form10q.htm
As filed with the Securities and Exchange Commission on
May 12, 2008
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 March 31, 2008

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)
   
1133 Twenty-First Street, N.W., Suite 600
20036
Washington, D.C.
 
(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     S    No     £

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
   
Large accelerated filer   £
Accelerated filer   S
   
Non-accelerated filer     £
Smaller reporting company   £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes     £    No      S

As of May 1, 2008, the registrant had 1,030,780 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 8,450,182 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, 2007 consolidated balance sheet presented in this report has been derived from the Corporation’s audited 2007 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 2007 consolidated financial statements of Farmer Mac included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.  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 March 31, 2008 and December 31, 2007
33
Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007
45
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
55
Notes to Condensed Consolidated Financial Statements
66

 
-2-
 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
   
March 31,
    
December31,
  
   
2008
    
2007
  
   
(in thousands)
  
Assets:
            
Cash and cash equivalents
   $ 199,989     $ 101,445  
Investment securities:
                
Available-for-sale, at fair value (includes securities pledged to counterparties of $20.1 million and $7.2 million, respectively, as of March 31, 2008 and December 31, 2007)
     2,424,097       2,616,187  
Trading, at fair value
     641,827       8,179  
Total investment securities
     3,065,924       2,624,366  
Farmer Mac Guaranteed Securities:
                
Held-to-maturity, at amortized cost
     526,574       959,865  
Available-for-sale, at fair value
     325,272       338,958  
Trading, at fair value
     445,202       -  
Total Farmer Mac Guaranteed Securities
     1,297,048       1,298,823  
Loans:
                
Loans held for sale, at lower of cost or fair value
     122,382       118,629  
Loans held for investment, at amortized cost
     636,637       649,280  
Allowance for loan losses
     (1,651 )     (1,690 )
Total loans, net of allowance
     757,368       766,219  
                 
Real estate owned, at lower of cost or fair value
     590       590  
Financial derivatives, at fair value
     10,903       2,288  
Interest receivable
     58,648       91,939  
Guarantee and commitment fees receivable
     55,725       57,804  
Deferred tax asset, net
     48,747       30,239  
Prepaid expenses and other assets
     11,072       3,900  
Total Assets
   $ 5,506,014     $ 4,977,613  
                 
Liabilities and Stockholders' Equity:
                
Liabilities:
                
Notes payable:
                
Due within one year
   $ 4,061,661     $ 3,829,698  
Due after one year
     1,045,193       744,649  
Total notes payable
     5,106,854       4,574,347  
                 
Financial derivatives, at fair value
     102,887       55,273  
Accrued interest payable
     33,731       50,004  
Guarantee and commitment obligation
     51,541       52,130  
Accounts payable and accrued expenses
     8,841       20,069  
Reserve for losses
     2,197       2,197  
Total Liabilities
     5,306,051       4,754,020  
                 
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 maximum 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, 8,332,699 and 8,363,580 shares issued and outstanding as of March 31, 2008 and December 31, 2007, respectively
     8,333       8,364  
Additional paid-in capital
     87,784       87,134  
Accumulated other comprehensive loss
     (29,393 )     (2,793 )
Retained earnings
     96,708       94,357  
Total Stockholders' Equity
     199,963       223,593  
 
               
Total Liabilities and Stockholders' Equity
   $ 5,506,014     $ 4,977,613  
 
See accompanying notes to condensed consolidated financial statements.
 
-3-
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
 
   
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
Interest income:
            
Investments and cash equivalents
   $ 41,508     $ 38,992  
Farmer Mac Guaranteed Securities
     18,770       19,403  
Loans
     11,831       11,319  
Total interest income
     72,109       69,714  
Total interest expense
     54,171       60,632  
                 
Net interest income
     17,938       9,082  
Recovery/(provision) for loan losses
     -       215  
Net interest income after recovery/(provision) for loan losses
     17,938       9,297  
                 
Non-interest (loss)/income:
                
Guarantee and commitment fees
     6,634       5,858  
Losses on financial derivatives
     (41,720 )     (4,026 )
Gains/(losses) on trading assets
     10,111       (7 )
Other income
     461       409  
Non-interest (loss)/income
     (24,514 )     2,234  
                 
Non-interest expense:
                
Compensation and employee benefits
     3,650       3,137  
General and administrative
     2,028       2,337  
Regulatory fees
     513       550  
Real estate owned operating costs, net
     49       -  
Provision/(recovery) for losses
     -       (413 )
Non-interest expense
     6,240       5,611  
                 
(Loss)/income before income taxes
     (12,816 )     5,920  
                 
Income tax (benefit)/expense
     (5,119 )     1,438  
Net (loss)/income
     (7,697 )     4,482  
Preferred stock dividends
     (560 )     (560 )
Net (loss)/income available to common stockholders
   $ (8,257 )   $ 3,922  
                 
Earnings per common share and dividends:
                
Basic earnings per common share
   $ (0.84 )   $ 0.37  
Diluted earnings per common share
   $ (0.84 )   $ 0.37  
Common stock dividends per common share
   $ 0.10     $ 0.10  

See accompanying notes to condensed consolidated financial statements.

