Document


As filed with the Securities and Exchange Commission on May 2, 2019
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, 2019
Commission File Number 001-14951 

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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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Exchange on which registered
Class A voting common stock
 
AGM.A
 
New York Stock Exchange
Class C non-voting common stock
 
AGM
 
New York Stock Exchange
5.875% Non-Cumulative Preferred Stock, Series A
 
AGM.PRA
 
New York Stock Exchange
6.875% Non-Cumulative Preferred Stock, Series B
 
AGM.PRB
 
New York Stock Exchange
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C
 
AGM.PRC
 
New York Stock Exchange

As of April 25, 2019, the registrant had outstanding 1,030,780 shares of Class A voting common stock, 500,301 shares of Class B voting common stock and 9,167,448 shares of Class C non-voting common stock.



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3


PART I

Item 1.    Financial Statements


4


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
As of
 
March 31, 2019
 
December 31, 2018
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
376,122

 
$
425,256

Investment securities:
 

 
 

Available-for-sale, at fair value
2,457,978

 
2,217,852

Held-to-maturity, at amortized cost
45,032

 
45,032

Total Investment Securities
2,503,010

 
2,262,884

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
6,441,624

 
5,974,497

Held-to-maturity, at amortized cost
2,040,415

 
2,096,618

Total Farmer Mac Guaranteed Securities
8,482,039

 
8,071,115

USDA Securities:
 

 
 

Trading, at fair value
9,487

 
9,999

Held-to-maturity, at amortized cost
2,125,312

 
2,166,174

Total USDA Securities
2,134,799

 
2,176,173

Loans:
 

 
 

Loans held for investment, at amortized cost
4,480,511

 
4,004,968

Loans held for investment in consolidated trusts, at amortized cost
1,566,330

 
1,517,101

Allowance for loan losses
(6,753
)
 
(7,017
)
Total loans, net of allowance
6,040,088

 
5,515,052

Real estate owned, at lower of cost or fair value
1,253

 
128

Financial derivatives, at fair value
6,053

 
7,487

Interest receivable (includes $11,727 and $19,783, respectively, related to consolidated trusts)
143,877

 
180,080

Guarantee and commitment fees receivable
39,913

 
40,366

Deferred tax asset, net
3,994

 
6,369

Prepaid expenses and other assets
66,629

 
9,418

Total Assets
$
19,797,777

 
$
18,694,328

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
8,571,615

 
$
7,757,050

Due after one year
8,679,287

 
8,486,647

Total notes payable
17,250,902

 
16,243,697

Debt securities of consolidated trusts held by third parties
1,567,195

 
1,528,957

Financial derivatives, at fair value
22,203

 
19,633

Accrued interest payable (includes $9,647 and $17,125, respectively, related to consolidated trusts)
94,420

 
96,743

Guarantee and commitment obligation
38,288

 
38,683

Accounts payable and accrued expenses
59,433

 
11,891

Reserve for losses
2,038

 
2,167

Total Liabilities
19,034,479

 
17,941,771

Commitments and Contingencies (Note 6)


 


Equity:
 

 
 

Preferred stock:
 

 
 

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

 
58,333

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

 
73,044

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

 
73,382

Common stock:
 

 
 

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

 
1,031

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

 
500

Class C Non-Voting, $1 par value, no maximum authorization, 9,157,841 shares and 9,137,550 shares outstanding, respectively
9,158

 
9,138

Additional paid-in capital
118,841

 
118,822

Accumulated other comprehensive income, net of tax
21,254

 
24,956

Retained earnings
407,755

 
393,351

Total Equity
763,298

 
752,557

Total Liabilities and Equity
$
19,797,777

 
$
18,694,328

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



5


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
For the Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
(in thousands, except per share amounts)
Interest income:
 
 
 
Investments and cash equivalents
$
18,707

 
$
11,463

Farmer Mac Guaranteed Securities and USDA Securities
85,411

 
62,430

Loans
51,397

 
45,653

Total interest income
155,515

 
119,546

Total interest expense
114,916

 
76,317

Net interest income
40,599

 
43,229

Release of loan losses
264

 
431

Net interest income after release of loan losses
40,863

 
43,660

Non-interest income:
 
