10-Q
As filed with the Securities and Exchange Commission on May 10, 2016
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, 2016
Commission File Number 001-14951 
 ____________________________________________________________

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality
of the United States
 
52-1578738
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer identification number)
 
 
 
1999 K Street, N.W., 4th Floor,
Washington, D.C.
 
20006
(Address of principal executive offices)
 
(Zip code)
(202) 872-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes        x                               No           o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes        x                                No          o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes        o                                No           x
As of May 2, 2016, the registrant had outstanding 1,030,780 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 8,919,817 shares of Class C Non-Voting Common Stock.


Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I

Item 1.
Financial Statements



3
Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
As of
 
March 31, 2016
 
December 31, 2015
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
1,729,563

 
$
1,210,084

Investment securities:
 

 
 

Available-for-sale, at fair value
2,452,582

 
2,775,025

Trading, at fair value
383

 
491

Total investment securities
2,452,965

 
2,775,516

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
4,565,504

 
4,152,605

Held-to-maturity, at amortized cost
1,207,349

 
1,274,016

Total Farmer Mac Guaranteed Securities
5,772,853

 
5,426,621

USDA Securities:
 

 
 

Available-for-sale, at fair value
1,908,014

 
1,888,344

Trading, at fair value
26,869

 
28,975

Total USDA Securities
1,934,883

 
1,917,319

Loans:
 

 
 

Loans held for investment, at amortized cost
3,204,452

 
3,258,413

Loans held for investment in consolidated trusts, at amortized cost
816,267

 
708,111

Allowance for loan losses
(4,529
)
 
(4,480
)
Total loans, net of allowance
4,016,190

 
3,962,044

Real estate owned, at lower of cost or fair value
1,330

 
1,369

Financial derivatives, at fair value
7,034

 
3,816

Interest receivable (includes $5,270 and $7,938, respectively, related to consolidated trusts)
75,067

 
112,700

Guarantee and commitment fees receivable
39,389

 
40,189

Deferred tax asset, net
47,236

 
42,916

Prepaid expenses and other assets
79,518

 
47,780

Total Assets
$
16,156,028

 
$
15,540,354

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
9,322,682

 
$
9,111,461

Due after one year
5,264,695

 
4,967,036

Total notes payable
14,587,377

 
14,078,497

Debt securities of consolidated trusts held by third parties
816,435

 
713,536

Financial derivatives, at fair value
117,956

 
77,199

Accrued interest payable (includes $4,244 and $6,705, respectively, related to consolidated trusts)
38,152

 
47,621

Guarantee and commitment obligation
37,540

 
38,609

Accounts payable and accrued expenses
12,455

 
29,089

Reserve for losses
2,097

 
2,083

Total Liabilities
15,612,012

 
14,986,634

Commitments and Contingencies (Note 6)


 


Equity:
 

 
 

Preferred stock:
 

 
 

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

 
58,333

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

 
73,044

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

 
73,382

Common stock:
 

 
 

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

 
1,031

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

 
500

Class C Non-Voting, $1 par value, no maximum authorization, 8,919,730 shares and 9,155,661 shares outstanding, respectively
8,920

 
9,156

Additional paid-in capital
117,434

 
117,862

Accumulated other comprehensive loss, net of tax
(18,917
)
 
(11,019
)
Retained earnings
230,062

 
231,228

Total Stockholders' Equity
543,789

 
553,517

Non-controlling interest
227

 
203

Total Equity
544,016

 
553,720

Total Liabilities and Equity
$
16,156,028

 
$
15,540,354

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



4
Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
(in thousands, except per share amounts)
Interest income:
 
 
 
Investments and cash equivalents
$
6,681

 
$
2,865

Farmer Mac Guaranteed Securities and USDA Securities
35,510

 
33,122

Loans
31,700

 
27,964

Total interest income
73,891

 
63,951

Total interest expense
40,251

 
33,162

Net interest income
33,640

 
30,789

Provision for loan losses
(49
)
 
(76
)
Net interest income after provision for loan losses
33,591

 
30,713

Non-interest (loss)/income:
 

 
 

Guarantee and commitment fees
3,626

 
3,377

Losses on financial derivatives and hedging activities
(6,782
)
 
(3,882
)
Gains on trading securities
358

 
362

(Losses)/gains on sale of available-for-sale investment securities
(9
)
 
6

Losses on sale of real estate owned
—

 
(1
)
Other income
101

 
613

Non-interest (loss)/income
(2,706
)
 