 
-4-
 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
   
(in thousands)
  
Cash flows from operating activities:
            
Net (loss)/income
   $ (7,697 )   $ 4,482  
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
                
Net amortization of premiums and discounts on loans and investments
     1,141       325  
Amortization of debt premiums, discounts and issuance costs
     28,538       29,813  
Proceeds from repayment of trading investment securities
     423       388  
Purchases of loans held for sale
     (8,424 )     (15,528 )
Proceeds from repayment of loans held for sale
     4,095       8,889  
Net change in fair value of trading securities and financial derivatives
     28,888       3,928  
Amortization of SFAS 133 transition adjustment on financial derivatives
     72       91  
Total (recovery)/provision for losses
     -       (628 )
Deferred income taxes
     (10,679 )     (3,014 )
Stock-based compensation expense
     914       729  
Decrease in interest receivable
     33,291       17,407  
Decrease/(increase) in guarantee and commitment fees receivable
     2,079       (2,455 )
Increase in other assets
     (7,804 )     (3,269 )
(Decrease)/increase in accrued interest payable
     (16,273 )     4,364  
(Decrease)/increase in other liabilities
     (12,203 )     5,721  
  Net cash provided by operating activities
     36,361       51,243  
                 
Cash flows from investing activities:
                
Purchases of available-for-sale investment securities (1)
     (835,025 )     (1,234,474 )
Purchases of Farmer Mac II Guaranteed Securities and AgVantage Farmer Mac Guaranteed Securities
     (60,281 )     (61,098 )
Purchases of loans held for investment
     (29,044 )     (6,116 )
Purchases of defaulted loans
     (1,163 )     (833 )
Proceeds from repayment of investment securities (2)
     367,527       800,052  
Proceeds from repayment of Farmer Mac Guaranteed Securities
     69,697       73,495  
Proceeds from repayment of loans held for investment
     41,983       47,767  
Proceeds from sale of Farmer Mac Guaranteed Securities
     6,118       200  
Net cash used in investing activities
     (440,188 )     (381,007 )
                 
Cash flows from financing activities:
                
Proceeds from issuance of discount notes
     34,398,361       23,802,544  
Proceeds from issuance of medium-term notes
     639,974       536,000  
Payments to redeem discount notes
     (33,934,610 )     (23,855,507 )
Payments to redeem medium-term notes
     (599,000 )     (203,200 )
Tax benefit from tax deductions in excess of compensation cost recognized
     -       13  
Proceeds from common stock issuance
     22       202  
Purchases of common stock
     (830 )     (9,475 )
Dividends paid on common and preferred stock
     (1,546 )     (1,597 )
Net cash provided by financing activities
     502,371       268,980  
Net increase/(decrease) in cash and cash equivalents
     98,544       (60,784 )
Cash and cash equivalents at beginning of period
     101,445       877,714  
Cash and cash equivalents at end of period
   $ 199,989     $ 816,930  

(1)
Includes purchases of $349.0 million and $689.3 million related to auction rate certificates for first quarter 2008 and 2007, respectively.  See Note 2.

(2)
Includes proceeds, through the normal auction process, of $248.0 million and $694.6 million related to auction rate certificates for first quarter 2008 and 2007, respectively.  See Note 2.

 
-5-
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1.
Accounting Policies
 
(a)
Cash and Cash Equivalents and Statements of Cash Flows

Farmer Mac considers highly liquid investment securities with original 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 three months ended March 31, 2008 and 2007.
 
   
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
   
(in thousands)
  
Cash paid for:
            
Interest
   $ 40,171     $ 28,529  
Income taxes
     16,000       -  
Non-cash activity:
                
Loans acquired and securitized as Farmer Mac Guaranteed Securities
     577       200  
Transfers of investment securities from available-for-sale to trading from the effect of adopting SFAS 159
     600,468       -  
Transfers of Farmer Mac II Guaranteed Securities from held-to-maturity to trading from the effect of adopting SFAS 159
     428,670       -  

(b) 
Allowance for Losses

As of March 31, 2008 Farmer Mac maintained an allowance for losses to cover estimated probable losses on loans held, 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 non-interest 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.

Farmer Mac’s 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 three-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 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 factors including:

 
-6-
 
 
 
·
economic conditions;
 
·
geographic and agricultural commodity/product concentrations in the portfolio;
 
·
the credit profile of the portfolio;
 
·
delinquency trends of the portfolio;
 
·
historical charge-off and recovery activities of the portfolio; and
 
·
other factors to capture current portfolio trends and characteristics that differ from historical experience.
 
Management believes that its use of this methodology produces a reliable estimate of 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.
 
