Edgar Filing: FEDERAL AGRICULTURAL MORTGAGE CORP

Federal Agricultural Mortgage Corp 10-Q 9-30-2006

As filed with the Securities and Exchange Commission on

November 9, 2006

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, 2006

Commission File Number 0-17440

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

(Exact name of registrant as specified in its charter)


	Federally chartered instrumentality of the United States		52-1578738
	(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

	1133 Twenty-First Street, N.W., Suite 600 Washington, D.C.		20036
	(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 T

No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £

Accelerated filer T

Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £

No T

As of November 1, 2006, the registrant had 1,030,780 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 9,061,770 shares of Class C Non-Voting Common Stock outstanding.

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

The following interim unaudited condensed consolidated financial statements of the Federal Agricultural Mortgage Corporation (“Farmer Mac” or the “Corporation”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These interim unaudited condensed 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 condition and the results of operations and cash flows of Farmer Mac 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 SEC rules and regulations. The December 31, 2005 consolidated balance sheet presented in this report has been derived from the Corporation’s audited 2005 restated consolidated financial statements. Management believes that the disclosures are adequate to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows as of the dates and for the periods presented. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited 2005 consolidated financial statements of Farmer Mac included in the Corporation’s Annual Report on Form 10-K/A for the year ended December 31, 2005. Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.

The following information concerning Farmer Mac’s interim unaudited condensed consolidated financial statements is included in this report beginning on the pages listed below:

Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 (as restated)		3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and for the three and nine months ended September 30, 2005 (as restated)		4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and nine months ended September 30, 2005 (as restated)		5
Notes to Condensed Consolidated Financial Statements (as restated)		6

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)

	September 30,			December 31,
	2006			2005
				(As Restated)*
Assets:
Cash and cash equivalents	$	804,602		$	458,852
Investment securities		1,896,260			1,621,941
Farmer Mac Guaranteed Securities		1,315,801			1,330,976
Loans held for sale		63,981			41,956
Loans held for investment		706,231			762,436
Allowance for loan losses		(2,209	)		(4,876	)
Loan-s held for investment, net		704,022			757,560
Real estate owned		1,039			3,532
Financial derivatives		9,050			8,719
Interest receivable		52,344			67,509
Guarantee and commitment fees receivable		34,988			22,170
Deferred tax asset, net		5,006			3,223
Prepaid expenses and other assets		5,607			25,007
Total Assets	$	4,892,700		$	4,341,445
Liabilities and Stockholders' Equity:
Liabilities:
Notes payable:
Due within one year	$	3,366,472		$	2,587,704
Due after one year		1,187,827			1,406,527
Total notes payable		4,554,299			3,994,231

Financial derivatives		24,402			29,162
Accrued interest payable		25,444			29,250
Guarantee and commitment obligation		31,109			17,625
Accounts payable and accrued expenses		9,730			21,371
Reserve for losses		2,875			3,777
Total Liabilities		4,647,859			4,095,416
Stockholders' Equity:
Preferred stock:
Series A, stated at redemption/liquidation value, $50 per share,700,000 shares authorized, issued and outstanding		35,000			35,000
Common stock:
Class A Voting, $1 par value, no mazimum authorization, 1,030,780 shares issued and outstanding		1,031			1,031
Class B Voting, $1 par value, no maximum authorization, 500,301 shares issued and outstanding		500			500
Class C Non-Voting, $1 par value, no maximum authorization, 9,083,258 and 9,559,554 shares issued and outstanding as of September 30, 2006 and December 31, 2005, respectively		9,083			9,560
Additional paid-in capital		83,730			83,058
Accumulated other comprehensive income		7,838			15,247
Retained earnings		107,659			101,633
Total Stockholders' Equity		244,841			246,029

Total Liabilities and Stockholders' Equity	$	4,892,700		$	4,341,445

See accompanying notes to condensed consolidated financial statements.

*	See Note 6 to the condensed consolidated financial statements

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30, 2006			September 30, 2005			September 30, 2006			September 30, 2005
				(As Restated)*						(As Restated)*
Interest income
Investments and cash equivalents	$	35,153		$	19,888		$	92,148		$	47,241
Farmer Mac Guaranteed Securities		18,702			17,680			55,692			54,679
Loans		12,092			11,968			35,322			35,558
Total interest income		65,947			49,536			183,162			137,478

Total interest expense		56,840			38,028			153,310			99,147

Net interest income		9,107			11,508			29,852			38,331
Recovery/(provision) for loan losses		525			(2,465	)		2,132			(1,678	)
Net interest income after recovery/(provision)for loan losses		9,632			9,043			31,984			36,653

Non-interest income/(loss)
Guarantee and commitment fees		5,548			4,844			15,885			14,689
(Loss)/gains on financial derivatives and trading assets		(20,320	)		12,009			1,285			7,254
Gains on the sale of real estate owned		-			114			514			33
Representation and warranty claims income		-			-			718			79
Other income		846			926			1,073			1,671
Non-interest income/(loss)		(13,926	)		17,893			19,475			23,726

Non-interest expense
Compensation and employee benefits		3,185			2,211			8,762			5,886
General and administrative		2,357			2,554			7,689			6,817
Regulatory fees		588			576			1,763			1,728
Real estate owned operating costs, net		(11	)		(10	)		126			27
Provision/(recovery) for losses		(643	)		(8,081	)		(747	)		(8,272	)
Non-interest expense/(recovery)		5,476			(2,750	)		17,593			6,186