475

Non-interest expense:
 

 
 

Compensation and employee benefits
5,774

 
5,693

General and administrative
3,526

 
2,823

Regulatory fees
613

 
600

Real estate owned operating costs, net
39

 
(1
)
Provision for/(release of) reserve for losses
14

 
(772
)
Non-interest expense
9,966

 
8,343

Income before income taxes
20,919

 
22,845

Income tax expense
7,335

 
4,231

Net income
13,584

 
18,614

Less: Net loss/(income) attributable to non-controlling interest
28

 
(5,354
)
Net income attributable to Farmer Mac
13,612

 
13,260

Preferred stock dividends
(3,295
)
 
(3,295
)
Loss on retirement of preferred stock
—

 
(8,147
)
Net income attributable to common stockholders
$
10,317

 
$
1,818

 
 
 
 
Earnings per common share and dividends:
 
 
 
Basic earnings per common share
$
0.99

 
$
0.17

Diluted earnings per common share
$
0.94

 
$
0.16

Common stock dividends per common share
$
0.26

 
$
0.16

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


5
Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
(in thousands)
Net income
$
13,584

 
$
18,614

Other comprehensive income/(loss) before taxes:
 
 
 
Net unrealized (losses)/gains on available-for sale securities
(6,377
)
 
58,437

Net changes in held-to-maturity securities
(1,011
)
 
(3,343
)
Net unrealized losses on cash flow hedges
(4,763
)
 
(247
)
Other comprehensive (loss)/income before tax
(12,151
)
 
54,847

Income tax benefit/(expense) related to other comprehensive income
4,253

 
(19,196
)
Other comprehensive (loss)/income, net of tax
(7,898
)
 
35,651

Comprehensive income
5,686

 
54,265

Less: comprehensive loss/(income) attributable to non-controlling interest
28

 
(5,354
)
Comprehensive income attributable to Farmer Mac
$
5,714

 
$
48,911

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


6
Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Other
 
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In
 
Comprehensive
 
Retained
 
Non-controlling
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Income/(Loss)
 
Earnings
 
Interest
 
Equity
 
 
(in thousands)
Balance as of December 31, 2014
 
8,400

 
$
204,759

 
10,937

 
$
10,937

 
$
113,559

 
$
15,533

 
$
201,013

 
$
236,028

 
$
781,829

Net income/(loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Farmer Mac
 
—

 
—

 
—

 
—

 
—

 
—

 
13,260

 
—

 
13,260

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
35,651

 
—

 
—

 
35,651

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,295
)
 
—

 
(3,295
)
Common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(1,750
)
 
—

 
(1,750
)
Issuance of Class C Common Stock
 
—

 
—

 
—

 
—

 
4

 
—

 
—

 
—

 
4

Stock-based compensation cost
 
—

 
—

 
—

 
—

 
839

 
—

 
—

 
—

 
839

Other stock-based award activity
 
—

 
—

 
—

 
—

 
(38
)
 
—

 
—

 
—

 
(38
)
Redemption of Farmer Mac II LLC preferred stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(8,147
)
 
(235,853
)
 
(244,000
)
Balance as of March 31, 2015
 
8,400

 
$
204,759

 
10,937

 
$
10,937

 
$
114,364

 
$
51,184

 
$
201,081

 
$
175

 
$
582,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
 
8,400

 
$
204,759

 
10,687

 
$
10,687

 
$
117,862

 
$
(11,019
)
 
$
231,228

 
$
203

 
$
553,720

Net income/(loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Farmer Mac
 
—

 
—

 
—

 
—

 
—

 
—

 
13,612

 
—

 
13,612

Attributable to non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(28
)
 
(28
)
Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
(7,898
)
 
—

 
—

 
(7,898
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,295
)
 
—

 
(3,295
)
Common stock
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,702
)
 
—

 
(2,702
)
Issuance of Class C Common Stock
 
—

 
—

 
71

 
71

 
3

 
—

 
—

 
—

 
74

Repurchase of Class C Common Stock
 
—

 
—

 
(307
)
 
(307
)
 
—

 
—

 
(8,781
)
 
—

 
(9,088
)
Stock-based compensation cost
 
—

 
—

 
—

 
—

 
1,027

 
—

 
—

 
—

 
1,027

Other stock-based award activity
 
—

 
—

 
—

 
—

 
(1,458
)
 
