10-Q
As filed with the Securities and Exchange Commission on November 9, 2015

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
Commission File Number 001-14951 
 ____________________________________________________________

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality
of the United States
 
52-1578738
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer identification number)
 
 
 
1999 K Street, N.W., 4th Floor,
Washington, D.C.
 
20006
(Address of principal executive offices)
 
(Zip code)
(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 12 months (or for 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           o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes        x                                No          o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes        o                                No           x
As of November 2, 2015, the registrant had outstanding 1,030,780 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 9,347,047 shares of Class C Non-Voting Common Stock.



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I

Item 1. Financial Statements



3

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
As of
 
September 30, 2015
 
December 31, 2014
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
1,516,536

 
$
1,363,387

Investment securities:
 

 
 

Available-for-sale, at fair value
2,031,629

 
1,938,499

Trading, at fair value
550

 
689

Total investment securities
2,032,179

 
1,939,188

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
4,156,670

 
3,659,281

Held-to-maturity, at amortized cost
1,276,153

 
1,794,620

Total Farmer Mac Guaranteed Securities
5,432,823

 
5,453,901

USDA Securities:
 

 
 

Available-for-sale, at fair value
1,854,422

 
1,731,222

Trading, at fair value
31,936

 
40,310

Total USDA Securities
1,886,358

 
1,771,532

Loans:
 

 
 

Loans held for investment, at amortized cost
3,148,742

 
2,833,461

Loans held for investment in consolidated trusts, at amortized cost
612,567

 
692,478

Allowance for loan losses
(4,775
)
 
(5,864
)
Total loans, net of allowance
3,756,534

 
3,520,075

Real estate owned, at lower of cost or fair value
1,402

 
421

Financial derivatives, at fair value
7,027

 
4,177

Interest receivable (includes $4,626 and $9,509, respectively, related to consolidated trusts)
73,963

 
106,874

Guarantee and commitment fees receivable
40,160

 
39,462

Deferred tax asset, net
48,409

 
33,391

Prepaid expenses and other assets
58,454

 
55,413

Total Assets
$
14,853,845

 
$
14,287,821

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
8,280,087

 
$
7,353,953

Due after one year
5,217,307

 
5,471,186

Total notes payable
13,497,394

 
12,825,139

Debt securities of consolidated trusts held by third parties
612,994

 
424,214

Financial derivatives, at fair value
94,880

 
84,844

Accrued interest payable (includes $3,750 and $5,145, respectively, related to consolidated trusts)
37,830

 
48,355

Guarantee and commitment obligation
38,253

 
37,925

Accounts payable and accrued expenses
26,450

 
81,252

Reserve for losses
5,498

 
4,263

Total Liabilities
14,313,299

 
13,505,992

Commitments and Contingencies (Note 6)


 


Equity:
 

 
 

Preferred stock:
 

 
 

Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding
58,333

 
58,333

Series B, par value $25 per share, 3,000,000 shares authorized, issued and outstanding
73,044

 
73,044

      Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding
73,382

 
73,382

Common stock:
 

 
 

Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding
1,031

 
1,031

Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding
500

 
500

Class C Non-Voting, $1 par value, no maximum authorization, 9,412,379 shares and 9,406,267 shares outstanding, respectively
9,412

 
9,406

Additional paid-in capital
117,077

 
113,559

Accumulated other comprehensive (loss)/income, net of tax
(17,814
)
 
15,533

Retained earnings
225,386

 
201,013

Total Stockholders' Equity
540,351

 
545,801

Non-controlling interest
195

 
236,028

Total Equity
540,546

 
781,829

Total Liabilities and Equity
$
14,853,845

 
$
14,287,821

The accompanying notes are an integral part of these consolidated financial statements.