 
 
Guarantee and commitment fees
3,513

 
3,499

Losses on financial derivatives
(360
)
 
(3,850
)
Gains on trading securities
44

 
16

Other income
493

 
574

Non-interest income
3,690

 
239

Non-interest expense:
 
 
 
Compensation and employee benefits
7,606

 
6,654

General and administrative
4,596

 
4,326

Regulatory fees
688

 
625

Real estate owned operating costs, net
—

 
16

(Release of)/provision for reserve for losses
(129
)
 
21

Non-interest expense
12,761

 
11,642

Income before income taxes
31,792

 
32,257

Income tax expense
6,622

 
6,438

Net income attributable to Farmer Mac
25,170

 
25,819

Preferred stock dividends
(3,296
)
 
(3,295
)
Net income attributable to common stockholders
$
21,874

 
$
22,524

 
 
 
 
Earnings per common share:
 
 
 
Basic earnings per common share
$
2.05

 
$
2.12

Diluted earnings per common share
$
2.03

 
$
2.10

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


6


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
For the Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
(in thousands)
Net income
$
25,170

 
$
25,819

Other comprehensive income before taxes:
 
 
 
Net unrealized gains on available-for-sale securities
3,241

 
21,228

Net changes in held-to-maturity securities
(2,262
)
 
(1,310
)
Net unrealized (losses)/gains on cash flow hedges
(5,665
)
 
6,663

Other comprehensive (loss)/income before tax
(4,686
)
 
26,581

Income tax benefit/(expense) related to other comprehensive (loss)/income
984

 
(5,582
)
Other comprehensive (loss)/income net of tax
(3,702
)
 
20,999

Comprehensive income attributable to Farmer Mac
$
21,468

 
$
46,818

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


7


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Other
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Paid-In
 
Comprehensive
 
Retained
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Income/(Loss)
 
Earnings
 
Equity
 
(in thousands)
Balance as of December 31, 2017
8,400

 
$
204,759

 
10,619

 
$
10,619

 
$
118,979

 
$
51,085

 
$
322,704

 
$
708,146

Cumulative effect from change in hedge accounting
—

 
—

 
—

 
—

 
—

 
27

 
471

 
498

Balance as of January 1, 2018
8,400

 
$
204,759

 
10,619

 
$
10,619

 
$
118,979

 
$
51,112

 
$
323,175

 
$
708,644

Net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Attributable to Farmer Mac
—

 
—

 
—

 
—

 
—

 
—

 
25,819

 
25,819

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
20,999

 
—

 
20,999

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
(3,295
)
 
(3,295
)
Common stock (cash dividend of $0.58 per share)
—

 
—

 
—

 
—

 
—

 
—

 
(6,161
)
 
(6,161
)
Issuance of Class C Common Stock
—

 
—

 
31

 
31

 
3

 
—

 
—

 
34

Stock-based compensation cost
—

 
—

 
—

 
—

 
664

 
—

 
—

 
664

Other stock-based award activity
—

 
—

 
—

 
—

 
(1,438
)
 
—

 
—

 
(1,438
)
Balance as of March 31, 2018
8,400

 
$
204,759

 
10,650

 
$
10,650

 
$
118,208

 
$
72,111

 
$
339,538

 
$
745,266

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
8,400

 
$
204,759

 
10,669

 
$
10,669

 
$
118,822

 
$
24,956

 
$
393,351

 
$
752,557

Net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Farmer Mac
—

 
—

 
—

 
—

 
—

 
—

 
25,170

 
25,170

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(3,702
)
 
—

 
(3,702
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
(3,296
)
 
(3,296
)
Common stock (cash dividend of $0.70 per share)
—

 
—

 
—

 
—

 
—

 
—

 
(7,470
)
 
(7,470
)
Issuance of Class C Common Stock
—

 
—

 
20

 
20

 
3

 
—

 
—

 
23

Stock-based compensation cost
—

 
—

 
—

 
—

 
724

 
—

 
—

 
724

Other stock-based award activity
—

 
—

 
—

 
—

 
(708
)
 