 
-7-
 
 
The following table summarizes the changes in the components of Farmer Mac’s allowance for losses for the three months ended March 31, 2008 and 2007:
 
       
   
March 31, 2008
  
                         
   
Allowance
    
REO
          
Total
  
   
for Loan
    
Valuation
    
Reserve
    
Allowance
  
   
Losses
    
Allowance
    
for Losses
    
for Losses
  
   
(in thousands)
  
                         
Beginning balance
   $ 1,690     $ -     $ 2,197     $ 3,887  
Provision/(recovery) for losses
     -       -       -       -  
Charge-offs
     (39 )     -       -       (39 )
Recoveries
     -       -       -       -  
Ending balance
   $ 1,651     $ -     $ 2,197     $ 3,848  
 
 
   
March 31, 2007
  
                         
   
Allowance
    
REO
          
Total
  
   
for Loan
    
Valuation
    
Reserve
    
Allowance
  
   
Losses
    
Allowance
    
for Losses
    
for Losses
  
   
(in thousands)
  
                         
Beginning balance
   $ 1,945     $ -     $ 2,610     $ 4,555  
Provision/(recovery) for losses
     (215 )     -       (413 )     (628 )
Charge-offs
     -       -       -       -  
Recoveries
     -       -       -       -  
Ending balance
   $ 1,730     $ -     $ 2,197     $ 3,927  

The table below summarizes the components of Farmer Mac’s allowance for losses as of March 31, 2008 and December 31, 2007:
 
   
March 31,
    
December 31,
  
   
2008
    
2007
  
   
(in thousands)
  
Allowance for loan losses
   $ 1,651     $ 1,690  
Real estate owned valuation allowance
     -       -  
Reserve for losses:
                
On-balance sheet Farmer Mac I Guaranteed Securities
     857       857  
Off-balance sheet Farmer Mac I Guaranteed Securities
     637       655  
LTSPCs
     703       685  
Total
   $ 3,848     $ 3,887  


Prior to third quarter 2007, no allowance for losses had been made for loans underlying Farmer Mac I Guaranteed Securities issued prior to the 1996 Act (“Pre-1996 Act Farmer Mac I Guaranteed Securities”), AgVantage securities or securities issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”).  Pre-1996 Act Farmer Mac I Guaranteed Securities are supported by unguaranteed first loss subordinated interests, which are expected to exceed the estimated credit losses on those loans.  Through June 30, 2007, Farmer Mac had not experienced any credit losses on any Pre-1996 Act Farmer Mac I Guaranteed Securities.  In third quarter 2007, Farmer Mac charged off $0.4 million related to one loan underlying Pre-1996 Act Farmer Mac I Guaranteed Securities.  The remaining $2.4 million of Pre-1996 Act Farmer Mac I Guaranteed Securities represent interests in seasoned performing loans with low loan-to-value ratios.  Farmer Mac does not expect to incur any further losses on the remaining Pre-1996 Act Farmer Mac I Guaranteed Securities in the future.  Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is collateralized by eligible mortgage loans.  As of March 31, 2008, 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.  As of March 31, 2008, Farmer Mac had not experienced any credit losses on any AgVantage Securities and does not expect to incur any such losses in the future.  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 March 31, 2008, Farmer Mac had not experienced any credit losses on any Farmer Mac II Guaranteed Securities and does not expect to incur any such losses in the future.

 
-8-
 
 
As of March 31, 2008, Farmer Mac individually analyzed $13.3 million of its $41.2 million of impaired assets for collateral shortfalls against updated appraised values, other updated collateral valuations or discounted values.  Farmer Mac evaluated the remaining $27.9 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 $13.3 million of assets analyzed individually were adequately collateralized.  Accordingly, Farmer Mac did not record any specific allowances as of March 31, 2008.  Similarly, as of December 31, 2007, Farmer Mac did not record any specific allowances related to its $36.6 million of impaired assets as of that date.

Farmer Mac recognized interest income of approximately $1.2 million and $0.9 million on impaired loans during the three months ended March 31, 2008 and 2007, respectively.  During the three months ended March 31, 2008 and 2007, Farmer Mac’s average investment in impaired loans was $38.9 million and $55.9 million, respectively.


 
(c)
Adoption of Fair Value Accounting Standards

Effective January 1, 2008, Farmer Mac adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”) and Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 (“SFAS 159”).  These standards require disclosures about financial assets and liabilities that are measured at fair value and provide an election option to report financial instruments at fair value with changes in fair value recorded in earnings as they occur.

 
-9-
 
 
Fair Value Measurements

SFAS 157 defines fair value, establishes a framework for measuring fair value under other accounting pronouncements that permit or require fair value measurements, and expands disclosures about fair value measurements.  In particular, disclosures are required to provide information on the extent to which fair value is used to measure assets and liabilities, the inputs used to develop measurements and the effects of certain of the measurements on earnings or changes in net assets.

The principal impact of SFAS 157 to Farmer Mac is to require expanded disclosures regarding fair value measurements.  SFAS 157 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value.  The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  Farmer Mac’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with SFAS 157.  The levels of fair value hierarchy are described below:

Basis of Fair Value Measurement

 
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.  Farmer Mac has classified exchange-traded Treasury futures as Level 1 measurements.