—

 
—

 
—

 
(1,458
)
Investment in subsidiary - non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
52

 
52

Balance as of March 31, 2016
 
8,400

 
$
204,759

 
10,451

 
$
10,451

 
$
117,434

 
$
(18,917
)
 
$
230,062

 
$
227

 
$
544,016

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


7
Table of Contents

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
13,584

 
$
18,614

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

Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities
501

 
1,024

Amortization of debt premiums, discounts and issuance costs
7,643

 
2,832

Net change in fair value of trading securities, hedged assets, and financial derivatives
2,631

 
532

Losses/(gains) on sale of available-for-sale investment securities
9

 
(6
)
Loss on sale of real estate owned
—

 
1

Total provision for/(release of) losses
63

 
(696
)
Deferred income taxes
(1,483
)
 
(1,061
)
Stock-based compensation expense
1,027

 
839

Proceeds from repayment of trading investment securities
205

 
247

Proceeds from repayment of loans purchased as held for sale
28,794

 
32,140

Net change in:
 
 
 
Interest receivable
37,633

 
40,562

Guarantee and commitment fees receivable
800

 
1,120

Other assets
(31,021
)
 
2,066

Accrued interest payable
(9,469
)
 
(11,972
)
Other liabilities
996

 
2,793

Net cash provided by operating activities
51,913

 
89,035

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale investment securities
(341,099
)
 
(715,628
)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
(1,026,187
)
 
(349,364
)
Purchases of loans held for investment
(208,215
)
 
(138,929
)
Purchases of defaulted loans
(1,415
)
 
(657
)
Proceeds from repayment of available-for-sale investment securities
455,315

 
427,507

Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
676,858

 
153,095

Proceeds from repayment of loans purchased as held for investment
132,652

 
95,570

Proceeds from sale of available-for-sale investment securities
186,769

 
74,998

Proceeds from sale of Farmer Mac Guaranteed Securities
139,561

 
49,487

Payments from sale of real estate owned
—

 
(1
)
Net cash provided/(used) in investing activities
14,239

 
(403,922
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of discount notes
23,089,113

 
14,784,601

Proceeds from issuance of medium-term notes
1,207,092

 
1,344,848

Payments to redeem discount notes
(22,873,972
)
 
(14,439,480
)
Payments to redeem medium-term notes
(921,000
)
 
(912,000
)
Excess tax benefits related to stock-based awards
234

 
26

Payments to third parties on debt securities of consolidated trusts
(33,010
)
 
(15,793
)
Proceeds from common stock issuance
101

 
4

Common stock repurchased
(9,286
)
 
—

Investment in Contour
52

 
—

Redemption of Farmer Mac II LLC Preferred Stock
—

 
(244,000
)
Dividends paid - Non-controlling interest - preferred stock
—

 
(5,415
)
Dividends paid on common and preferred stock
(5,997
)
 
(5,045
)
Net cash provided by financing activities
453,327

 
507,746

Net increase in cash and cash equivalents
519,479

 
192,859

Cash and cash equivalents at beginning of period
1,210,084

 
1,363,387

Cash and cash equivalents at end of period
$
1,729,563

 
$
1,556,246

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



8
Table of Contents

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


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim unaudited consolidated financial statements of the Federal Agricultural Mortgage Corporation ("Farmer Mac") and subsidiaries have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These interim unaudited consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac and subsidiaries for the interim periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been omitted as permitted by SEC rules and regulations. The December 31, 2015 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2015 consolidated financial statements. Management believes that the disclosures are adequate to present fairly the consolidated financial statements as of the dates and for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the 2015 consolidated financial statements of Farmer Mac and subsidiaries included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 10, 2016. That Form 10-K describes Farmer Mac's significant accounting policies, which include its policies on Principles of Consolidation; Cash and Cash Equivalents and Statements of Cash Flows; Transfers of Financial Assets and Liabilities; Investment Securities, Farmer Mac Guaranteed Securities, and USDA Securities; Loans; Securitization of Loans; Real Estate Owned; Financial Derivatives; Notes Payable; Allowance for Loan Losses and Reserve for Losses; Earnings Per Common Share; Income Taxes; Stock-Based Compensation; Comprehensive Income; Long-Term Standby Purchase Commitments; Fair Value Measurement; and Consolidation of Variable Interest Entities ("VIEs"). Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year. Presented below are Farmer Mac's significant accounting policies that contain updated information for the three months ended March 31, 2016.