—

 
—

 
(708
)
Balance as of March 31, 2019
8,400

 
$
204,759

 
10,689

 
$
10,689

 
$
118,841

 
$
21,254

 
$
407,755

 
$
763,298

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


8


FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
For the Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
25,170

 
$
25,819

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

Net amortization of deferred gains, premiums, and discounts on loans, investments, Farmer Mac Guaranteed Securities, and USDA Securities
(2,204
)
 
309

Amortization of debt premiums, discounts and issuance costs
10,826

 
6,008

Net change in fair value of trading securities, hedged assets, and financial derivatives
(69,096
)
 
19,174

Total release for losses
(393
)
 
(410
)
Excess tax benefits related to stock-based awards
127

 
440

Deferred income taxes
2,902

 
(161
)
Stock-based compensation expense
724

 
664

Proceeds from repayment of loans purchased as held for sale
18,671

 
34,699

Net change in:
 
 
 
Interest receivable
36,204

 
41,219

Guarantee and commitment fees receivable
58

 
(15
)
Other assets
(5,674
)
 
(11,973
)
Accrued interest payable
(2,323
)
 
(4,054
)
Other liabilities
3,528

 
6,111

Net cash provided by operating activities
18,520

 
117,830

Cash flows from investing activities:
 

 
 

Purchases of available-for-sale investment securities
(473,326
)
 
(242,677
)
Purchases of Farmer Mac Guaranteed Securities and USDA Securities
(857,511
)
 
(931,199
)
Purchases of loans held for investment
(748,553
)
 
(267,756
)
Proceeds from repayment of available-for-sale investment securities
205,240

 
263,621

Proceeds from repayment of Farmer Mac Guaranteed Securities and USDA Securities
554,340

 
472,235

Proceeds from repayment of loans purchased as held for investment
222,980

 
191,298

Proceeds from sale of Farmer Mac Guaranteed Securities
116,708

 
131,202

Net cash used by investing activities
(980,122
)
 
(383,276
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of discount notes
12,773,401

 
10,587,657

Proceeds from issuance of medium-term notes
2,124,252

 
2,060,844

Payments to redeem discount notes
(12,597,517
)
 
(10,941,104
)
Payments to redeem medium-term notes
(1,311,954
)
 
(1,200,936
)
Payments to third parties on debt securities of consolidated trusts
(64,263
)
 
(38,918
)
Proceeds from common stock issuance
3

 
3

Tax payments related to share-based awards
(688
)
 
(1,407
)
Dividends paid on common and preferred stock
(10,766
)
 
(9,457
)
Net cash provided by financing activities
912,468

 
456,682

Net change in cash and cash equivalents
(49,134
)
 
191,236

Cash and cash equivalents at beginning of period
425,256

 
302,022

Cash and cash equivalents at end of period
$
376,122

 
$
493,258

Non-cash activity:
 
 
 
Loans acquired and securitized as Farmer Mac Guaranteed Securities
116,708

 
131,202

Consolidation of Farmer Mac 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
97,780

 
96,909

Reclassification of defaulted loans from loans held for investment in consolidated trusts to loans held for investment (Table 6.2)
4,721

 
721

Maturity of investment security - not yet settled
(40,310
)
 
—

Purchases of securities - traded, not yet settled
35,100

 
5,640

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



9


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, 2018 consolidated balance sheet presented in this report has been derived from Farmer Mac's audited 2018 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 2018 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, 2018 filed with the SEC on February 21, 2019. 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, 2019.

Principles of Consolidation

The consolidated financial statements include the accounts of Farmer Mac and its two subsidiaries during the year: (1) Farmer Mac Mortgage Securities Corporation ("FMMSC"), whose principal activities are to facilitate the purchase and issuance of Farmer Mac Guaranteed Securities; and (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. The consolidated financial statements also include the accounts of Variable Interest Entities ("VIEs") in which Farmer Mac determined itself to be the primary beneficiary.