(Loss)/income before income taxes		(9,770	)		29,686			33,866			54,193

Income tax (benefit)/expense		(4,072	)		9,778			9,975			17,343
Net (loss)/income		(5,698	)		19,908			23,891			36,850
Preferred stock dividends		(560	)		(560	)		(1,680	)		(1,680	)
Net (loss)/income available to common stockholders	$	(6,258	)	$	19,348		$	22,211		$	35,170

Earnings per common share:
Basic earnings/(loss) per common share	$	(0.58	)	$	1.73		$	2.03		$	3.08
Diluted earnings/(loss) per common share	$	(0.58	)	$	1.70		$	1.98		$	3.05
Common stock dividends per common share	$	0.10		$	0.10		$	0.30		$	0.30

See accompanying notes to condensed consolidated financial statements.

*	See Note 6 to the condensed consolidated financial statements

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FEDERAL AGRICULTURAL MORTGAGE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Nine Months Ended
	September 30, 2006			September 30, 2005
				(As Restated)*
Cash flows from operating activities:
Net income	$	23,891		$	36,850
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net (accretion)/amortization of investment premiums and discounts		(2,279	)		2,040
Net amortization of debt premiums, discounts and issuance costs		95,071			44,126
Proceeds from repayment of trading investment securities		1,406			2,148
Purchases of loans held for sale		(42,098	)		(78,093	)
Proceeds from repayment of loans held for sale		6,578			9,391
Net change in fair value of trading securities and financial derivatives		(5,101	)		(20,428	)
Amortization of SFAS 133 transition adjustment on financial derivatives		429			545
Gains on the sale of real estate owned		(514	)		(33	)
Total (recovery)/provision for losses		(2,878	)		(6,594	)
Deferred income taxes		2,190			(9,293	)
Stock-based compensation expense		1,693			-
Decrease in interest receivable		15,165			12,894
Decrease/(increase) in guarantee and commitment fees receivable		(12,818	)		1,058
Decrease in other assets		30,304			19,179
Increase in accrued interest payable		(3,806	)		(258	)
Decrease in other liabilities		(13,347	)		(14,823	)
Net cash provided by/(used in) operating activities		93,886			(1,291	)

Cash flows from investing activities:
Purchases of available-for-sale investment securities		(2,744,374	)		(1,787,240	)
Purchases of Farmer Mac II Guaranteed Securities and AgVantage Farmer Mac Guaranteed Securities		(186,416	)		(149,547	)
Purchases of loans held for investment		(32,529	)		(650	)
Purchases of defaulted loans		(5,693	)		(11,022	)
Proceeds from repayment of investment securities		2,478,819			1,237,548
Proceeds from repayment of Farmer Mac Guaranteed Securities		185,433			191,363
Proceeds from repayment of loans		105,442			118,999
Proceeds from sale of loans and Farmer Mac Guaranteed Securities		3,168			24,073
Proceeds from sale of real estate owned		2,819			2,882
Net cash used in investing activities		(193,331	)		(373,594	)

Cash flows from financing activities:
Proceeds from issuance of discount notes		64,442,608			34,381,698
Proceeds from issuance of medium-term notes		375,782			767,643
Payments to redeem discount notes		(64,161,392	)		(34,242,221	)
Payments to redeem medium-term notes		(192,000	)		(505,240	)
Tax benefit from tax deductions in excess of compensation cost recognized		481			-
Proceeds from common stock issuance		4,051			836
Purchases of common stock		(19,378	)		(15,682	)
Dividends paid		(4,957	)		(5,092	)
Net cash provided by financing activities		445,195			381,942
Net decrease in cash and cash equivalents		345,750			7,057

Cash and cash equivalents at beginning of period		458,852			430,504
Cash and cash equivalents at end of period	$	804,602		$	437,561

See accompanying notes to condensed consolidated financial statements.

*	See Note 6 to the condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AS RESTATED)

(unaudited)

Note 1.

Accounting Policies

(a)

Cash and Cash Equivalents

Farmer Mac considers highly liquid investment securities with maturities of three months or less at the time of purchase to be cash equivalents. Changes in the balance of cash and cash equivalents are reported in the condensed consolidated statements of cash flows. The following table sets forth information regarding certain cash and non-cash transactions for the nine months ended September 30, 2006 and 2005.

	Nine Months Ended
	September 30, 2006		September 30, 2005
	(in thousands)
Cash paid for:
Interest	$	64,978	$	51,352
Income taxes		7,500		8,200
Non-cash activity:
Real estate owned acquired through foreclosure		-		980
Loans acquired and securitized as Farmer Mac Guaranteed Securities		3,168		24,073
Loans previously under LTSPCs exchanged for Farmer Mac Guaranteed Securities		891,278		-

(b)

Allowance for Losses

As of September 30, 2006, Farmer Mac maintained an allowance for losses to cover estimated probable losses on loans held for investment, real estate owned, and loans underlying long-term standby purchase commitments (“LTSPCs”) and Farmer Mac I Guaranteed Securities issued after the Farm Credit System Reform Act of 1996 (the “1996 Act”) in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (“SFAS 5”) and Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended (“SFAS 114”).

The allowance for losses is increased through periodic provisions for loan losses that are charged against net interest income and provisions for losses that are charged to operating expense and is reduced by charge-offs for actual losses, net of recoveries. Negative provisions for loan losses or negative provisions for losses are recorded in the event that the estimate of probable losses as of the end of a period is lower than the estimate at the beginning of the period.