Principles of Consolidation

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



9
Table of Contents

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

Table 1.1
 
Consolidation of Variable Interest Entities
 
As of March 31, 2016
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost
$
816,267

 
$
—

 
$
—

 
$
—

 
$
—

 
$
816,267

Debt securities of consolidated trusts held by third parties (1)
816,435

 
—

 
—

 
—

 
—

 
816,435

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

 
30,694

 
—

 
31,222

 
—

 
61,916

      Maximum exposure to loss (3)
—

 
31,038

 
—

 
30,000

 
—

 
61,038

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
862,781

 
862,781

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
865,022

 
865,022

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
485,302

 
13,268

 
—

 
970,000

 
—

 
1,468,570

(1) 
Includes borrower remittances of $0.2 million. The borrower remittances have not been passed through to third party investors as of March 31, 2016.
(2) 
Includes $0.3 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. Includes fair value adjustments related to the Institutional Credit line of business of $1.2 million.
(3) 
Farmer Mac uses unpaid principal balance and outstanding face amount of investment securities to represent maximum exposure to loss.
(4) 
Includes auction-rate certificates, asset-backed securities, and government-sponsored enterprise ("GSE")-guaranteed mortgage-backed securities.
(5) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.



10
Table of Contents

 
Consolidation of Variable Interest Entities
 
As of December 31, 2015
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost
$
708,111

 
$
—

 
$
—

 
$
—

 
$
—

 
$
708,111

Debt securities of consolidated trusts held by third parties (1)
713,536

 
—

 
—

 
—

 
—

 
713,536

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

 
31,360

 
—

 
31,400

 
—

 
62,760

      Maximum exposure to loss (3)
—

 
31,553

 
—

 
30,000

 
—

 
61,553

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
917,292

 
917,292

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
918,121

 
918,121

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
514,051

 
10,272

 
—

 
970,000

 
—

 
1,494,323

(1) 
Includes borrower remittances of $5.4 million, which have not been passed through to third party investors as of December 31, 2015.
(2) 
Includes $0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business. Includes fair value adjustments related to the Institutional Credit line of business of $1.4 million.
(3) 
Farmer Mac uses unpaid principal balance and the outstanding face amount of investment securities to represent maximum exposure to loss.
(4) 
Includes auction-rate certificates, asset-backed securities, and GSE-guaranteed mortgage-backed securities.
(5) 
The amount under the Farm & Ranch line of business relates to unconsolidated trusts where Farmer Mac determined it was not the primary beneficiary due to shared power with an unrelated party.
 
(a)
Statements of Cash Flows

The following table sets forth information regarding certain non-cash transactions for the three months ended March 31, 2016 and 2015:

Table 1.2

 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
(in thousands)
Non-cash activity:
 
 
 
Loans acquired and securitized as Farmer Mac Guaranteed Securities
$
139,561

 
$
49,487

Consolidation of Farm & Ranch Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts and to debt securities of consolidated trusts held by third parties
135,913

 
49,487

Purchases of securities - traded, not yet settled
—

 
14,915

Issuance costs on the retirement of Farmer Mac II LLC Preferred Stock
—

 
8,147




11
Table of Contents


(b)
Earnings Per Common Share

Basic earnings per common share ("EPS") is based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per common share is based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights ("SARs"), and non-vested restricted stock awards.  The following schedule reconciles basic and diluted EPS for the three months ended March 31, 2016 and 2015:

Table 1.3

 
For the Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
Net
Income
 
Weighted-Average Shares
 
$ per
Share
 
(in thousands, except per share amounts)
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
10,317

 
10,465

 
$
0.99

 
$
1,818

 
10,938

 
$
0.17

Effect of dilutive securities(1)
 
 
 
 
 
 
 

 
 

 
 
Stock options, SARs and restricted stock
—

 
538

 
(0.05
)
 
—

 
393

 
(0.01
)
Diluted EPS
$
10,317

 
11,003

 
$
0.94

 
$
1,818

 
11,331

 
$
0.16

(1) 
For the three months ended March 31, 2016 and 2015, stock options and SARs of 210,865 and 201,401, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive. For the three months ended March 31, 2016 and 2015, contingent shares of non-vested restricted stock of 37,284 and 30,514, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because performance conditions had not yet been met.