4

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
 
(in thousands, except per share amounts)
Interest income:
 
 
 
 
 
 
 
Investments and cash equivalents
$
3,185

 
$
4,507

 
$
9,144

 
$
14,845

Farmer Mac Guaranteed Securities and USDA Securities
34,002

 
32,532

 
101,608

 
98,335

Loans
29,731

 
26,371

 
86,509

 
67,157

Total interest income
66,918

 
63,410

 
197,261

 
180,337

Total interest expense
34,735

 
48,886

 
102,425

 
126,114

Net interest income
32,183

 
14,524

 
94,836

 
54,223

Release of/(provision for) allowance for loan losses
1,164

 
(511
)
 
978

 
499

Net interest income after release of/(provision for) allowance for loan losses
33,347

 
14,013

 
95,814

 
54,722

Non-interest income:
 
 
 
 
 
 
 
Guarantee and commitment fees
3,532

 
3,644

 
10,297

 
11,131

(Losses)/gains on financial derivatives and hedging activities
(9,568
)
 
808

 
939

 
(12,468
)
(Losses)/gains on trading securities
(8
)
 
16,369

 
524

 
24,772

Gains/(losses) on sale of available-for-sale investment securities
3

 
(396
)
 
9

 
(238
)
(Losses)/gains on sale of real estate owned

 

 
(1
)
 
165

Other income
1,060

 
502

 
1,933

 
794

Non-interest (loss)/income
(4,981
)
 
20,927

 
13,701

 
24,156

Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
5,236

 
4,693

 
16,662

 
14,038

General and administrative
3,676

 
3,123

 
9,873

 
9,205

Regulatory fees
600

 
593

 
1,800

 
1,781

Real estate owned operating costs, net
48

 
1

 
47

 
62

Provision for/(release of) reserve for losses
861

 
(1,315
)
 
1,235

 
(2,188
)
Non-interest expense
10,421

 
7,095

 
29,617

 
22,898

Income before income taxes
17,945

 
27,845

 
79,898

 
55,980

Income tax expense
6,327

 
7,564

 
24,327

 
55

Net income
11,618

 
20,281

 
55,571

 
55,925

Less: Net loss/(income) attributable to non-controlling interest
36

 
(5,412
)
 
(5,199
)
 
(16,778
)
Net income attributable to Farmer Mac
11,654

 
14,869

 
50,372

 
39,147

Preferred stock dividends
(3,295
)
 
(3,283
)
 
(9,886
)
 
(6,543
)
Loss on retirement of preferred stock

 

 
(8,147
)
 

Net income attributable to common stockholders
$
8,359

 
$
11,586

 
$
32,339

 
$
32,604

 
 
 
 
 
 
 
 
Earnings per common share and dividends:
 
 
 
 
 
 
 
Basic earnings per common share
$
0.76

 
$
1.06

 
$
2.94

 
$
2.99

Diluted earnings per common share
$
0.74

 
$
1.02

 
$
2.85

 
$
2.87

Common stock dividends per common share
$
0.16

 
$
0.14

 
$
0.48

 
$
0.42

The accompanying notes are an integral part of these consolidated financial statements.


5

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
 
(in thousands)
Net income
$
11,618

 
$
20,281

 
$
55,571

 
$
55,925

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized holding (losses)/gains on available-for-sale securities(1)
(34,846
)
 
2,070

 
(21,790
)
 
46,612

Unrealized (losses)/gains on cash flow hedges(2)
(2,077
)
 
30

 
(1,308
)
 
(99
)
Less reclassification adjustments included in:
 
 
 
 
 
 
 
(Losses)/gains on financial derivatives and hedging activities(3)
(3,275
)
 
(3,131
)
 
(9,654
)
 
(9,338
)
Gains/(losses) on sale of available-for-sale investment securities(4)
(2
)
 
258

 
(6
)
 
155

Other income(5)
(347
)
 
(70
)
 
(589
)
 
(48
)
Other comprehensive loss
(40,547
)
 
(843
)
 
(33,347
)
 
37,282

Comprehensive (loss)/income
(28,929
)
 
19,438

 
22,224

 
93,207

Less: Comprehensive loss/(income) attributable to non-controlling interest
36

 
(5,412
)
 
(5,199
)
 
(16,778
)
Comprehensive (loss)/income attributable to Farmer Mac
$
(28,893
)
 