 
Level 2
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.  Level 2 inputs include inputs other than quoted prices that are observable for the financial instrument, such as interest rates and yield curves that are observable at commonly quoted intervals.  Farmer Mac has classified financial instruments for which there are continuous and verifiable pricing sources as Level 2 inputs, including certificates of deposit, commercial paper, asset-backed securities, corporate debt securities, mortgage-backed securities, preferred stock, and most financial derivatives.

 
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.  Level 3 inputs include situations where there is little, if any, market activity for the financial instrument.  For financial instruments that are thinly traded, Farmer Mac uses as its primary fair value source analytical models that project cash flows based on internal and external inputs including transaction terms, yield curves, benchmark data, volatility data, prepayment assumptions and default assumptions.  Financial instruments requiring Level 3 inputs include mission-related asset-backed securities and corporate debt securities, available-for-sale Farmer Mac I Guaranteed Securities, trading Farmer Mac II Guaranteed Securities, auction-rate certificates, and financial derivatives.

In some cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  Farmer Mac’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

 
-10-
 
 
Both observable and unobservable inputs may be used to determine the fair value of positions that Farmer Mac has classified within the Level 3 category.  As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the following tables may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in long-dated volatilities) inputs.

The following table presents information about Farmer Mac’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by Farmer Mac to determine such fair value.
 
-11-
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2008
  
   
   
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(in thousands)
  
Assets:
                        
Investment Securities:
                        
Available-for-sale:
                        
Fixed rate certificates of deposit
   $ -     $ 178,047     $ -     $ 178,047  
Fixed rate commercial paper
     -       1,987       -       1,987  
Floating rate auction-rate certificates backed by Government guaranteed student loans
     -       -       229,360       229,360  
Floating rate asset-backed securities
     -       71,149       -       71,149  
Floating rate corporate debt securities
     -       526,156       399,331       925,487  
Fixed rate corporate debt securities
     -       1,472       503,089       504,561  
Floating rate Government/GSE guaranteed mortgage-backed securities
     -       407,118       -       407,118  
Fixed rate GSE guaranteed mortgage-backed securities
     -       8,001       -       8,001  
Floating rate GSE subordinated debt
     -       53,324       -       53,324  
Floating rate GSE preferred stock
     -       45,063       -       45,063  
Total available-for-sale investment securities
     -       1,292,317       1,131,780       2,424,097  
                                 
Trading:
                                
Floating rate asset-backed securities
     -       -       7,179       7,179  
Fixed rate mortgage-backed securities
     -       -       459,026       459,026  
Fixed rate GSE preferred stock
     -       175,622       -       175,622  
Total trading investment securities
     -       175,622       466,205       641,827  
                                 
Total investment securities
     -       1,467,939       1,597,985       3,065,924  
                                 
Farmer Mac Guaranteed Securities:
                                
Available-for-sale:
                                
Farmer Mac I Guaranteed Securities
     -       -       325,272       325,272  
                                 
Trading:
                                
Farmer Mac II Guaranteed Securities
     -       -       445,202       445,202  
Total Farmer Mac Guaranteed Securities
     -       -       770,474       770,474  
                                 
Financial derivatives
     -       10,903       -       10,903  
                                 
Total Assets at Fair Value
   $ -     $ 1,478,842     $ 2,368,459     $ 3,847,301  
                                 
Liabilities:
                                
Financial derivatives
   $ 12     $ 99,368     $ 3,507     $ 102,887  
                                 
Total Liabilities at Fair Value
   $ 12     $ 99,368     $ 3,507     $ 102,887  

 
-12-
 
 
The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which Farmer Mac has used Level 3 inputs to determine fair value.
 
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months ended March 31, 2008
  
   
   
Beginning Balance
    
Purchases, Sales, Issuances and Settlements, net
    
Realized and Unrealized Gains/ (Losses) included in Income
    
Unrealized Gains/(Losses) included in Other Comprehensive Income
    
Net Transfers In and/or Out of Level 3
    
Ending Balance
  
   
(in thousands)
  
Assets:
                                    
Investment Securities:
                                    
Available-for-sale:
                                    
Floating rate auction-rate certificates backed by Government guaranteed student loans
   $ -     $ 99,931     $ -     $ (2,115 )   $ 131,544     $ 229,360  
Floating rate corporate debt securities
     -       400,000       -       (669 )     -       399,331  
Fixed rate corporate debt securities
     500,138       -       -       2,951       -       503,089  
Total available-for-sale investment securities
     500,138       499,931       -       167       131,544       1,131,780  
                                                 
Trading:
                                                
Floating rate asset-backed securities (1)
     8,179       (423 )     (577 )     -       -       7,179  
Fixed rate mortgage-backed securities (1)
     415,813       29,367       13,846       -       -       459,026  
Total trading investment securities
     423,992       28,944       13,269       -       -       466,205  
                                                 
Total investment securities
     924,130       528,875       13,269       167       131,544       1,597,985  
                                                 