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Prior to September 30, 2005, Farmer Mac estimated its inherent probable losses using a systematic process that began with management’s evaluation of the results of a proprietary loan pool simulation and guarantee fee model. That model drew upon historical information from a data set of agricultural mortgage loans screened to include only those loans with credit characteristics similar to those eligible for Farmer Mac’s programs. The model offered historical loss experience on agricultural mortgage loans similar to those on which Farmer Mac had assumed credit risk, but over a longer term than Farmer Mac’s own experience. The results generated by that model were then modified, as necessary, by the application of management’s judgment. Prior to September 30, 2005, Farmer Mac did not believe that its own historical portfolio lending and loss experience was statistically sufficient to estimate the inherent probable losses in its portfolio.

As of September 30, 2005, Farmer Mac believed it had accumulated and analyzed sufficient data from its own historical portfolio lending, loss experience, and credit trends to estimate its inherent probable losses based upon its own historical experience. Farmer Mac believes that estimating its allowance for losses based on data derived from its own portfolio reflects the characteristics of credit trends within the portfolio. Farmer Mac recorded the effects of that change as a change in accounting estimate, which resulted in a $4.8 million decrease in the allowance for losses as of September 30, 2005.

Farmer Mac’s current methodology for determining its allowance for losses incorporates the Corporation’s proprietary automated loan classification system. That system scores loans based on criteria such as historical repayment performance, loan seasoning, loan size and loan-to-value ratio. For the purposes of the loss allowance methodology, the loans in Farmer Mac’s portfolio of loans and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs have been scored and classified for each calendar quarter since first quarter 2000. The allowance methodology captures the migration of loan scores across concurrent and overlapping 3-year time horizons and calculates loss rates separately within each loan classification for (1) loans underlying LTSPCs and (2) loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities. The calculated loss rates are applied to the current classification distribution of Farmer Mac’s portfolio to estimate inherent probable losses, on the assumption that the historical credit losses and trends used to calculate loss rates will continue in the future. Management evaluates this assumption by taking into consideration several factors, including:

economic conditions;

geographic and agricultural commodity/product concentrations in the portfolio;

the credit profile of the portfolio;

delinquency trends of the portfolio; and

historical charge-off and recovery activities of the portfolio.

If, based on that evaluation, management concludes that the assumption is not valid due to other more compelling indicators, the loss allowance calculation is modified by the addition of further assumptions to capture current portfolio trends and characteristics that differ from historical experience.

As of September 30, 2006, Farmer Mac concluded that the credit profile of its portfolio was consistent with Farmer Mac’s historical credit profile and trends. Management believes that its use of this methodology produces a reliable estimate of inherent probable losses, as of the balance sheet date, for all loans held, real estate owned and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs in accordance with SFAS 5 and SFAS 114.

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The following table summarizes the changes in the components of Farmer Mac’s allowance for losses for the three and nine months ended September 30, 2006 and 2005:

	September 30, 2006
	Allowance for Loan Losses			REO Valuation Allowance			Reserve for Losses			Total Allowance for Losses
	(in thousands)
Three Months Ended:
Beginning balance	$	2,734		$	-		$	3,518		$	6,252
Provision/(recovery) for losses		(525	)		-			(643	)		(1,168	)
Charge-offs		-			-			-			-
Recoveries		-			-			-			-
Ending balance	$	2,209		$	-		$	2,875		$	5,084

Nine Months Ended:
Beginning balance	$	4,876		$	-		$	3,777		$	8,653
Provision/(recovery) for losses		(2,132	)		155			(902	)		(2,879	)
Charge-offs		(900	)		(155	)		-			(1,055	)
Recoveries		365			-			-			365
Ending balance	$	2,209		$	-		$	2,875		$	5,084

	September 30, 2005
	Allowance for Loan Losses			REO Valuation Allowance			Reserve for Losses			Total Allowance for Losses
	(in thousands)
Three Months Ended:
Beginning balance	$	3,670		$	-		$	12,394		$	16,064
Provision/(recovery) for losses		(816	)		85			(96	)		(827	)
Charge-offs		(20	)		(85	)		-			(105	)
Recoveries		553			-			-			553
Change in accounting estimate		3,281			-			(8,070	)		(4,789	)
Ending balance	$	6,668		$	-		$	4,228		$	10,896

Nine Months Ended:
Beginning balance	$	4,395		$	-		$	12,706		$	17,101
Provision/(recovery) for losses		(1,603	)		205			(408	)		(1,806	)
Charge-offs		(46	)		(205	)		-			(251	)
Recoveries		641			-			-			641
Change in accounting estimate		3,281			-			(8,070	)		(4,789	)
Ending balance	$	6,668		$	-		$	4,228		$	10,896

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The table below summarizes the components of Farmer Mac’s allowance for losses as of September 30, 2006 and December 31, 2005:

	September 30, 2006		December 31, 2005
	(in thousands)
Allowance for loan losses	$	2,209	$	4,876
Real estate owned valuation allowance		-		-
Reserve for losses:
On-balance sheet Farmer Mac I Guaranteed Securities		1,147		2,068
Off-balance sheet Farmer Mac I Guaranteed Securities		1,173		1,078
LTSPCs		555		631
Total	$	5,084	$	8,653

No allowance for losses has been made for loans underlying Farmer Mac I Guaranteed Securities issued prior to the 1996 Act, AgVantage securities or securities issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”). Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are supported by unguaranteed first loss subordinated interests, which are expected to exceed the estimated credit losses on those loans. Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is collateralized by eligible mortgage loans. As of September 30, 2006, there were no probable losses inherent in Farmer Mac’s AgVantage securities, due to the high credit quality of the obligors as well as the underlying collateral. The guaranteed portions collateralizing Farmer Mac II Guaranteed Securities are guaranteed by the United States Department of Agriculture (“USDA”). Each USDA guarantee is an obligation backed by the full faith and credit of the United States. As of September 30, 2006, Farmer Mac had not experienced any credit losses on any Farmer Mac I Guaranteed Securities issued prior to the 1996 Act, AgVantage securities or Farmer Mac II Guaranteed Securities and does not expect to incur any such losses in the future.