$
14,026

 
$
17,025

 
$
76,429

(1) 
Presented net of income tax benefit of $18.8 million and expense of $1.1 million, for the three months ended September 30, 2015 and 2014, respectively, and income tax benefit of $11.7 million and expense of $25.1 million for the nine months ended September 30, 2015 and 2014, respectively.
(2) 
Presented net of income tax benefit of $1.1 million and expense of $16,000 for the three months ended September 30, 2015 and 2014, respectively, and income tax benefit of $0.7 million and $0.1 million for the nine months ended September 30, 2015 and 2014, respectively.
(3) 
Relates to the amortization of the unrealized gains on the hedged items prior to application of hedge accounting. Presented net of income tax benefit of $1.8 million and $1.7 million for the three months ended September 30, 2015 and 2014, respectively, and tax benefit of $5.2 million and $5.0 million for the nine months ended September 30, 2015 and 2014, respectively.
(4) 
Represents realized gains on sales of available-for-sale investment securities. Presented net of income tax benefit of $1,000 and expense of $0.1 million for the three months ended September 30, 2015 and 2014, respectively, and income tax benefit of $3,000 and expense of $0.1 million for the nine months ended September 30, 2015 and 2014, respectively.
(5) 
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities. Presented net of income tax benefit of $0.2 million and $38,000 for the three months ended September 30, 2015 and 2014, respectively, and income tax benefit of $0.3 million and $26,000 for the nine months ended September 30, 2015 and 2014, respectively.

The accompanying notes are an integral part of these consolidated financial statements.


6

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
  
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Shares
 
Amount
 
Shares
 
Amount
 
(in thousands)
Preferred stock:
 
 
 
 
 
 
 
Balance, beginning of period
8,400

 
$
204,759

 
2,400

 
$
58,333

Issuance of Series B preferred stock

 

 
3,000

 
73,061

Issuance of Series C preferred stock

 

 
3,000

 
$
73,379

Balance, end of period
8,400

 
$
204,759

 
8,400

 
$
204,773

Common stock:
 

 
 

 
 

 
 

Balance, beginning of period
10,937

 
$
10,937

 
10,886

 
$
10,886

Issuance of Class C common stock
110

 
110

 
50

 
50

Repurchase of Class C common stock
(104
)
 
(104
)
 

 

Balance, end of period
10,943

 
$
10,943

 
10,936

 
$
10,936

Additional paid-in capital:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
113,559

 
 

 
$
110,722

Stock-based compensation expense
 

 
2,457

 
 

 
2,182

Issuance of Class C common stock
 

 
10

 
 

 
16

Stock-based award activity
 

 
1,051

 
 

 
(59
)
Balance, end of period
  

 
$
117,077

 
  

 
$
112,861

Retained earnings:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
201,013

 
 

 
$
168,877

Net income attributable to Farmer Mac
 

 
50,372

 
 

 
39,147

Cash dividends:
 

 


 
 
 


Preferred stock, Series A ($1.1016 per share in 2015 and 2014)
 
 
(2,644
)
 
 
 
(2,644
)
Preferred stock, Series B ($1.2891 per share in 2015 and $0.8330 per share in 2014)
 
 
(3,867
)
 
 
 
(2,649
)
Preferred stock, Series C ($1.1250 per share in 2015 and $0.4167 per share in 2014)
 
 
(3,375
)
 
 
 
(1,250
)
Common stock ($0.48 per share in 2015 and $0.42 per share in 2014)
 

 
(5,280
)
 
 

 
(4,584
)
Repurchase of Class C common stock
 
 
(2,686
)
 
 
 

Loss on retirement of preferred stock, Farmer Mac II LLC
 
 
(8,147
)
 
 

 

Balance, end of period
 

 
$
225,386

 
 

 
$
196,897

Accumulated other comprehensive income:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
15,533

 
 

 
$
(16,202
)
Other comprehensive income, net of tax
 

 
(33,347
)
 
 

 
37,282

Balance, end of period
 

 
$
(17,814
)
 
 

 
$
21,080

Total Stockholders' Equity
 

 
$
540,351

 
 

 
$
546,547

Non-controlling interest:
 

 
 

 
 

 
 

Balance, beginning of period
 

 
$
236,028

 
 

 
$
241,853

Redemption of Farmer Mac II LLC preferred stock
 
 
(235,853
)
 
 
 
(6,000
)
Investment in Contour - non-controlling interest
 
 
175

 
 
 

Net loss attributable to non-controlling interest
 
 
(155
)
 
 
 

Balance, end of period
 

 
$
195

 
 

 
$
235,853

Total Equity
 
 
$
540,546

 
 

 
$
782,400

The accompanying notes are an integral part of these consolidated financial statements.