10


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, 2019
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost
$
1,566,330

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,566,330

Debt securities of consolidated trusts held by third parties (1)
1,567,195

 
—

 
—

 
—

 
—

 
1,567,195

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

 
27,031

 
—

 
—

 
—

 
27,031

      Maximum exposure to loss (3)
—

 
26,794

 
—

 
—

 
—

 
26,794

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
1,026,064

 
1,026,064

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
1,030,108

 
1,030,108

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
128,221

 
376,487

 
—

 
—

 
—

 
504,708

(1) 
Includes borrower remittances of $0.9 million. The borrower remittances had not been passed through to third party investors as of March 31, 2019.
(2) 
Includes $0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(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.




11


 
Consolidation of Variable Interest Entities
 
As of December 31, 2018
 
Farm & Ranch
 
USDA Guarantees
 
Rural Utilities
 
Institutional Credit
 
Corporate
 
Total
 
(in thousands)
On-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment in consolidated trusts, at amortized cost
$
1,517,101

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,517,101

Debt securities of consolidated trusts held by third parties (1)
1,528,957

 
—

 
—

 
—

 
—

 
1,528,957

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

 
27,627

 
—

 
—

 
—

 
27,627

      Maximum exposure to loss (3)
—

 
27,383

 
—

 
—

 
—

 
27,383

   Investment securities:
 
 
 
 
 
 
 
 
 
 
 
        Carrying value (4)
—

 
—

 
—

 
—

 
1,000,942

 
1,000,942

        Maximum exposure to loss (3) (4)
—

 
—

 
—

 
—

 
1,003,968

 
1,003,968

Off-Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
 Unconsolidated VIEs:
 
 
 
 
 
 
 
 
 
 
 
   Farmer Mac Guaranteed Securities:
 
 
 
 
 
 
 
 
 
 
 
      Maximum exposure to loss (3) (5)
135,862

 
367,684

 
—

 
—

 
—

 
503,546

(1) 
Includes borrower remittances of $11.9 million. The borrower remittances had not been passed through to third party investors as of December 31, 2018.
(2) 
Includes $0.2 million of unamortized premiums and discounts and fair value adjustments related to the USDA Guarantees line of business.
(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.




12


(a)
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 stock appreciation rights ("SARs") and unvested restricted stock awards.  The following schedule reconciles basic and diluted EPS for the three months ended March 31, 2019 and 2018:

Table 1.2
 
For the Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
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
$
21,874

 
10,670

 
$
2.05

 
$
22,524

 
10,622

 
$
2.12

Effect of dilutive securities(1)
 

 
 

 
 
 
 

 
 

 
 
SARs and restricted stock
—

 
107

 
(0.02
)
 
—

 
119

 
(0.02
)
Diluted EPS
$
21,874

 
10,777

 
$
2.03

 
$
22,524

 
10,741

 
$
2.10

(1) 
For the three months ended March 31, 2019 and 2018, SARs and restricted stock of 56,976 and 25,062, 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, 2019 and 2018, contingent shares of unvested restricted stock of 12,284 and 13,138, 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.

(b)
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, 2019 and 2018:

Table 1.3
 
As of March 31, 2019
 
As of March 31, 2018
 
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
$
(25,360
)
 
$
43,443

 
$
6,873

 
$
24,956

 
$
(1,676
)
 
$
48,236

 
$
4,525

 
$
51,085

Cumulative effect from change in hedge accounting
—

 
—

 
—

 
—

 
—

 
—

 
27

 
27

Adjusted Beginning Balance
(25,360
)
 
43,443

 
6,873

 
24,956

 
(1,676
)
 
48,236

 
4,552

 
51,112

Other comprehensive income/(loss) before reclassifications
3,318

 
—

 
(4,095
)
 
$
(777
)
 
18,187

 
—

 
5,053

 
$
23,240

Amounts reclassified from AOCI
(758
)
 
(1,787
)
 
(380
)
 
(2,925
)
 
(1,417
)
 
(1,035
)
 
211

 
(2,241
)
Net comprehensive income/(loss)
2,560

 
(1,787
)
 
(4,475
)
 
(3,702
)
 
16,770

 
(1,035
)
 
5,264

 
20,999

Ending Balance
$
(22,800
)
 