As of September 30, 2006, Farmer Mac individually analyzed $21.8 million of its $60.8 million of impaired assets for collateral shortfalls against updated appraised values, other updated collateral valuations or discounted values. Farmer Mac evaluated the remaining $39.0 million of impaired assets for which updated valuations were not available in the aggregate in consideration of their similar risk characteristics and historical statistics. All of the $21.8 million of assets analyzed individually were adequately collateralized. Accordingly, Farmer Mac did not record any specific allowances for under-collateralized assets as of September 30, 2006. In addition, Farmer Mac’s non-specific or general allowances were $5.1 million as of September 30, 2006.

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The balance of impaired assets, both on- and off-balance sheet, and the related allowance specifically allocated to those impaired assets as of September 30, 2006 and December 31, 2005 are summarized in the following table:

	September 30, 2006						December 31, 2005
	Balance		Specific Allowance		Net Balance		Balance		Specific Allowance			Net Balance
	(in thousands)
Impaired assets:
Specific allowance for losses	$	-	$	-	$	-	$	2,445	$	(161	)	$	2,284
No specific allowance for losses		60,759		-		60,759		71,177		-			71,177
Total	$	60,759	$	-	$	60,759	$	73,622	$	(161	)	$	73,461

(c)

Financial Derivatives

Farmer Mac enters into financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets and future cash flows or debt issuance, not for trading or speculative purposes. Farmer Mac enters into interest rate swap contracts principally to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term mortgage and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk. These transactions also may provide an overall lower effective cost of borrowing than would otherwise be available in the conventional debt market.

Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet purchased and permanently funded through the use of forward sale contracts on mortgage-backed securities and the debt of other GSEs and futures contracts involving U.S. Treasury securities. Farmer Mac uses forward sale contracts on GSE securities to reduce its interest rate exposure to changes in both Treasury rates and spreads on Farmer Mac debt and Farmer Mac Guaranteed Securities. The notional amounts of these contracts are determined based on a duration-matched hedge ratio between the hedged item and the hedge instrument. Gains or losses generated by these hedge transactions should offset any changes in funding costs or AMBS sale prices that occur during the hedge period.

All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”). As discussed in Note 6, Farmer Mac does not designate its financial derivatives as fair value hedges or cash flow hedges, therefore, the changes in the fair values of financial derivatives are reported as gains or losses on financial derivatives and trading assets in the condensed consolidated statements of operations.

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The following table summarizes information related to Farmer Mac’s financial derivatives as of September 30, 2006 and December 31, 2005:

	As of September 30, 2006					As of December 31, 2005
	Notional Amount		Fair Value			Notional Amount		Fair Value

Interest rate swaps:
Pay-fixed	$	824,177	$	(11,148	)	$	710,678	$	(17,228	)
Receive-fixed		527,582		(6,772	)		205,000		(5,752	)
Basis		355,435		2,524			389,496		2,801
Treasury futures		27		1			-		-
Agency forwards		5,749		43			91,178		(264	)
Total	$	1,712,970	$	(15,352	)	$	1,396,352	$	(20,443	)

As of September 30, 2006, Farmer Mac had approximately $1.0 million of net after-tax unrealized losses included in accumulated other comprehensive income related to the SFAS 133 transition adjustment. These amounts will be reclassified into earnings in the same period or periods during which the hedged forecasted transactions (either the payment of interest or the issuance of discount notes) affect earnings or immediately when it becomes probable that the original hedged forecasted transaction will not occur within two months of the originally specified date. Over the next twelve months, Farmer Mac estimates that $0.4 million of the amount currently reported in accumulated other comprehensive income will be reclassified into earnings.

As of September 30, 2006, Farmer Mac had outstanding basis swaps with a related party with a notional mount of $193.0 million and a fair value of $3.2 million. Those swaps hedge the interest rate basis risk related to loans Farmer Mac purchases that pay a Constant Maturity Treasury-based rate and the Discount Notes Farmer Mac issues to fund the loan purchases. Under the terms of those basis swaps which are not in designated hedge relationships, Farmer Mac pays Constant Maturity Treasury-based rates and receives LIBOR. See Note 3 “Related Party Transactions” in the Corporation’s Annual Report on Form 10-K/A for the year ended December 31, 2005, as filed with the SEC on November 9, 2006 for additional information on these related party transactions. As of December 31, 2005, these swaps had an outstanding notional amount of $225.6 million and a fair value of $3.7 million.