7

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
55,571

 
$
55,925

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities
2,199

 
16,624

Amortization of debt premiums, discounts and issuance costs
9,601

 
7,384

Net change in fair value of trading securities, hedged assets, and financial derivatives
(8,705
)
 
3,537

(Gains)/losses on sale of available-for-sale investment securities
(9
)
 
238

Losses/(gains) on sale of real estate owned
1

 
(165
)
Total provision for/(release of) losses
257

 
(2,687
)
Deferred income taxes
2,182

 
(16,340
)
Stock-based compensation expense
2,457

 
2,183

Proceeds from repayment of trading investment securities
544

 
541

Proceeds from repayment of loans purchased as held for sale
82,864

 
95,194

Net change in:
 
 
 
Interest receivable
32,911

 
43,124

Guarantee and commitment fees receivable
(698
)
 
381

Other assets
(2,369
)
 
(19,179
)
Securities sold, not yet purchased

 
1,657,901

Accrued interest payable
(10,525
)
 
(18,919
)
Other liabilities
(864
)
 
4,910

Net cash provided by operating activities
165,417

 
1,830,652

Cash flows from investing activities:
 

 
 

Net change in securities purchased under agreements to resell

 
(1,630,427
)
Purchases of available-for-sale investment securities
(1,282,474
)
 
(1,171,063
)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
(1,093,737
)
 
(1,074,019
)
Purchases of loans held for investment
(565,829
)
 
(567,774
)
Purchases of defaulted loans
(2,244
)
 
(440
)
Proceeds from repayment of available-for-sale investment securities
1,111,093

 
894,475

Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
901,327

 
1,098,901

Proceeds from repayment of loans purchased as held for investment
248,989

 
303,905

Proceeds from sale of available-for-sale investment securities
83,735

 
770,149

Proceeds from sale of Farmer Mac Guaranteed Securities
231,242

 
169,820

(Payments)/proceeds from sale of real estate owned
(1
)
 
1,224

Net cash used in investing activities
(367,899
)
 
(1,205,249
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of discount notes
68,066,267

 
32,008,889

Proceeds from issuance of medium-term notes
3,406,037

 
2,644,707

Payments to redeem discount notes
(66,933,948
)
 
(33,360,658
)
Payments to redeem medium-term notes
(3,875,715
)
 
(2,121,000
)
Excess tax benefits related to stock-based awards
154

 
57

Payments to third parties on debt securities of consolidated trusts
(42,449
)
 
(34,080
)
Proceeds from common stock issuance
1,685

 
209

Proceeds from Series B Preferred stock issuance

 
73,061

Proceeds from Series C Preferred stock issuance

 
73,379

Common stock repurchased
(1,994
)
 

Investment in Contour
175

 

Redemption of Farmer Mac II LLC Preferred Stock
(244,000
)
 
(6,000
)
Dividends paid - Non-controlling interest - preferred stock
(5,415
)
 
(16,778
)
Dividends paid on common and preferred stock
(15,166
)
 
(8,832
)
Net cash provided by/(used in) financing activities
355,631

 
(747,046
)
Net increase/(decrease) in cash and cash equivalents
153,149

 
(121,643
)
Cash and cash equivalents at beginning of period
1,363,387

 
749,313

Cash and cash equivalents at end of period
$
1,516,536

 
$
627,670

 The accompanying notes are an integral part of these consolidated financial statements.