(c)
Comprehensive Income

Comprehensive income represents all changes in stockholders' equity except those resulting from investments by or distributions to stockholders, and is comprised of net income and unrealized gains and losses on available-for-sale securities, certain held-to-maturity securities transferred from the available-for-sale classification, and cash flow hedges, net of related taxes.

The following table presents the changes in accumulated other comprehensive income ("AOCI"), net of tax, by component for the three months ended March 31, 2016 and 2015:

Table 1.4

 
 
As of March 31, 2016
 
As of March 31, 2015
 
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Cash Flow Hedges
 
Total
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Cash Flow Hedges
 
Total
 
 
(in thousands)
For the Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
(10,035
)
 
$
(476
)
 
$
(508
)
 
$
(11,019
)
 
$
9,716

 
$
5,973

 
$
(156
)
 
$
15,533

Other comprehensive (loss)/income before reclassifications
 
(1,769
)
 
—

 
(3,395
)
 
(5,164
)
 
41,343

 
—

 
(237
)
 
41,106

Amounts reclassified from AOCI
 
(2,376
)
 
(657
)
 
299

 
(2,734
)
 
(3,359
)
 
(2,173
)
 
77

 
(5,455
)
Net other comprehensive (loss)/income
 
(4,145
)
 
(657
)
 
(3,096
)
 
(7,898
)
 
37,984

 
(2,173
)
 
(160
)
 
35,651

Ending Balance
 
$
(14,180
)
 
$
(1,133
)
 
$
(3,604
)
 
$
(18,917
)
 
$
47,700

 
$
3,800

 
$
(316
)
 
$
51,184



12
Table of Contents


The following table presents other comprehensive income activity, the impact on net income of amounts reclassified from each component of AOCI, and the related tax impact for the three months ended March 31, 2016 and 2015:

Table 1.5

 
 
For the Three Months Ended
 
 
March 31, 2016
 
March 31, 2015
 
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
 
(in thousands)
Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale-securities:
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding (losses)/gains on available-for-sale-securities
 
$
(2,722
)
 
$
(953
)
 
$
(1,769
)
 
$
63,604

 
$
22,261

 
$
41,343

Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
 
Losses on financial derivatives and hedging activities(1)
 
(3,923
)
 
(1,373
)
 
(2,550
)
 
(4,861
)
 
(1,701
)
 
(3,160
)
(Losses)/gains on sale of available-for-sale investment securities(2)
 
9

 
3

 
6

 
(6
)
 
(2
)
 
(4
)
Other income(3)
 
259

 
91

 
168

 
(300
)
 
(105
)
 
(195
)
Total
 
$
(6,377
)
 
$
(2,232
)
 
$
(4,145
)
 
$
58,437

 
$
20,453

 
$
37,984

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(4)
 
(1,011
)
 
(354
)
 
(657
)
 
(3,343
)
 
(1,170
)
 
(2,173
)
Total
 
$
(1,011
)
 
$
(354
)
 
$
(657
)
 
$
(3,343
)
 
$
(1,170
)
 
$
(2,173
)
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses on cash flow hedges
 
$
(5,222
)
 
$
(1,827
)
 
$
(3,395
)
 
$
(366
)
 
$
(129
)
 
$
(237
)
Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income(5)
 
459

 
160

 
299

 
119

 
42

 
77

Total
 
$
(4,763
)
 
$
(1,667
)
 
$
(3,096
)
 
$
(247
)
 
$
(87
)
 
$
(160
)
Other comprehensive (loss)/income
 
$
(12,151
)
 
$
(4,253
)
 
$
(7,898
)
 
$
54,847

 
$
19,196

 
$
35,651

(1) 
Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.
(2) 
Represents unrealized gains and losses on sales of available-for-sale investment securities.
(3) 
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.
(4) 
Relates to the amortization of unrealized gains or losses prior to the reclassification of these securities from available-for-sale to held-to-maturity. The amortization of unrealized gains or losses reported in AOCI for held-to-maturity securities will be offset by the amortization of the premium or discount created from the transfer into held-to-maturity securities, which occurred at fair value. These unrealized gains or losses will be recorded over the remaining life of the security with no impact on future net income.
(5) 
Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.

(d) New Accounting Standards

In January 2016, the FASB issued Accounting Standards Update ("ASU") 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in GAAP on the classification and measurement of financial instruments. The ASU significantly revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Farmer Mac does not expect that adoption of the new guidance will have a material effect on Farmer Mac’s financial position, results of operations, or cash flows.