(d)

Earnings Per Common Share

Basic earnings per common share are based on the weighted-average number of shares of common stock outstanding. Diluted earnings per common share are based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options. The following schedule reconciles basic and diluted earnings per common share (“EPS”) for the three and nine months ended September 30, 2006 and 2005:

- 11 -

	September 30, 2006								September 30, 2005
	Basic EPS			Dilutive stock options (1)		Diluted EPS			Basic EPS		Dilutive Stock options		Diluted EPS
	(in thousands, except per share amounts)
Three Months Ended:
Net income available to common stockholders	$	(6,258	)			$	(6,258	)	$	19,348			$	19,348
Weighted-average shares		10,704			-		10,704			11,205		200		11,405
Earnings/(loss) per common share	$	(0.58	)			$	(0.58	)	$	1.73			$	1.70

Nine Months Ended:
Net income available to common stockholders	$	22,211				$	22,211		$	35,170			$	35,170
Weighted average shares		10,963			272		11,235			11,434		104		11,538
Earnings per common share	$	2.03				$	1.98		$	3.08			$	3.05

(1)	For the three months ended September 30, 2006, approximately 242,000 stock options were not included in the loss per share computation because they would have been anti-dilutive.

On November 11, 2005, Farmer Mac established a program to repurchase up to 10 percent, or 958,632 shares, of the Corporation’s outstanding Class C non-voting common stock. During the three months and nine months ended September 30, 2006, Farmer Mac repurchased 384,900 shares and 706,350 shares, respectively, of its Class C Non-Voting Common Stock at an average price of $26.98 and $26.85 per share, respectively, pursuant to the Corporation’s stock repurchase program. These repurchases reduced the Corporation’s capital by approximately $10.4 million and $19.0 million, respectively.

(e) Stock-Based Compensation

In 1997, Farmer Mac adopted a stock option plan for directors, officers and other employees to acquire shares of Class C Non-Voting Common Stock. Under the plan, stock option awards vest annually in thirds, with the first third vesting one year after the date of grant. If not exercised, any options granted under the 1997 plan expire ten years from the date of grant, except options issued to directors since June 1, 1998, if not exercised, expire five years from the date of grant. Of the 3,750,000 shares authorized to be issued under the plan, 483,257 remain available for future issuance. For all stock options granted, the exercise price is equal to the closing price of the Class C Non-Voting Common Stock on or immediately preceding the date of grant.

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Effective January 1, 2006, Farmer Mac adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (“SFAS 123(R)”) using the modified prospective method of transition, which requires (1) the recordation of compensation expense for the non-vested portion of previously issued awards that remain outstanding as of the initial date of adoption and (2) the recordation of compensation expense for any awards issued or modified after December 31, 2005. Accordingly, prior period amounts have not been retrospectively adjusted for this change. The adoption resulted in the recognition of $0.4 million and $1.3 million of compensation expense during the three-month and nine-month periods ended September 30, 2006, respectively, related to the non-vested portion of previously issued stock option awards that were outstanding as of the initial date of adoption. Additionally, Farmer Mac recognized $0.3 million and $0.4 million of compensation expense related to stock options awarded during 2006, for the three-month and nine-month periods ended September 30, 2006, respectively. The effect of the recognition of compensation expense resulting from stock options on diluted EPS for the three-month and nine-month periods ended September 30, 2006 was a reduction of $0.04 and $0.10, respectively, per diluted share. Prior to the adoption of SFAS 123(R), Farmer Mac accounted for its stock-based employee compensation plans under the intrinsic value method of accounting for employee stock options pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and had adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended (“SFAS 123”). Accordingly, no compensation expense was recognized in 2005 for employee stock option plans. Had Farmer Mac elected to use the fair value method of accounting for employee stock options, net income available to common stockholders and earnings per share for the three and nine months ended September 30, 2005 would have been reduced to the pro forma amounts indicated in the following table:

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
	(in thousands, except per share amounts)
Net income available to common stockholders, as reported	$	19,348		$	35,170
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of tax		(228	)		(2,066	)
Pro forma net income available to common stockholders	$	19,120		$	33,104

Earnings per common share:
Basic - as reported	$	1.73		$	3.08
Basic - pro forma	$	1.71		$	2.90

Diluted - as reported	$	1.70		$	3.05
Diluted - pro forma	$	1.68		$	2.87

As of September 30, 2006, there was $2.4 million of total unrecognized compensation cost related to stock options outstanding and unvested as of December 31, 2005. Of that cost, $0.4 million and $1.4 million is expected to be recognized in the remainder of 2006 and 2007, respectively.

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The following table summarizes stock option activity for the three and nine months ended September 30, 2006 and 2005:

	September 30, 2006					September 30, 2005
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Three Months Ended:
Outstanding, beginning of period		2,299,934		$	23.22		2,141,300		$	22.30
Granted		15,000			26.59		46,000			24.34
Exercised		(109,463	)		17.46		(7,966	)		19.85
Canceled		(7,334	)		28.73		(2,668	)		21.91
Outstanding, end of period		2,198,137			23.52		2,176,666			22.36

Options exercisable at end of period		1,424,001					1,473,156

Nine Months Ended:
Outstanding, beginning of period		2,153,008		$	22.40		1,812,222		$	22.67
Granted		373,928			26.36		478,561			20.95
Exercised		(246,374	)		16.31		(47,769	)		15.07
Canceled		(82,425	)		28.81		(66,348	)		26.16
Outstanding, end of period		2,198,137			23.52		2,176,666			22.36

Options exercisable at end of period		1,424,001					1,473,156

Stock option cancellations during the nine months ended September 30, 2006 and September 30, 2005 were due either to unvested options terminating in accordance with the provisions of the applicable stock option plans upon directors’ or employees’ departures from Farmer Mac or vested options terminating unexercised on their expiration date. For the three-month and the nine-month periods ended September 30, 2006, the additional paid-in capital received from stock option exercises was $1.8 million and $3.8 million, respectively, compared to $0.2 million and $0.7 million for the comparable periods in the prior year. For the three-month and the nine-month periods ended September 30, 2006, the reduction of income taxes to be paid as a result of the deduction for stock option exercises was $0.4 million and $1.1 million, respectively, compared to $14,000 and $0.1 million for the comparable periods in the prior year.