8

Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.
ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2014 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2014 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2014 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 16, 2015. That Form 10-K describes Farmer Mac's significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Transfers of Financial Assets and Liabilities; Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities; Loans; Securitization of Loans; Real Estate Owned; Financial Derivatives; Notes Payable; Allowance for Loan Losses and Reserve for Losses; Earnings Per Common Share; Income Taxes; Stock-Based Compensation; Comprehensive Income; Long-Term Standby Purchase Commitments ("LTSPCs"); Fair Value Measurement; and Consolidation of Variable Interest Entities ("VIEs"). Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three and nine month periods ended September 30, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its three subsidiaries: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; (2) Farmer Mac II LLC, whose principal activity is the operation of substantially all of the business related to the USDA Guarantees line of business – primarily the acquisition of USDA Securities; and (3) Contour Valuation Services, LLC, whose principal activity is to provide appraisal services related to agricultural real estate.  All inter-company balances and transactions have been eliminated in consolidation. The consolidated financial statements also include the accounts of VIEs in which Farmer Mac determined itself to be the primary beneficiary.  



9

Table of Contents

The following tables present, by line of business, details about the consolidation of VIEs:

Table 1.1
 
Consolidation of Variable Interest Entities
 
As of September 30, 2015
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost
$
612,567

 
$

 
$

 
$

 
$

 
$
612,567

Debt securities of consolidated trusts held by third parties(1)
612,994

 

 

 

 

 
612,994

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value(2)

 
30,708

 

 
31,833

 

 
62,541

      Maximum exposure to loss(3)

 
31,218

 

 
30,000

 

 
61,218

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value(4)

 

 

 

 
539,828

 
539,828

        Maximum exposure to loss(3)(4)

 

 

 

 
538,462

 
538,462

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss(3)(5)
553,469

 
10,712

 

 
970,000

 

 
1,534,181

(1) 
Includes borrower remittances of $0.4 million which have not been passed through to third party investors as of September 30, 2015.
(2) 
Includes $0.5 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. Includes fair value adjustments related to the Institutional Credit line of business of $1.8 million.
(3) 
Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
(4) 
Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(5) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.




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Table of Contents


 
Consolidation of Variable Interest Entities
 
As of December 31, 2014
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost(1)
$
421,355

 
$

 
$
271,123

 
$

 
$

 
$
692,478

Debt securities of consolidated trusts held by third parties(2)
424,214

 

 

 

 

 
424,214

   Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Carrying value(3)

 
27,620

 

 
32,415

 

 
60,035

      Maximum exposure to loss(4)

 
27,832

 

 
30,000

 

 
57,832

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value(5)

 

 

 

 
409,657

 
409,657

        Maximum exposure to loss(4)(5)

 

 

 

 
412,690

 
412,690

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss(4)(6)
636,086

 
13,978

 

 
970,000

 

 
1,620,064

(1) 
Includes unamortized premiums related to the Rural Utilities line of business of $3.7 million.
(2) 
Includes borrower remittances of $2.9 million which have not been passed through to third party investors as of December 31, 2014.
(3) 
Includes $0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. Includes fair value adjustments related to the Institutional Credit line of business of $2.4 million.
(4) 
Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.
(5) 
Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(6) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.



(a)
Statements of Cash Flows

The following table sets forth information regarding certain non-cash transactions for the nine months ended September 30, 2015 and 2014:

Table 1.2

 
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
(in thousands)
Non-cash activity:
 
 
 
Loans acquired and securitized as Farmer Mac Guaranteed Securities
$
231,242

 
$
169,820

Consolidation of Farm & Ranch Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties
231,242

 
172,268

Purchases of securities - traded, not yet settled
15,000

 

Issuance costs on the retirement of Farmer Mac II LLC Preferred Stock
8,147

 

Unsettled common stock repurchases
796

 

Transfers of available-for-sale Farmer Mac Guaranteed Securities to held-to-maturity

 
1,612,086



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On January 1, 2014, Farmer Mac transferred $1.6 billion of Farmer Mac Guaranteed Securities from available-for-sale to held-to-maturity because Farmer Mac determined it has the ability and intent to hold these securities until maturity or payoff. Farmer Mac transferred these securities at fair value which reflected an unrealized holding gain of $22.3 million. Farmer Mac accounts for held-to-maturity securities at amortized cost. The unrealized holding gain is being amortized out of accumulated other comprehensive income over the remaining life of the transferred securities.