13
Table of Contents

In February 2016, the FASB issued ASU 2016-02, "Leases," which provides new guidance intended to improve financial reporting about leasing transactions. The ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Farmer Mac does not expect that adoption of the new guidance will have a material effect on Farmer Mac’s financial position, results of operations, or cash flows.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which provides new guidance intended to simplify several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Farmer Mac does not expect that adoption of the new guidance will have a material effect on Farmer Mac’s financial position, results of operations, or cash flows.


(e)
Reclassifications

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


2.
INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's investment securities as of March 31, 2016 and December 31, 2015:
 
Table 2.1

 
As of March 31, 2016
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
19,700

 
$
—

 
$
19,700

 
$
—

 
$
(1,970
)
 
$
17,730

Floating rate asset-backed securities
69,715

 
(249
)
 
69,466

 
5

 
(957
)
 
68,514

Floating rate corporate debt securities
10,000

 
—

 
10,000

 
2

 
—

 
10,002

Floating rate Government/GSE guaranteed mortgage-backed securities
1,317,245

 
3,322

 
1,320,567

 
2,692

 
(5,820
)
 
1,317,439

Fixed rate GSE guaranteed mortgage-backed securities(1)
656

 
2,923

 
3,579

 
4,260

 
—

 
7,839

Floating rate GSE subordinated debt
70,000

 
—

 
70,000

 
—

 
(4,535
)
 
65,465

Fixed rate U.S. Treasuries
965,180

 
(618
)
 
964,562

 
1,033

 
(2
)
 
965,593

Total available-for-sale
2,452,496

 
5,378

 
2,457,874

 
7,992

 
(13,284
)
 
2,452,582

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
2,006

 
—

 
2,006

 
—

 
(1,623
)
 
383

Total investment securities
$
2,454,502

 
$
5,378

 
$
2,459,880

 
$
7,992

 
$
(14,907
)
 
$
2,452,965

(1) 
Fair value includes $7.1 million of an interest-only security with a notional amount of $147.9 million.



14
Table of Contents

 
As of December 31, 2015
 
Amount Outstanding
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
46,500

 
$
—

 
$
46,500

 
$
—

 
$
(1,576
)
 
$
44,924

Floating rate asset-backed securities
74,744

 
(253
)
 
74,491

 
14

 
(776
)
 
73,729

Floating rate corporate debt securities
10,000

 
—

 
10,000

 
—

 
(9
)
 
9,991

Fixed rate corporate debt securities
10,000

 
(1
)
 
9,999

 
—

 
(5
)
 
9,994

Floating rate Government/GSE guaranteed mortgage-backed securities
1,353,495

 
3,515

 
1,357,010

 
2,768

 
(4,319
)
 
1,355,459

Fixed rate GSE guaranteed mortgage-backed securities(1)
692

 
3,117

 
3,809

 
4,095

 
—

 
7,904

Floating rate GSE subordinated debt
70,000

 
—

 
70,000

 
—

 
(3,751
)
 
66,249

Fixed rate senior agency debt
214,000

 
(25
)
 
213,975

 
12

 
—

 
213,987

Fixed rate U.S. Treasuries
993,680

 
(417
)
 
993,263

 
2

 
(477
)
 
992,788

Total available-for-sale
2,773,111

 
5,936

 
2,779,047

 
6,891

 
(10,913
)
 
2,775,025

Trading:
 
 
 
 
 

 
 

 
 

 
 

Floating rate asset-backed securities
2,211

 
—

 
2,211

 
—

 
(1,720
)
 
491

Total investment securities
$
2,775,322

 
$
5,936

 
$
2,781,258

 
$
6,891

 
$
(12,633
)
 
$
2,775,516

(1) 
Fair value includes $7.2 million of an interest-only security with a notional amount of $148.5 million.


During the three months ended March 31, 2016, Farmer Mac received proceeds of $186.8 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $0.2 million and gross realized losses of $0.2 million, compared to proceeds of $75.0 million for the same period in 2015, resulting in gross realized gains of $6,000.
 