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The following table summarizes information regarding options outstanding as of September 30, 2006:

	Options Outstanding		Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Remaining Contractual Life	Number of Shares

$10.00 - $19.99	329,069	6.5 years	254,725
20.00 - 24.99	1,062,801	5.7 years	736,937
25.00 - 29.99	615,349	7.1 years	241,421
30.00 - 34.99	190,418	4.7 years	190,418
35.00 - 39.99	-	-	-
40.00 - 44.99	-	-	-
45.00 - 50.00	500	5.5 years	500
	2,198,137		1,424,001

The weighted-average grant date fair values of options granted in 2006, 2005 and 2004 were $10.03, $6.69 and $7.34 per share, respectively. The fair values were estimated using the Black-Scholes option pricing model based on the following assumptions:

	2006			2005			2004
Risk-free interest rate		5.0	%		3.9	%		4.3	%
Expected years until exercise		6 years			7 years			5 years
Expected stock volatility		36.9	%		46.3	%		47.8	%
Dividend yield		1.6	%		1.9	%		0.0	%

(f) Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.

(g) New Accounting Standards

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (“SFAS 154”), which replaced Accounting Principles Board Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principles, unless determination of either the period specific effects or the cumulative effect of the change is impracticable or otherwise promulgated. SFAS 154 is effective for fiscal years beginning after December 15, 2005. Farmer Mac’s adoption of SFAS 154 effective January 1, 2006 did not have a material effect on Farmer Mac’s results of operations or financial position.

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In February 2006, FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments - an Amendment of FASB Statements No. 133 and 140 (“SFAS 155”), which resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS 155, among other things, permits the fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 is effective for all financial instruments acquired or issued in a fiscal year beginning after September 15, 2006. SFAS 155 is not expected to have a material effect on Farmer Mac’s results of operations and financial position.

In March 2006, FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS 156”), which requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable and permits the entities to elect either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, for subsequent measurement. SFAS 156 is effective on January 1, 2007. The adoption of SFAS 156 is not expected to have a material effect on Farmer Mac’s results of operations or financial position.

In July 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires the recognition in financial statements of the impact of a tax position if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Farmer Mac is currently evaluating the impact, if any, that FIN 48 will have on its financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), Quantifying Financial Misstatements, which expresses the SEC’s views regarding the process of quantifying financial statement misstatements. Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The techniques most commonly used in practice to accumulate and quantify misstatements are generally referred to as the “rollover” (current year income statement perspective) and “iron curtain” (year-end balance perspective) approaches. The financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. SAB 108 is not expected to have a material effect on Farmer Mac’s results of operations and financial position.

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Note 2.

Farmer Mac Guaranteed Securities

The following table sets forth information about Farmer Mac Guaranteed Securities retained by Farmer Mac as of September 30, 2006 and December 31, 2005.

	Septemer 30, 2006									December 31, 2005
	Available- for-Sale			Held-to- Maturity			Total			Available- for-Sale			Held-to- Maturity			Total
	(in thousands)
Farmer Mac I	$	408,666		$	36,233		$	444,899		$	492,158		$	41,573		$	533,731
Farmer Mac II		-			870,902			870,902			-			797,245			797,245
Total	$	408,666		$	907,135		$	1,315,801		$	492,158		$	838,818		$	1,330,976

Amortized cost	$	401,128		$	907,135		$	1,308,263		$	477,561		$	838,818		$	1,316,379
Unrealized gains		10,792			217			11,009			18,395			448			18,843
Unrealized losses		(3,254	)		(7,752	)		(11,006	)		(3,798	)		(8,339	)		(12,137	)
Fair value	$	408,666		$	899,600		$	1,308,266		$	492,158		$	830,927		$	1,323,085

The temporary unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to September 30, 2006 and December 31, 2005, as applicable. Farmer Mac has the intent and ability to hold its guaranteed securities until either the market value recovers or the securities mature.

The table below presents a sensitivity analysis for Farmer Mac’s retained Farmer Mac Guaranteed Securities as of September 30, 2006.

	September 30, 2006
	(dollars in thousands)
Fair value of beneficial interests retained in Farmer Mac Guaranteed Securities	$	1,308,266

Weighted-average remaining life (in years)		4.5

Weighted-average prepayment speed (annual rate)		11.7	%
Effect on fair value of a 10% adverse change	$	(341	)
Effect on fair value of a 20% adverse change	$	(627	)

Weighted-average discount rate		5.8	%
Effect on fair value of a 10% adverse change	$	(17,218	)
Effect on fair value of a 20% adverse change	$	(34,810	)

These sensitivities are hypothetical. Changes in fair value based on 10 percent or 20 percent variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In fact, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which might amplify or counteract the sensitivities.

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The table below presents the outstanding principal balances as of the periods indicated for Farmer Mac Guaranteed Securities, loans, and LTSPCs.