Farmer Mac Guaranteed Securities:
                                                
Available-for-sale:
                                                
Farmer Mac I Guaranteed Securities
     338,958       (19,753 )     -       6,067       -       325,272  
                                                 
Trading:
                                                
Farmer Mac II Guaranteed Securities (2)
     428,670       10,982       5,550       -       -       445,202  
Total Farmer Mac Guaranteed Securities
     767,628       (8,771 )     5,550       6,067       -       770,474  
                                                 
Total Assets at Fair Value
   $ 1,691,758     $ 520,104     $ 18,819     $ 6,234     $ 131,544     $ 2,368,459  
                                                 
Liabilities:
                                                
Financial Derivatives (3)
   $ (1,106 )   $ -     $ (2,401 )   $ -     $ -     $ (3,507 )
Total Liabilities at Fair Value
   $ (1,106 )   $ -     $ (2,401 )   $ -     $ -     $ (3,507 )

(1)
Unrealized gains/(losses) are attributable to assets still held as of March 31, 2008 and are recorded in gains/(losses) on trading assets.

(2)
Includes unrealized gains of approximately $5.6 million attributable to assets still held as of March 31, 2008 that are recorded in gains/(losses) on trading assets.

(3)
Unrealized losses are attributable to liabilities still held as of March 31, 2008 and are recorded in losses on financial derivatives.
 
 
Fair Value Option

SFAS 159 permits entities to make a one-time election to report financial instruments at fair value with changes in fair value recorded in earnings as they occur.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

 
-13-
 
 
Farmer Mac adopted the provisions of SFAS 159 on January 1, 2008 and recorded a cumulative effect of adoption adjustment of $12.1 million, net of tax, as an increase to the beginning balance of retained earnings.  The fair value option election was made for certain available-for-sale investment securities and certain held-to-maturity Farmer Mac II Guaranteed Securities.  These assets were selected for the fair value option under SFAS 159 because they were funded or hedged principally with financial derivatives and, therefore, the changes in fair value of the assets provide partial economic and financial reporting offsets to the related financial derivatives.
 

Impact of Adopting SFAS 159 to Retained Earnings as of January 1, 2008
  
                   
   
Carrying Value as of January 1, 2008 Prior to Adoption of Fair Value Option
    
Transition Gain
    
Fair Value as of January 1, 2008 After Adoption of Fair Value Option
  
   
(in thousands)
  
Available-for-sale Investment Securities:
                  
Fixed rate GSE preferred stock (1)
   $ 184,655     $ 2,783     $ 184,655  
Fixed rate mortgage-backed securities (1)
     415,813       14,504       415,813  
 
                       
Held-to-maturity Farmer Mac Guaranteed Securities:
                  
Farmer Mac II Guaranteed Securites
     427,330       1,340       428,670  
                         
Pre-tax cumulative effect of adoption
       18,627          
                         
Tax effect
             6,519          
                         
Cumulative effect of adoption to beginning retained earnings
           $ 12,108          

(1) Farmer Mac adopted the fair value option for certain securities classified within its investment portfolio previously classified as available-for-sale.  These securities are presented in the condensed consolidated balance sheet at fair value in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities and the amount of the transition gain was recognized in accumulated other comprehensive loss prior to the adoption of SFAS 159.
 
 
 
(d)
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, 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 and also to derive an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market.  Farmer Mac is required also to recognize certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative as promulgated by Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”).

 
-14-
 
 
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 government-sponsored enterprises (“GSEs”), futures contracts involving U.S. Treasury securities and interest rate swaps.  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 changes in funding costs or Farmer Mac Guaranteed Securities 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 SFAS 133.  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 in the condensed consolidated statements of operations.

The following table summarizes information related to Farmer Mac’s financial derivatives as of March 31, 2008 and December 31, 2007:
 
   
March 31, 2008
    
December 31, 2007
  
   
Notional
    
Fair
    
Notional
    
Fair
  
   
Amount
    
Value
    
Amount
    
Value
  
   
(in thousands)
  
Interest rate swaps:
                        
Pay-fixed
   $ 1,401,444     $ (99,267 )   $ 1,411,772     $ (52,941 )
Receive-fixed
     1,160,000       10,902       1,098,000       1,065  
Basis
     150,172       (3,507 )     161,967       (1,106 )
Agency forwards
     17,625       (100 )     4,233       (2 )
Treasury futures
     3,500       (12 )     1,000       (1 )
                                 
Total
   $ 2,732,741     $ (91,984 )   $ 2,676,972     $ (52,985 )
 
 
As of March 31, 2008, Farmer Mac had approximately $0.4 million of net after-tax unrealized losses on financial derivatives included in accumulated other comprehensive loss 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 12 months, Farmer Mac estimates that $0.2 million of the amount currently reported in accumulated other comprehensive loss will be reclassified into earnings.