12

Table of Contents

(b)
Earnings Per Common Share

Basic earnings per common share ("EPS") is based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per common share is based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights ("SARs"), and non-vested restricted stock awards.  The following schedule reconciles basic and diluted EPS for the three and nine months ended September 30, 2015 and 2014:

Table 1.3

 
For the Three Months Ended
 
September 30, 2015
 
September 30, 2014
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
8,359

 
11,028

 
$
0.76

 
$
11,586

 
10,930

 
$
1.06

Effect of dilutive securities(1):
 
 
 
 
 
 
 

 
 

 
 
Stock options, SARs and restricted stock

 
243

 
(0.02
)
 

 
442

 
(0.04
)
Diluted EPS
$
8,359

 
11,271

 
$
0.74

 
$
11,586

 
11,372

 
$
1.02

(1) 
For the three months ended September 30, 2015 and 2014, stock options and SARs of 476,699 and 118,583, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended September 30, 2015 and 2014, contingent shares of non-vested restricted stock of 45,034 and 42,514, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions have not yet been met.



 
For the Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
32,339

 
10,992

 
$
2.94

 
$
32,604

 
10,914

 
$
2.99

Effect of dilutive securities(1):
 
 
 
 
 
 
 

 
 

 
 

Stock options, SARs and restricted stock

 
355

 
(0.09
)
 

 
446

 
(0.12
)
Diluted EPS
$
32,339

 
11,347

 
$
2.85

 
$
32,604

 
11,360

 
$
2.87

(1) 
For the nine months ended September 30, 2015 and 2014, stock options and SARs of 302,598 and 91,011, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the nine months ended September 30, 2015 and 2014, contingent shares of non-vested restricted stock of 40,194 and 38,874, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions have not yet been met.




13

Table of Contents

(c) New Accounting Standards

In February 2015, the FASB issued ASU 2015-02, "Amendments to the Consolidation Analysis." This update modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. It also affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for interim and annual periods beginning after December 15, 2015. The adoption of the new guidance will not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

(d)
Reclassifications

Beginning January 1, 2015, Farmer Mac classified all of the income from Farmer Mac Guaranteed Securities that it holds in its portfolio as interest income. Prior to January 1, 2015, Farmer Mac classified a portion of the income from those securities, $2.5 million and $8.0 million for the three and nine months ended September 30, 2014, respectively, as guarantee and commitment fees. This change in classification does not affect the timing or amount of income recognized from these securities. The corresponding guarantee and commitment fee receivable balance as of December 31, 2014 also was reclassified to accrued interest receivable. Certain reclassifications of prior period information, including the aforementioned change, were made to conform to the current period presentation.




14

Table of Contents


2.
INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's investment securities as of September 30, 2015 and December 31, 2014:
 
Table 2.1

 
As of September 30, 2015
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
46,500

 
$

 
$
46,500

 
$

 
$
(1,576
)
 
$
44,924

Floating rate asset-backed securities
81,868

 
(286
)
 
81,582

 
44

 
(508
)
 
81,118

Floating rate corporate debt securities
10,000

 

 
10,000

 

 
(9
)
 
9,991

Fixed rate corporate debt securities
10,000

 
(2
)
 
9,998

 
7

 

 
10,005

Floating rate Government/GSE guaranteed mortgage-backed securities
856,089

 
3,717

 
859,806

 
3,588

 
(1,170
)
 
862,224

Fixed rate GSE guaranteed mortgage-backed securities(1)
728

 
3,223

 
3,951

 
4,022

 

 
7,973

Floating rate GSE subordinated debt
70,000

 

 
70,000

 

 
(3,888
)
 
66,112

Fixed rate senior agency debt
380,806

 
(103
)
 
380,703

 
83

 

 
380,786

Fixed rate U.S. Treasuries
568,194

 
130

 
568,324

 
172

 

 
568,496

Total available-for-sale
2,024,185

 
6,679

 
2,030,864

 
7,916

 
(7,151
)
 
2,031,629

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
2,325

 

 
2,325

 

 
(1,775
)
 
550

Total investment securities
$
2,026,510

 
$
6,679

 
$
2,033,189

 
$
7,916

 
$
(8,926
)
 
$
2,032,179

(1)
Fair value includes $7.2 million of an interest-only security with a notional amount of $152.4 million.