	September 30, 2006		December 31, 2005
	(in thousands)
On-balance sheet assets:
Farmer Mac I:
Loans	$	763,084	$	784,422
Guaranteed Securities		436,721		518,250
Farmer Mac II:
Guaranteed Securities		866,663		796,224
Total on-balance sheet	$	2,066,468	$	2,098,896


Off-balance sheet assets:
Farmer Mac I:
LTSPCs	$	1,884,223	$	2,329,798
Guaranteed Securities		3,073,307		804,785
Farmer Mac II:
Guaranteed Securities		34,171		39,508
Total off-balance sheet	$	4,991,701	$	3,174,091

Total	$	7,058,169	$	5,272,987

Farmer Mac purchases defaulted loans from Farmer Mac I Guaranteed Securities and LTSPCs pursuant to its obligations under its respective contractual commitments. Farmer Mac records purchases of defaulted loans at their fair values. Fair values are determined by appraisal or management’s estimate of discounted collateral value, and represents the cash flows expected to be collected. Farmer Mac records, at acquisition, the difference between each loan’s acquisition cost and its fair value, if any, as a charge-off to the reserve for losses. Subsequent to the purchase, such defaulted loans are treated as nonaccrual loans and, therefore, interest is accounted for on the cash basis. Any decreases in expected cash flows are recognized as impairment. The following table presents information related to Farmer Mac’s purchases of defaulted loans as of September 30, 2006 and December 31, 2005 and for the three months and nine months ended September 30, 2006 and 2005.

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	Three Months Ended				Nine Months Ended
	September 30, 2006		September 30, 2005		September 30, 2006		September 30, 2005
	(in thousands)
Fair value at acquisition date	$	1,128	$	7,218	$	5,693	$	11,022
Contractually required payments receivable		1,164		7,495		5,799		11,420
Impairment recognized subseqent to acquisition		-		40		-		40

	September 30, 2006		December 31, 2005
	(in thousands)
Outstanding balance	$	45,343	$	51,043
Carrying amount		41,539		47,544

Net credit losses and 90-day delinquencies as of and for the periods indicated for Farmer Mac Guaranteed Securities, loans and LTSPCs are presented in the table below. Information is not presented for loans underlying Farmer Mac I Guaranteed Securities issued prior to the 1996 Act or Farmer Mac II Guaranteed Securities. Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are supported by unguaranteed first loss subordinated interests, which are expected to exceed the estimated credit losses on those loans. The guaranteed portions collateralizing Farmer Mac II Guaranteed Securities are guaranteed by the USDA. Each USDA guarantee is an obligation backed by the full faith and credit of the United States. As of September 30, 2006, Farmer Mac had not experienced any credit losses on any Farmer Mac I Guaranteed Securities issued prior to the 1996 Act or on any Farmer Mac II Guaranteed Securities and does not expect to incur any such losses in the future.

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	90-Day Delinquencies (1)				Net Credit Losses/(Recoveries)
	As of September 30,		As of December 31,		For the Nine Months Ended September 30,
	2006		2005		2006		2005
	(in thousands)
On-balance sheet assets:
Farmer Mac I:
Loans	$	23,616	$	23,308	$	536	$	(595	)
Guaranteed Securities		-		-		-		-
Total on-balance sheet	$	23,616	$	23,308	$	536	$	(595	)


Off-balance sheet assets:
Farmer Mac I:
LTSPCs	$	4,821	$	2,153	$	-	$	-
Guaranteed Securities		-		-		-		-
Total off-balance sheet	$	4,821	$	2,153	$	-	$	-

Total	$	28,437	$	25,461	$	536	$	(595	)

(1)

Includes loans and loans underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, restructured after delinquency, and in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

Note 3.

Off-Balance Sheet Guarantees and Long-Term Standby Purchase Commitments

Overview

Farmer Mac offers approved agricultural and rural residential mortgage lenders two off-balance sheet alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans: (1) Farmer Mac Guaranteed Securities, which are available through either the Farmer Mac I program or the Farmer Mac II program; and (2) LTSPCs, which are available only through the Farmer Mac I program. Both of these alternatives result in the creation of off-balance sheet obligations for Farmer Mac in the ordinary course of its business.

- 20 -

Off-Balance Sheet Farmer Mac Guaranteed Securities

Periodically Farmer Mac transfers agricultural mortgage loans into trusts that are used as vehicles for the securitization of the transferred assets and the beneficial interests in the trusts are sold to third party investors. The following table summarizes certain cash flows received from and paid to these trusts:

	Nine Months Ended
	September 30, 2006		September 30, 2005
	(in thousands)
Proceeds from new securitizations	$	3,168	$	24,073
Guarantee fees received		1,313		1,329
Purchases of assets from the trusts		506		2,508
Servicing advances		64		6
Repayment of servicing advances		69		21

The following table presents the outstanding balance of off-balance sheet Farmer Mac Guaranteed Securities, which represents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make with respect to those securities as of September 30, 2006 and December 31, 2005, not including offsets provided by any recourse provisions, recoveries from third parties or collateral for the underlying loans.