As of March 31, 2008, Farmer Mac had outstanding basis swaps with a related party with a notional amount of $150.2 million and a fair value of $(3.5) million.  As of December 31, 2007, these swaps had an outstanding notional amount of $162.0 million and a fair value of $(1.1) million.  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.  Those swaps hedge most of 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.  The pricing of discount notes is closely correlated to LIBOR rates.  Accordingly, Farmer Mac recorded an unrealized loss on those outstanding basis swaps of $2.4 million for the three months ended March 31, 2008.  See Note 3 “Related Party Transactions” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on March 17, 2008, for additional information on these related party transactions.

 
-15-
 


 
(e)
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 months ended March 31, 2008 and 2007:
 
   
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
                                     
   
Loss
    
Shares
    
$ per Share
    
Income
    
Shares
    
$ per Share
  
   
(in thousands, except per share amounts)
  
                                     
Basic EPS
                                    
Net (loss)/income available to common stockholders
   $ (8,257 )     9,867     $ (0.84 )   $ 3,922       10,468     $ 0.37  
                                                 
Effect of dilutive securities:
                                                
Stock options (1)
     -       -       -       -       178       -  
                                                 
Diluted EPS
   $ (8,257 )     9,867     $ (0.84 )   $ 3,922       10,646     $ 0.37  

(1)
For the three months ended March 31, 2008 and 2007, stock options of 2,218,199 and 440,839 respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive.
 
 
In February 2007, Farmer Mac announced the establishment of a program to repurchase up to one million shares of the Corporation’s outstanding Class C Non-Voting Common Stock.  The aggregate number of shares purchased by Farmer Mac under that stock repurchase program reached the maximum number of authorized shares during first quarter 2008, thereby terminating the program according to its terms.  During the three months ended March 31, 2008, Farmer Mac repurchased 31,691 shares of its Class C Non-Voting Common Stock at an average price of $26.13 per share pursuant to the stock repurchase program.  These repurchases reduced the Corporation’s stockholders’ equity by approximately $0.8 million.  All of the shares repurchased under Farmer Mac’s stock repurchase program were purchased in open market transactions and were retired to become authorized but unissued shares available for future issuance.

 
-16-
 
 
 
(f)
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.  Upon stock option exercise, new shares are issued by the Corporation.  Under the plan, stock options awarded 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 10 years from the date of grant, except that 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, 3,745,999 have been issued, net of cancellations as of March 31, 2008, effectively exhausting options available under that plan.  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.

Farmer Mac recognized $0.3 million and $0.4 million of compensation expense during the three-month periods ended March 31, 2008 and 2007, respectively, related to the non-vested portion of stock option awards that were outstanding as of December 31, 2005.  Additionally, Farmer Mac recognized $0.7 million and $0.3 million of compensation expense related to stock options awarded subsequent to December 31, 2005 for the three-month periods ended March 31, 2008 and 2007, respectively.

As of March 31, 2008, Farmer Mac had $0.3 million of total unrecognized compensation cost related to stock options outstanding and unvested as of December 31, 2005, all of which is expected to be recognized in the second quarter of 2008.

The following table summarizes stock option activity for the three months ended March 31, 2008 and 2007:

   
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
         
Weighted-
          
Weighted-
  
         
Average
          
Average
  
         
Exercise
          
Exercise
  
   
Shares
    
Price
    
Shares
    
Price
  
                         
Outstanding, beginning of period
     2,218,199     $ 25.48       2,145,705     $ 23.83  
Granted
     -       -       1,000       27.77  
Exercised
     -       -       (9,405 )     21.54  
Canceled
     -       -       (3,335 )     23.53  
Outstanding, end of period
     2,218,199       25.48       2,133,965       23.85  
                                 
Options exercisable at end of period
     1,360,222     $ 24.46       1,318,998     $ 24.05  
 
 
There were no cancellations of stock options during first quarter 2008.  The cancellations of stock options during first quarter 2007 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.  There were no exercises of stock options during first quarter 2008.  For first quarter 2007, the additional paid-in capital received from stock option exercises was $193,000.  The reduction of income taxes to be paid as a result of the deduction for stock option exercises in first quarter 2007 was $20,000.

 
-17-
 
 
The following table summarizes information regarding options outstanding as of March 31, 2008:

     
Options Outstanding
    
Options Exercisable
  
           
Weighted-
          
Weighted-
  
           
Average
          
Average
  
Range of
          
Remaining
          
Remaining
  
Exercise
    
Number of
    
Contractual
    
Number of
    
Contractual
  
Prices
    
Shares
    
Life
    
Shares
    
Life
  
                           
$ 10.00 - $19.99       126,077    
6.1 years
       125,409    
6.1 years
  
  20.00 - 24.99       864,928    
4.9 years
 
     703,574    
4.5 years
  
  25.00 - 29.99       1,013,026    
7.1 years
       341,071    
5.7 years
  
  30.00 - 34.99       213,668    
3.9 years
       189,668    
3.2 years
  
  35.00 - 39.99       -       -       -       -  
  40.00 - 44.99       -       -       -       -  
  45.00 - 50.00       500    
4.0 years
       500    
4.0 years
  
