1, 1993 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.21 to Form 10-K filed March 30, 1994). +* 10.6.3 - Amendment No. 3 dated June 1, 1994 to Employment Contract between Michael T. Bennett and the Registrant (Previously filed as Exhibit 10.22 to Form 10-K filed August 15, 1994). +* 10.6.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed August 14, 1995). +* 10.6.5 - Amendment No. 5 dated as of February 8, 1996 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-K filed March 29, 1996). +* 10.6.6 - Amendment No. 6 dated as of June 13, 1996 to Employment Contract between Michael T. Bennett and the Registrant (Form 10-Q filed August 14, 1996). +* 10.7 - Employment Agreement dated March 15, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.17 to Form 10-Q filed May 17, 1993). +* 10.7.1 - Amendment to Employment Contract dated as of June 1, 1993 between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.19 to Form 10-Q filed November 15, 1993). - ------------------ * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan.
+* 10.7.2 - Amendment No. 2 dated June 1, 1993 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.25 to Form 10-K filed March 30, 1994). +* 10.7.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract between Christopher A. Dunn and the Registrant (Previously filed as Exhibit 10.26 to Form 10-Q filed August 15, 1994). +* 10.7.4 - Amendment No. 4 dated as of June 1, 1995 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1995). +* 10.7.5 - Amendment No. 5 dated as of February 8, 1996 to Employment Contract between Christopher A. Dunn and the Registrant (Form 10-K filed March 29, 1996). +* 10.7.6 - Amendment No. 6 dated as of June 13, 1996 to Employment Contrac between Christopher A. Dunn and the Registrant (Form 10-Q filed August 14, 1996). * 10.8 - Lease Agreement, dated September 30, 1991 between 919 Eighteenth Street, N.W. Associates Limited Partnership and the Registrant (Previously filed as Exhibit 10.20 to Form 10-K filed March 30, 1992). * 21 - Subsidiaries. 21.1 - Farmer Mac Mortgage Securities Corporation, a Delaware Corporation. 21.2 - Farmer Mac Acceptance Corporation, a Delaware Corporation. * 99.1 Map of U.S. Department of Agriculture (USDA) Regions (Previously filed as Exhibit 1.1 to Form 10-K filed April 1, 1991). (b) Reports on Form 8-K. The Registrant has not filed any reports on Form 8-K on March 11, 1997, to include a press release announcing its financial results for the year ended December 31, 1996. - ------------------------- * Incorporated by reference to the indicated prior filing. + Management contract or compensatory plan.
Securities and Exchange Commission Washington, D.C. 20549 Exhibits to Form 10-Q under The Securities Exchange Act of 1934 Federal Agricultural Mortgage Corporation