$
41,656

 
$
2,398

 
$
21,254

 
$
15,094

 
$
47,201

 
$
9,816

 
$
72,111



13




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, 2019 and 2018:

Table 1.4
 
For the Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
Before Tax
 
Provision (Benefit)
 
After Tax
 
(in thousands)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale-securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains on available-for-sale-securities
$
4,200

 
$
882

 
$
3,318

 
$
23,022

 
$
4,835

 
$
18,187

Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
Net interest income(1)
(953
)
 
(200
)
 
(753
)
 
(1,787
)
 
(375
)
 
(1,412
)
Other income(2)
(6
)
 
(1
)
 
(5
)
 
(7
)
 
(2
)
 
(5
)
Total
$
3,241

 
$
681

 
$
2,560

 
$
21,228

 
$
4,458

 
$
16,770

Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
Net interest income(3)
(2,262
)
 
(475
)
 
(1,787
)
 
(1,310
)
 
(275
)
 
(1,035
)
Total
$
(2,262
)
 
$
(475
)
 
$
(1,787
)
 
$
(1,310
)
 
$
(275
)
 
$
(1,035
)
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Unrealized (losses)/gains on cash flow hedges
$
(5,184
)
 
$
(1,089
)
 
(4,095
)
 
$
6,396

 
$
1,343

 
5,053

Less reclassification adjustments included in:
 
 
 
 
 
 
 
 
 
 
 
Net interest income(4)
(481
)
 
(101
)
 
(380
)
 
267

 
56

 
211

Total
$
(5,665
)
 
$
(1,190
)
 
$
(4,475
)
 
$
6,663

 
$
1,399

 
$
5,264

Other comprehensive (loss)/income
$
(4,686
)
 
$
(984
)
 
$
(3,702
)
 
$
26,581

 
$
5,582

 
$
20,999

(1) 
Relates to the amortization of unrealized gains on hedged items prior to the application of fair value hedge accounting.
(2) 
Represents amortization of deferred gains related to certain available-for-sale USDA Securities and Farmer Mac Guaranteed USDA Securities.
(3) 
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.
(4) 
Relates to the recognition of unrealized gains and losses on cash flow hedges recorded in AOCI.



14


(c)
New Accounting Standards

Recently Adopted Accounting Guidance
Standard
Description
Date of Adoption
Effect on Consolidated Financial Statements
ASU 2016-02, Leases (Topic 842)
This Update provides new guidance intended to improve financial reporting about leasing transactions. This Update requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. It also requires new disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.
January 1, 2019
The adoption of this Update did not have a material effect on Farmer Mac's financial position, results of operations, or cash flows.

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
Standard
Description
Date of Planned Adoption
Effect on Consolidated Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This Update will require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, as well as require entities to use forward-looking information to form their credit loss estimates.
January 1, 2020
Farmer Mac is currently developing its accounting policy, planning for changes to its loss estimation methodologies, and evaluating the impact that the new guidance will have on its consolidated financial statements. The impact will primarily result from the new requirements to recognize all expected losses rather than just incurred losses as of the reporting date.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date. There is no required accounting change for securities held at a discount in this ASU.
January 1, 2020
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.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added.
January 1, 2020
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.
ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
January 1, 2020
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.

(d)
Reclassifications

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



15


2.INVESTMENT SECURITIES

The following tables set forth information about Farmer Mac's investment securities as of March 31, 2019 and December 31, 2018:
 
Table 2.1

 
As of March 31, 2019
 
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

 
$
—

 
$
(788
)
 
$
18,912

Floating rate asset-backed securities
27,726

 
(130
)
 
27,596

 
—

 
(145
)
 
27,451

Floating rate Government/GSE guaranteed mortgage-backed securities
1,379,534

 
1,393

 
1,380,927

 
626

 
(5,316
)
 
1,376,237

Fixed rate GSE guaranteed mortgage-backed securities
370

 
—

 
370

 
23

 
—

 
393

Fixed rate U.S. Treasuries
1,039,925

 
(5,543
)
 
1,034,382

 
705

 
(102
)
 
1,034,985

Total available-for-sale
2,467,255

 
(4,280
)
 
2,462,975

 
1,354

 
(6,351
)
 
2,457,978

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Fixed rate Government/GSE guaranteed mortgage-backed securities(1)
45,032

 
—

 
45,032

 
926

 
—

 
45,958

Total investment securities
$
2,512,287

 
$
(4,280
)
 
$
2,508,007

 
$
2,280

 
$
(6,351
)
 
$
2,503,936

(1) 
The held-to-maturity investment securities had a weighted average yield of 3.8% as of March 31, 2019.