          2,218,199               1,360,222          


There were no stock options granted during first quarter 2008.  The weighted-average grant date fair value of options granted during the year ended December 31, 2007 was $11.24 per share.  The fair value was estimated using the Black-Scholes option pricing model based on the following assumptions:

   
2007
  
Risk-free interest rate
     4.8 %
Expected years until exercise
  
6 years
  
Expected stock volatility
     36.0 %
Dividend yield
     1.4 %
 
 
 
(g)
Reclassifications

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

 
(h)
New Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, which defines fair value, establishes a framework for measuring fair value under other accounting pronouncements that permit or require fair value measurements, and expands disclosures about fair value measurements.  In particular, disclosures are required to provide information on the extent to which fair value is used to measure assets and liabilities, the inputs used to develop measurements and the effects of certain of the measurements on earnings or changes in net assets.  In February 2008, FASB issued a final FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157.  This FSP delays the effective date of SFAS 157, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.  In addition, the FSP removes certain leasing transactions from the scope of SFAS 157.  The effective date of SFAS 157 for nonfinancial assets and liabilities has been delayed by one year to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.  SFAS 157 for financial assets and liabilities is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  Farmer Mac’s adoption of SFAS 157 on January 1, 2008 did not result in a material difference to its fair value measurements.

 
-18-
 
 
In February 2007, FASB issued SFAS 159, which permits entities to make a one-time election to report financial instruments at fair value with changes in fair value recorded in earnings as they occur.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

Farmer Mac adopted the provisions of SFAS 159 on January 1, 2008 and recorded a cumulative effect of adoption adjustment of $12.1 million, net of tax, as an increase to the beginning balance of retained earnings.  The fair value option election was made for certain available-for-sale investment securities and certain held-to-maturity Farmer Mac II Guaranteed Securities.  These assets were selected for the fair value option under SFAS 159 because they were funded or hedged principally with financial derivatives and, therefore, the changes in fair value of the assets provide partial economic and financial reporting offsets to the related financial derivatives.

In November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (“SAB 109”), which expressed the SEC’s views regarding written loan commitments that are accounted for at fair value through earnings.  SAB 109 revises and rescinds portions of Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments.  SAB 109 revises the SEC’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment.  SAB 109 retains the SEC’s views on incorporating net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment.  SAB 109 is effective on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007.  The adoption of SAB 109 did not have a material effect on Farmer Mac’s results of operations or financial position.

In April 2007, FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39 (“FSP FIN 39-1”).  This FSP amends FIN 39 to allow an entity to offset cash collateral receivables and payables reported at fair value against derivative instruments (as defined by SFAS 133) for contracts executed with the same counterparty under master netting arrangements.  The decision to offset cash collateral under this FSP must be applied consistently to all derivatives counterparties where the entity has master netting arrangements.  If an entity nets derivative positions as permitted under FIN 39, this FSP requires the entity to also offset the cash collateral receivables and payables with the same counterparty under a master netting arrangement.  FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007.  The adoption of FSP FIN 39-1 did not have a material effect on Farmer Mac’s results of operations or financial position.

 
-19-
 
 
In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.  This standard applies to derivative instruments, non-derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS 133.  SFAS 161 does not change the accounting for derivatives and hedging activities, but requires enhanced disclosures concerning the effect on the financial statements from their use.  SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Since SFAS 161 only requires additional disclosures, it will not have an impact on Farmer Mac’s results of operations or financial position.

 
-20-
 
 
Note 2.
Investments

The following tables present the amortized cost and fair values of Farmer Mac’s investments as of March 31, 2008 and December 31, 2007.
 
   
As of March 31, 2008
  
   
Amortized Cost
    
Unrealized Gains
    
Unrealized Losses
    
Fair Value
  
   
(in thousands)
  
Available-for-sale:
                        
Fixed rate certificates of deposit
   $ 178,047     $ -     $ -     $ 178,047  
Fixed rate commercial paper
     1,987       -       -       1,987  
Floating rate auction-rate certificates backed by Government guaranteed student loans (1)
     231,475       -       (2,115 )     229,360  
Floating rate asset-backed securities
     71,650       -       (501 )     71,149  
Floating rate corporate debt securities (2)
     960,757       18       (35,288 )     925,487  
Fixed rate corporate debt securities (3)
     501,497       3,089       (25 )     504,561  
Floating rate Government/GSE guaranteed mortgage-backed securities (4)
     403,275       4,392       (549 )     407,118  
Fixed rate GSE guaranteed mortgage-backed securities
     7,942       68       (9 )     8,001  
Floating rate GSE subordinated debt
     70,000       -       (16,676 )     53,324  
Floating rate GSE preferred stock
     52,500       -       (7,437 )     45,063  
Total available-for-sale
     2,479,130       7,567       (62,600 )     2,424,097  
                                 
Trading:
                                