15

Table of Contents

 
As of December 31, 2014
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
46,600

 
$

 
$
46,600

 
$

 
$
(6,024
)
 
$
40,576

Floating rate asset-backed securities
100,730

 
(74
)
 
100,656

 
283

 
(37
)
 
100,902

Floating rate corporate debt securities
10,000

 

 
10,000

 
91

 

 
10,091

Fixed rate corporate debt securities
30,000

 
(10
)
 
29,990

 
35

 

 
30,025

Floating rate Government/GSE guaranteed mortgage-backed securities
605,053

 
3,431

 
608,484

 
4,712

 
(443
)
 
612,753

Fixed rate GSE guaranteed mortgage-backed securities(1)
853

 
3,542

 
4,395

 
3,807

 

 
8,202

Floating rate GSE subordinated debt
70,000

 

 
70,000

 

 
(3,680
)
 
66,320

Fixed rate senior agency debt
18,806

 
130

 
18,936

 
3

 

 
18,939

Floating rate U.S. Treasuries
75,000

 
(10
)
 
74,990

 

 
(11
)
 
74,979

Fixed rate U.S. Treasuries
975,194

 
462

 
975,656

 
72

 
(16
)
 
975,712

Total available-for-sale
1,932,236

 
7,471

 
1,939,707

 
9,003

 
(10,211
)
 
1,938,499

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
2,868

 

 
2,868

 

 
(2,179
)
 
689

Total investment securities
$
1,935,104

 
$
7,471

 
$
1,942,575

 
$
9,003

 
$
(12,390
)
 
$
1,939,188

(1)
Fair value includes $7.3 million of an interest-only security with a notional amount of $152.4 million.

During the three months ended September 30, 2015, Farmer Mac received proceeds of $8.7 million from the sale of securities from its available-for-sale investment portfolio, resulting in realized gains of $0.1 million, compared to proceeds of $39.7 million for the same period in 2014, resulting in gross realized losses of $0.5 million and gross realized gains of $0.1 million. During the nine months ended September 30, 2015, Farmer Mac received proceeds of $83.7 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $0.1 million, compared to proceeds of $770.1 million for the the nine months ended September 30, 2014, resulting in gross realized losses of $0.8 million and gross realized gains of $0.6 million. Farmer Mac also recognized $0.1 million in losses during the three and nine months ended September 30, 2015 related to other-than-temporary impairment on two auction-rate certificate securities. As of September 30, 2015, Farmer Mac intends to sell these auction-rate certificate securities in fourth quarter 2015 at a price of 99.63 percent of par pursuant to a forward sales agreement.



16

Table of Contents

As of September 30, 2015 and December 31, 2014, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2

 
As of September 30, 2015
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$

 
$

 
$
18,124

 
$
(1,576
)
Floating rate asset-backed securities
25,391

 
(297
)
 
7,105

 
(211
)
Floating rate corporate debt securities
4,991

 
(9
)
 

 

Floating rate Government/GSE guaranteed mortgage-backed securities
283,418

 
(679
)
 
93,530

 
(491
)
Floating rate GSE subordinated debt

 

 
66,112

 
(3,888
)
Total
$
313,800

 
$
(985
)
 
$
184,871

 
$
(6,166
)

 
As of December 31, 2014
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$

 
$

 
$
40,576

 
$
(6,024
)
Floating rate asset-backed securities
19,388

 
(37
)
 

 

Floating rate Government/GSE guaranteed mortgage-backed securities
76,100

 
(164
)
 
76,867

 
(279
)
Floating rate GSE subordinated debt

 

 
66,320

 
(3,680
)
Floating rate U.S. Treasuries
74,980

 
(11
)
 

 

Fixed rate U.S. Treasuries
325,033

 
(16
)
 

 

Total
$
495,501

 
$
(228
)
 
$
183,763

 
$
(9,983
)

The unrealized losses presented above are principally due to a general widening of credit spreads from the dates of acquisition to September 30, 2015 and December 31, 2014, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of September 30, 2015, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+," except two that were rated "A-." As of December 31, 2014 , all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+," except one that was rated "A-." The unrealized losses were on 44 and 35 individual investment securities as of September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015, 14 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $6.2 million. As of December 31, 2014, 15 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $10.0 million.  Securities in unrealized loss positions for 12 months or longer have a fair value as of


17

Table of Contents

September 30, 2015 that is, on average, approximately 97 percent of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. Accordingly, Farmer Mac has concluded that none of the unrealized losses on these available-for-sale investment securities represents other-than-temporary impairment as of September 30, 2015 and December 31, 2014.