 
As of December 31, 2018
 
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

 
$
—

 
$
(985
)
 
$
18,715

Floating rate asset-backed securities
28,940

 
(136
)
 
28,804

 
2

 
(128
)
 
28,678

Floating rate Government/GSE guaranteed mortgage-backed securities
1,379,472

 
1,528

 
1,381,000

 
721

 
(4,267
)
 
1,377,454

Fixed rate GSE guaranteed mortgage-backed securities
384

 
1

 
385

 
18

 
—

 
403

Fixed rate U.S. Treasuries
797,913

 
(4,882
)
 
793,031

 
119

 
(548
)
 
792,602

Total available-for-sale
2,226,409

 
(3,489
)
 
2,222,920

 
860

 
(5,928
)
 
2,217,852

Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
Fixed rate Government/GSE guaranteed mortgage-backed securities(1)
45,032

 
—

 
45,032

 
562

 
—

 
45,594

Total investment securities
$
2,271,441

 
$
(3,489
)
 
$
2,267,952

 
$
1,422

 
$
(5,928
)
 
$
2,263,446

(1) 
The held-to-maturity investment securities had a weighted average yield of 3.5% as of December 31, 2018.

Farmer Mac did not sell any securities from its available-for-sale investment portfolio during the three months ended March 31, 2019 and 2018.



16


As of March 31, 2019 and December 31, 2018, unrealized losses on available-for-sale investment securities were as follows:

Table 2.2

 
As of March 31, 2019
 
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
 
(dollars in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
18,912

 
$
(788
)
Floating rate asset-backed securities
6,179

 
(56
)
 
18,173

 
(89
)
Floating rate Government/GSE guaranteed mortgage-backed securities
715,948

 
(3,368
)
 
381,997

 
(1,948
)
Fixed rate U.S. Treasuries
262,700

 
(41
)
 
117,382

 
(61
)
Total
$
984,827

 
$
(3,465
)
 
$
536,464

 
$
(2,886
)
 
 
 
 
 
 
 
 
Number of securities in loss position
 
 
48
 
 
 
63

 
As of December 31, 2018
 
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
 
(dollars in thousands)
Floating rate auction-rate certificates backed by Government guaranteed student loans
$
—

 
$
—

 
$
18,715

 
$
(985
)
Floating rate asset-backed securities
6,456

 
(38
)
 
19,058

 
(90
)
Floating rate Government/GSE guaranteed mortgage-backed securities
927,416

 
(2,907
)
 
196,416

 
(1,360
)
Fixed rate U.S. Treasuries
499,581

 
(336
)
 
81,597

 
(212
)
Total
$
1,433,453

 
$
(3,281
)
 
$
315,786

 
$
(2,647
)
 
 
 
 
 
 
 
 
Number of securities in loss position
 
 
72
 
 
 
48

The unrealized losses presented above are principally due to a general widening of market spreads and an increase in the levels of interest rates from the dates of acquisition to March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, 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+."

Securities in unrealized loss positions for 12 months or longer have a fair value as of March 31, 2019 that is, on average, approximately 99.5% 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 are other-than-temporary impairment as of March 31, 2019 and December 31, 2018. Farmer Mac does not intend to sell these securities, and it is not "more likely than not" that Farmer Mac will be required to sell the securities before recovery of the amortized cost basis.


17



The amortized cost, fair value, and weighted-average yield of available-for-sale investment securities by remaining contractual maturity as of March 31, 2019 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, 2019
 
Available-for-Sale Securities
 
Amortized
Cost
 
Fair Value
 
Weighted-
Average
Yield
 
(dollars in thousands)
Due within one year
$
982,026

 
$
982,554

 
1.40%
Due after one year through five years
272,477

 
272,528

 
2.78%
Due after five years through ten years
650,974

 
647,882

 
2.87%
Due after ten years
557,498

 
555,014

 
3.08%
Total
$
2,462,975

 
$
2,457,978

 
2.32%

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, 2019 and December 31, 2018:

Table 3.1

 
As of March 31, 2019
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
2,013,619

 
$
(235
)
 
$
2,013,384

 
$
7,035

 
$
(5,932
)
 
$
2,014,487

Farmer Mac Guaranteed USDA Securities
26,794

 
237

 
27,031

 
237

 
—

 
27,268

Total Farmer Mac Guaranteed Securities
2,040,413

 
2

 
2,040,415

 
7,272

 
(5,932
)
 
2,041,755

USDA Securities
2,072,411

 
52,901

 
2,125,312

 
1

 
(21,409
)
 
2,103,904

Total held-to-maturity
$
4,112,824

 
$
52,903

 
$
4,165,727

 
$
7,273

 
$
(27,341
)
 
$
4,145,659

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
6,408,318

 
$
(190
)
 
$
6,408,128

 
$
67,066

 
$
(33,570
)
 
$
6,441,624

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities(1)
$
9,087

 
$
649

 
$
9,736

 
$
22

 
$
(271
)
 
$
9,487

(1) 
The trading USDA securities had a weighted average yield of 5.23% as of March 31, 2019.


18


 
As of December 31, 2018
 
Unpaid Principal Balance
 
Unamortized Premium/(Discount)
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
2,069,185

 
$
(194
)
 
$
2,068,991

 
$
2,637

 
$
(11,948
)
 
$
2,059,680

Farmer Mac Guaranteed USDA Securities
27,383

 
244

 
27,627

 
98

 
—

 
27,725

Total Farmer Mac Guaranteed Securities
2,096,568

 
50

 
2,096,618

 
2,735

 
(11,948
)
 
2,087,405

USDA Securities
2,110,963

 
55,211

 
2,166,174

 
—

 
(62,227
)
 
2,103,947

Total held-to-maturity
$
4,207,531

 
$
55,261

 
$
4,262,792

 
$
2,735

 
$
(74,175
)
 
$
4,191,352

Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
AgVantage
$
6,003,733

 
$
(204
)
 
$
6,003,529

 
$
22,335

 
$
(51,367
)
 
$
5,974,497

Trading:
 
 
 
 
 

 
 

 
 

 
 

USDA Securities(1)
$
9,591

 
$
701

 
$
10,292

 
$
20

 
$
(313
)
 
$
9,999

(1) 
The trading USDA securities had a weighted average yield of 5.21% as of December 31, 2018.

As of March 31, 2019 and December 31, 2018, unrealized losses on held-to-maturity and available-for-sale on-balance sheet Farmer Mac Guaranteed Securities and USDA Securities were as follows:

Table 3.2

 
As of March 31, 2019
 
Held-to-Maturity and Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
AgVantage
$
212,783

 
$
(67
)
 
$
1,030,571

 
$
(5,865
)
USDA Securities
33,763

 
(819
)
 
2,069,702

 
(20,590
)
Total held-to-maturity
$
246,546

 
$
(886
)
 
$
3,100,273

 
$
(26,455
)
 
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
AgVantage
$
552,404

 
$
(3,779
)
 
$
1,633,673

 
$
(29,791
)



19


 
As of December 31, 2018
 
Held-to-Maturity and Available-for-Sale Securities
 
Unrealized loss position for
less than 12 months
 
Unrealized loss position for
more than 12 months
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
(in thousands)
Held-to-maturity:
 
 
 
 
 
 
 
AgVantage
$
669,610

 
$
(1,760
)
 
$
976,318

 
$
(10,188
)
USDA Securities
38,203

 
(696
)
 
2,065,743

 
(61,531
)
Total held-to-maturity
$
707,813

 
$
(2,456
)
 
$
3,042,061

 
$
(71,719
)