Outstanding Balance of Off-Balance Sheet Farmer Mac Guaranteed Securities
	September 30, 2006		December 31, 2005
	(in thousands)

Farmer Mac I Guaranteed Securities	$	3,073,307	$	804,785
Farmer Mac II Guaranteed Securities		34,171		39,508

Total Farmer Mac I and II	$	3,107,478	$	844,293

As of September 30, 2006, the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage securities, was 14.6 years. For those securities issued or modified on or after January 1, 2003, Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the condensed consolidated balance sheet. This liability approximated $13.7 million as of September 30, 2006 and $5.2 million as of December 31, 2005.

Long-Term Standby Purchase Commitments (LTSPCs)

An LTSPC is a commitment by Farmer Mac to purchase eligible loans from a segregated pool of loans, either for cash or in exchange for Farmer Mac I Guaranteed Securities, on one or more undetermined future dates.

- 21 -

As of September 30, 2006 and December 31, 2005, the maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties or collateral for the underlying loans, was $1.9 billion and $2.3 billion, respectively.

As of September 30, 2006, the weighted-average remaining maturity of all loans underlying LTSPCs was 15.3 years. For those LTSPCs issued or modified on or after January 1, 2003, Farmer Mac has recorded a liability for its obligation to stand ready under the commitment in the guarantee and commitment obligation on the condensed consolidated balance sheet. This liability approximated $17.4 million as of September 30, 2006 and $12.4 million as of December 31, 2005.

Note 4.

Comprehensive Income

Comprehensive income/(loss) represents all changes in stockholders’ equity except those resulting from investments by or distributions to stockholders, and is comprised primarily of net income available to common stockholders and unrealized gains and losses on securities available-for-sale net of related taxes. The following table sets forth Farmer Mac’s comprehensive income for the three and nine months ended September 30, 2006 and 2005:

	Three Months Ended						Nine Months Ended
	September 30, 2006			September 30, 2005			September 30, 2006			September 30, 2005
	(in thousands)

Net income/(loss) available to common stockholders	$	(6,258	)	$	19,348		$	22,211		$	35,170

Unrealized gains/(losses) on securities		12,128			(24,582	)		(12,058	)		(26,238	)
Amortization of FAS 133 transition adjustment on financial derivatives		202			260			660			840
Other compehensive income/(loss), before tax		12,329			(24,322	)		(11,398	)		(25,398	)

Income tax expense/(benefit) related to items of other comprehensive income		4,315			(8,513	)		(3,989	)		(8,889	)
Other comprehensive income/(loss), net of tax		8,014			(15,809	)		(7,409	)		(16,509	)
Comprehensive income available to common stockholders	$	1,756		$	3,539		$	14,802		$	18,661

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Note 5.

Investments

As of the dates indicated below, Farmer Mac’s investment portfolio was comprised of the following investment securities:

	September 30, 2006		December 31, 2005
	(in thousands)
Held-to-maturity	$	10,602	$	10,602
Available-for-sale		1,880,135		1,604,419
Trading		5,523		6,920
	$	1,896,260	$	1,621,941

The amortized cost and estimated fair values of investments as of September 30, 2006 and December 31, 2005 were as follows:

	As of September 30, 2006									As of December 31, 2005
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Held-to-maturity:
Cash investment in fixed rate guaranteed investment contract	$	10,602	$	-	$	(6	)	$	10,596	$	10,602	$	18	$	-		$	10,620
Total held-to-maturity	$	10,602	$	-	$	(6	)	$	10,596	$	10,602	$	18	$	-		$	10,620

Available-for-sale:
Floating rate asset-backed securities	$	272,148	$	825	$	-		$	272,973	$	336,647	$	941	$	-		$	337,588
Floating rate corporate debt securities		386,818		429		(4	)		387,243		230,787		515		(10	)		231,292
Fixed rate corporate debt securities		604,530		29		(3,833	)		600,726		520,381		-		(1,950	)		518,431
Fixed rate preferred stock		237,338		9,164		(711	)		245,791		239,033		11,687		(304	)		250,416
Fixed rate commercial paper		209,876		-		-			209,876		90,848		-		-			90,848
Floating rate mortgage-backed securities		153,281		571		(9	)		153,843		175,441		481		(78	)		175,844
Fixed rate mortgage-backed securities		9,859		-		(176	)		9,683		-		-		-			-
Total available-for-sale	$	1,873,850	$	11,018	$	(4,733	)	$	1,880,135	$	1,593,137	$	13,624	$	(2,342	)	$	1,604,419

Trading:
Adjustable rate mortgage-backed securities	$	5,461	$	62	$	-		$	5,523	$	6,867	$	53	$	-		$	6,920
Total trading	$	5,461	$	62	$	-		$	5,523	$	6,867	$	53	$	-		$	6,920

The temporary unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to September 30, 2006 and December 31, 2005, as applicable.

- 23 -

Farmer Mac has the intent and ability to hold its investment securities until either the market value recovers or the securities mature.

As of September 30, 2006, Farmer Mac owned one held-to-maturity investment that matures in 2006 with an amortized cost of $10.6 million, a fair value of $10.6 million, and a yield of 6.5 percent. As of September 30, 2006, Farmer Mac owned trading investment securities that mature after 10 years with an amortized cost of $5.5 million, a fair value of $5.5 million, and a weighted average yield of 5.38 percent. The amortized cost, fair value and yield of investments by remaining contractual maturity for available-for-sale investment securities as of September 30, 2006 are set forth below. Asset- and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets or mortgages.

	Investment Securities Available-for-Sale as of September 30, 2006
	Amortized Cost		Fair Value		Yield
	(dollars in thousands)
Due within one year	$	329,413	$	329,288		2.12	%
Due after one year