Floating rate asset-backed securities (5)
     8,009       -       (830 )     7,179  
Fixed rate mortgage-backed securities (6)
     430,676       28,350       -       459,026  
Fixed rate GSE preferred stock
     181,547       3,316       (9,241 )     175,622  
Total trading
     620,232       31,666       (10,071 )     641,827  
Total investment securities
   $ 3,099,362     $ 39,233     $ (72,671 )   $ 3,065,924  

(1)
AAA-rated callable auction-rate certificates collateralized by pools of Federal Family Education Loan Program ("FFELP") guaranteed student loans that are backed by the full faith and credit of the United States, the interest rates of which are reset through an auction process, most commonly at intervals of 28 days.
(2)
Floating rate corporate debt securities include $400.0 million of mission-related investments.
(3)
Fixed rate corporate debt securities include $500.0 million of mission-related investments.
(4)
Include $20.1 million fair value of floating rate GSE mortgage-backed securities that Farmer Mac has pledged as collateral and for which the counterparty has the right to sell or repledge.
(5)
Floating rate asset-backed securities are comprised of mission-related investments.
(6)
Fixed rate mortgage-backed securities are comprised of mission-related investments.

 
-21-
 
 
   
As of December 31, 2007
  
   
Amortized Cost
    
Unrealized Gains
    
Unrealized Losses
    
Fair Value
  
   
(in thousands)
  
Available-for-sale:
                        
Fixed rate certificates of deposit
   $ 181,864     $ -     $ -     $ 181,864  
Fixed rate commercial paper
     66,339       -       -       66,339  
Floating rate auction-rate certificates backed by Government guaranteed student loans (1)
     131,544       -       -       131,544  
Floating rate asset-backed securities
     30,000       13       -       30,013  
Floating rate corporate debt securities
     561,193       1       (19,345 )     541,849  
Fixed rate corporate debt securities (2)
     501,490       138       (3 )     501,625  
Fixed rate mortgage-backed securities (3)
     401,309       14,504       -       415,813  
Floating rate Government/GSE guaranteed mortgage-backed securities (4)
     437,680       5,016       (192 )     442,504  
Fixed rate GSE guaranteed mortgage-backed securities
     8,330       1       (47 )     8,284  
Floating rate GSE subordinated debt
     70,000       -       (4,397 )     65,603  
Floating rate GSE preferred stock
     52,500       -       (6,406 )     46,094  
Fixed rate GSE preferred stock
     181,873       4,206       (1,424 )     184,655  
Total available-for-sale
     2,624,122       23,879       (31,814 )     2,616,187  
                                 
Trading:
                                
Floating rate asset-backed securities (5)
     8,432       -       (253 )     8,179  
Total trading
     8,432       -       (253 )     8,179  
Total investment securities
   $ 2,632,554     $ 23,879     $ (32,067 )   $ 2,624,366  

(1)
AAA-rated callable auction-rate certificates collateralized by pools of Federal Family Education Loan Program ("FFELP") guaranteed student loans that are backed by the full faith and credit of the United States, the interest rates of which are reset through an auction process, most commonly at intervals of 28 days.
(2)
Fixed rate corporate debt securities include $500.0 million of mission-related investments.
(3)
Fixed rate mortgage-backed securities are comprised of mission-related investments.
(4)
Include $7.2 million fair value of floating rate GSE mortgage-backed securities that Farmer Mac has pledged as collateral and for which the counterparty has the right to sell or repledge.
(5)
Floating rate asset-backed securities are comprised of mission-related investments.

 
-22-
 
 
As of March 31, 2008 and December 31, 2007, unrealized losses on available-for-sale investment securities were as follows:
 
   
As of March 31, 2008
  
   
Available-for-Sale Investment 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
   $ 209,360     $ (2,115 )   $ -     $ -  
Floating rate asset-backed securities
     71,149       (501 )     -       -  
Floating rate corporate debt securities
     780,974       (23,118 )     124,495       (12,170 )
Fixed rate corporate debt securities
     1,473       (25 )     -       -  
Floating rate Government/GSE guaranteed mortgage-backed securities
     81,902       (543 )     574       (6 )
Fixed rate GSE guaranteed mortgage-backed securities
     -       -       804       (9 )
Floating rate GSE subordinated debt
     53,324       (16,676 )     -       -  
Floating rate GSE preferred stock
     -       -       45,063       (7,437 )
Total
   $ 1,198,182     $ (42,978 )   $ 170,936     $ (19,622 )


   
As of December 31, 2007
  
   
Available-for-Sale Investment 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 corporate debt securities
   $ 493,458     $ (16,732 )   $ 47,369     $ (2,613 )
Fixed rate corporate debt securities
     1,488       (3 )     -       -  
Floating rate Government/GSE guaranteed mortgage-backed securities
     35,610       (185 )     499       (7 )
Fixed rate GSE guaranteed mortgage-backed securities
     -       -       7,748       (47 )
Floating rate GSE subordinated debt
     65,603       (4,397 )     -       -  
Floating rate GSE preferred stock
     -       -       46,094       (6,406 )
Fixed rate GSE preferred stock
     89,385       (1,424 )     -