Farmer Mac did not own any held-to-maturity investment securities as of September 30, 2015 and December 31, 2014. As of September 30, 2015, Farmer Mac owned trading investment securities with an amortized cost of $2.3 million, a fair value of $0.6 million, and a weighted average yield of 4.29 percent. As of December 31, 2014, Farmer Mac owned trading investment securities with an amortized cost of $2.9 million, a fair value of $0.7 million, and a weighted average yield of 4.24 percent.

The amortized cost, fair value, and weighted average yield of available-for-sale investment securities by remaining contractual maturity as of September 30, 2015 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets.

Table 2.3

 
As of September 30, 2015
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
959,025

 
$
959,287

 
0.27%
Due after one year through five years
94,816

 
95,302

 
1.17%
Due after five years through ten years
229,839

 
230,299

 
0.90%
Due after ten years
747,184

 
746,741

 
0.86%
Total
$
2,030,864

 
$
2,031,629

 
0.60%




18

Table of Contents

3.
FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES

The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of September 30, 2015 and December 31, 2014:

Table 3.1

 
As of September 30, 2015
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
1,275,549

 
$
604

 
$
1,276,153

 
$
15,137

 
$

 
$
1,291,290

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
4,162,940

 
$

 
$
4,162,940

 
$
37,899

 
$
(74,877
)
 
$
4,125,962

Farmer Mac Guaranteed USDA Securities
31,218

 
(350
)
 
30,868

 
30

 
(190
)
 
30,708

Total Farmer Mac Guaranteed Securities
4,194,158

 
(350
)
 
4,193,808

 
37,929

 
(75,067
)
 
4,156,670

USDA Securities
1,826,258

 
2,034

 
1,828,292

 
26,481

 
(351
)
 
1,854,422

Total available-for-sale
$
6,020,416

 
$
1,684

 
$
6,022,100

 
$
64,410

 
$
(75,418
)
 
$
6,011,092

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
30,437

 
$
2,229

 
$
32,666

 
$
82

 
$
(812
)
 
$
31,936


 
As of December 31, 2014
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
1,785,340

 
$
9,280

 
$
1,794,620

 
$
6,211

 
$
(255
)
 
$
1,800,576

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
3,625,073

 
$

 
$
3,625,073

 
$
36,442

 
$
(29,853
)
 
$
3,631,662

Farmer Mac Guaranteed USDA Securities
27,831

 
(442
)
 
27,389

 
237

 
(7
)
 
27,619

Total Farmer Mac Guaranteed Securities
3,652,904

 
(442
)
 
3,652,462

 
36,679

 
(29,860
)
 
3,659,281

USDA Securities
1,717,813

 
3,162

 
1,720,975

 
11,850

 
(1,603
)
 
1,731,222

Total available-for-sale
$
5,370,717

 
$
2,720

 
$
5,373,437

 
$
48,529

 
$
(31,463
)
 
$
5,390,503

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
38,412

 
$
2,748

 
$
41,160

 
$
114

 
$
(964
)
 
$
40,310




19

Table of Contents

As of September 30, 2015 and December 31, 2014, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows:

Table 3.2

 
As of September 30, 2015
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
AgVantage
$
1,560,161

 
$
(56,977
)
 
$
843,727

 
$
(17,900
)
Farmer Mac Guaranteed USDA Securities
29,133

 
(190
)
 

 

USDA Securities

 

 
100,275

 
(351
)
Total available-for-sale
$
1,589,294

 
$
(57,167
)

$
944,002


$
(18,251
)

 
As of December 31, 2014
 
Held-to-Maturity and Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
AgVantage
$
547

 
$
(1
)
 
$
49,745

 
$
(254
)
 
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
AgVantage
$
685,131

 
$
(13,115
)
 
$
1,460,089

 
$
(16,738
)
Farmer Mac Guaranteed USDA Securities