As of March 31, 2016 and December 31, 2015, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2

 
As of March 31, 2016
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
17,730

 
$
(1,970
)
Floating rate asset-backed securities
47,887

 
(526
)
 
9,432

 
(431
)
Floating rate Government/GSE guaranteed mortgage-backed securities
699,078

 
(4,083
)
 
136,650

 
(1,737
)
Floating rate GSE subordinated debt
—

 
—

 
65,465

 
(4,535
)
Fixed rate U.S. Treasuries
15,002

 
(2
)
 
—

 
—

Total
$
761,967

 
$
(4,611
)
 
$
229,277

 
$
(8,673
)



15
Table of Contents

 
As of December 31, 2015
 
Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
18,124

 
$
(1,576
)
Floating rate asset-backed securities
44,552

 
(464
)
 
9,975

 
(312
)
Floating rate corporate debt securities
4,991

 
(9
)
 
—

 
—

Fixed rate corporate debt securities
9,994

 
(5
)
 
—

 
—

Floating rate Government/GSE guaranteed mortgage-backed securities
794,959

 
(3,408
)
 
100,192

 
(911
)
Floating rate GSE subordinated debt
—

 
—

 
66,249

 
(3,751
)
Fixed rate U.S. Treasuries
944,842

 
(477
)
 
—

 
—

Total
$
1,799,338

 
$
(4,363
)
 
$
194,540

 
$
(6,550
)

The unrealized losses presented above are principally due to a general widening of credit spreads from the dates of acquisition to March 31, 2016 and December 31, 2015, as applicable. The resulting decrease in fair values reflects an increase in the perceived risk by the financial markets related to those securities. As of March 31, 2016, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+," except one that was rated "A-." As of December 31, 2015, all of the investment securities in an unrealized loss position either were backed by the full faith and credit of the U.S. government or had credit ratings of at least "AA+," except three that were rated "A-." The unrealized losses were on 61 and 69 individual investment securities as of March 31, 2016 and December 31, 2015, respectively.

As of March 31, 2016, 17 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $8.7 million. As of December 31, 2015, 17 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $6.6 million.  Securities in unrealized loss positions for 12 months or longer have a fair value as of March 31, 2016 that is, on average, approximately 96 percent of their amortized cost basis. Farmer Mac believes that all of these unrealized losses are recoverable within a reasonable period of time by way of maturity or changes in credit spreads. Accordingly, Farmer Mac has concluded that none of the unrealized losses on these available-for-sale investment securities represents other-than-temporary impairment as of March 31, 2016 and December 31, 2015.

Farmer Mac did not own any held-to-maturity investment securities as of March 31, 2016 and December 31, 2015. As of March 31, 2016, Farmer Mac owned trading investment securities with an amortized cost of $2.0 million, a fair value of $0.4 million, and a weighted average yield of 4.52 percent. As of December 31, 2015, Farmer Mac owned trading investment securities with an amortized cost of $2.2 million, a fair value of $0.5 million, and a weighted average yield of 4.41 percent.



16
Table of Contents

The amortized cost, fair value, and weighted average yield of available-for-sale investment securities by remaining contractual maturity as of March 31, 2016 are set forth below. Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets.

Table 2.3

 
As of March 31, 2016
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
940,691

 
$
941,643

 
0.55%
Due after one year through five years
188,476

 
188,801

 
1.11%
Due after five years through ten years
545,148

 
542,273

 
1.01%
Due after ten years
783,559

 
779,865

 
1.12%
Total
$
2,457,874

 
$
2,452,582

 
0.88%


3.
FARMER MAC GUARANTEED SECURITIES AND USDA SECURITIES

The following tables set forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities as of March 31, 2016 and December 31, 2015:

Table 3.1

 
As of March 31, 2016
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
1,208,802

 
$
(1,453
)
 
$
1,207,349

 
$
13,164

 
$
(3
)
 
$
1,220,510

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
4,567,953

 
$
—

 
$
4,567,953

 
$
43,444

 
$
(76,587
)
 
$
4,534,810

Farmer Mac Guaranteed USDA Securities
31,038

 
(315
)
 
30,723

 
33

 
(62
)
 
30,694

Total Farmer Mac Guaranteed Securities
4,598,991

 
(315
)
 
4,598,676

 
43,477

 
(76,649
)
 
4,565,504

USDA Securities
1,860,348

 
1,996

 
1,862,344

 
45,745

 
(75
)
 
1,908,014

Total available-for-sale
$
6,459,339

 
$
1,681

 
$
6,461,020

 
$
89,222

 
$
(76,724
)
 
$
6,473,518

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities
$
24,928

 
$
1,769

 
$
26,697

 
$
302

 
$
(130
)
 
$
26,869




17
Table of Contents

 
As of December 31, 2015
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains