FEDERAL FARM MORTGAGE CORPORATION PURPOSE STATEMENT The Federal Farm Mortgage Corporation was created by the act of January 31, 1934, to finance Land Bank Commissioner loans and to assist the Federal land banks in their financing. It has been inactive, except for the liquidation of its loans and the program of the sale of its mineral reservations, since July 1, 1947, when its authority to make mortgage loans expired. At the present time, the Corporation has authority subject to the approval of the Secretary of the Treasury and limitations in appropriation acts, to issue and have outstanding at any one time federally guaranteed bonds in an aggregate amount not exceeding $2 billion, to make collateral loans to the Federal land banks, and to purchase their bonds. The Corporation has no employees. Its executives are Farm Credit Administration officials and its loans and other assets were serviced by the Federal land banks under annual contracts, the last of which expired on June 30, 1955, the date of the banks' purchase of the Corporation's assets. Payments to the banks under these contracts were the principal administrative expense. For this reason no administrative expenses are requested for 1959. CHANGES IN LANGUAGE The budget proposes a language change as follows (new language italicized; deleted matter enclosed in brackets): "The Federal Farm Mortgage Corporation is authorized to make such expenditures, within available funds and in accordance with law, as may be necessary to liquidate its assets: Provided, That funds realized from the liquidation of assets which are determined by the Board of Directors to be in excess of the requirements for expenses of liquidation shall be [applied first to the retirement of the remaining Government investment in the capital stock of the Corporation and then to] declared as dividends which shall be paid into the general fund of the Treasury." EXPLANATION OF LANGUAGE CHANGE This change deletes the reference to retirement of capital stock, all of which has been retired and authorizes the continued payment of dividends to the Treasury. STATUS OF PROGRAM Purpose. The Corporation was established by the act of January 31, 1934 (12 U. S. C. 1020), with the following authorities: To finance Land Bank Commissioner loans, to purchase Federal land bank bonds, to make secured loans to Federal land banks, to exchange its bonds for Federal land bank bonds, and to obtain funds through the sale of its own bonds. The authority to make loans was repealed July 1, 1947, and since then the Corporation has restricted its operations to the liquidation of its assets. Management. The members of the Corporation's Board of Directors are: The Secretary of the Treasury (or an official designated by him), the Governor of the Farm Credit Administration, and a Farm Credit Administration official designated by the Governor. The Corporation utilizes the services and facilities of FCA and the Federal land banks to carry out its corporate functions. Capital and borrowing authority. The Corporation was capitalized at $200 million, all paid in by the United States Government. All of this capital has been repaid to the Treasury. The Corporation has authority, subject to the approval of the Secretary of the Treasury and limitations in appropriation acts, to issue and have outstanding at any one time federally guaranteed bonds in an aggregate amount not exceeding $2 billion, to make collateral loans to the Federal land banks, and to purchase their bonds. No unmatured bonds are outstanding. Retained earnings and dividends.-The Corporation had unreserved retained earnings of $10.4 million as of June 30, 1957, after dividend payments aggregating $136.7 million. By the close of 1959 an estimated $4.7 million of additional dividends will have been paid. Liquidation of assets.-This activity began July 1, 1947, when lending activities were terminated. As of June 30, 1955, the remaining assets except reserved mineral interests were sold in bulk to the Federal land banks in exchange for their notes which will be collected over a 10-year term. The mineral interests were transferred to the Department of the Interior on September 6, 1957, pursuant to Public Law 760, approved September 6, 1950. Summary of operations, Federal Farm Mortgage Corporation-Statement of sources and application of funds The Federal intermediate credit banks were created by the Agricultural Credits Act of 1923 (12 U. S. C. 1021, 1022). Pursuant to the Farm Credit Act of 1956 (70 Stat. 659), the production credit corporations, which were established in accordance with the Farm Credit Act of 1933 (12 U. S. C. 1131 et seq.), were merged with the Federal intermediate credit banks as of January 1, 1957. The act also provided for the transfer to the banks of all of the corporations' assets and liabilities, except their investments in production credit associations, which are transferred to the Farm Credit Administration. Provision is also made for the retirement of the banks' capital and for the eventual ownership by the production credit associations. The banks serve as banks of discount for agriculture, discounting agricultural and livestock paper for local financing institutions, such as production credit associations, agricultural credit corporations, livestock loan companies and commercial banks, and making loans to them on the security of such paper, and provide the production credit associations with necessary supervision and services. Their lending operations are financed primarily by the sale of consolidated collateral trust debentures in the investment market. The Government assumes no liability for the debentures and other obligations of the Federal intermediate credit banks, either as to principal or interest. The Government's capital investment in the banks as of June 30, 1957, was $82,903,870. Each bank operates under the direction of a district farm credit board. The banks are supervised by the Farm Credit Administration. Operating expenses, including interest costs, are paid from the banks' corporate assets. As of January 1, 1958, the 12 banks had a total of 351 employees, all in the field. Administrative expenses: Limitation, 1958. Budget estimate, 1959 $3,375,000 1, 693, 000 Federal Intermediate Credit Banks (authorization for expenditures of corporate funds)-Administrative expenses Limitation on expenses, 1958, and base for 1959. Budget estimate, 1959 $3,375,000 1, 693, 000 Change... NOTE. The estimate for 1959 is $3,375,000 which reflects no change from 1958. STATUS OF PROGRAM 1,693,000 Creation and purpose.-The Federal intermediate credit banks were created by the Agricultural Credits Act of 1923 (12 U. S. C. 1021, 1022). They serve as banks of discount for agriculture, extending credit to various types of financing institutions. They do not make loans directly to individuals or accept deposits of funds other than as collateral security. Their lending operations are financed primarily by the sale of consolidated collateral trust debentures. The Government assumes no liability for the debentures and other obligations of the Federal intermediate credit banks. Under the provisions of the Farm Credit Act of 1956, which merged the 12 production credit corporations in the 12 Federal intermediate credit banks effective January 1, 1957, the credit banks have assumed the functions formerly carried out by the production credit corporations of supervising and providing services to local production credit associations which make short and intermediate-term loans to farmers and stock men. With minor exceptions, all assets, liabilities and functions of the production credit corporations were transferred to the respective credit banks. Although the production credit corporations and intermediate credit banks were maintained as separate corporate entities through December 31, 1956, for comparative purposes all budget schedules have been prepared as though the mergers had occurred on June 30, 1956. Management and supervision.-Each bank operates through its own corporate management, under the direction of a board of directors composed of the members of the district farm credit board who are, ex officio, the directors of the three farm credit banks of the district. The operations of the intermediate credit banks are supervised by the Deputy Governor and Director of short-term credit service, who is responsible to the Governor of the Farm Credit Administration. The affairs of each of the 497 production credit associations are administered under the direction of their respective boards of directors, generally consisting of five members elected by and from the membership of the associations. The associations are under the supervision of the intermediate credit banks and, in turn, the Farm Credit Administration. Sources of funds 1. Capital funds. As of January 1, 1957, upon merger of the production credit corporations in the credit banks, the banks had total net worth of $150,471,704, consisting of $87,405,000 of class A stock held by the Governor of the Farm Credit Administration on behalf of the United States (including $27,405,000 transferred from the production credit corporations) and $63,066,704 of permanent surplus (including $12,744,283 transferred from the production credit corporations). No part of the surplus may be distributed as patronage refunds or dividends. Within the 60-day period following January 1, 1957, and in accordance with the provisions of the 1956 act, the production credit associations, subscribed to approxi mately $13.1 million of class B stock of the banks. One-third of this amount was paid at the time of subscription, one-third on December 31, 1957, and the remainder is payable on or before December 31, 1958. Class A stock is being retired out of the proceeds of class B stock purchases by production credit associations and from net earnings of the banks. Net earnings of the banks remaining after provision for reserves and payment of franchise taxes are distributed each fiscal year as patronage refunds in the form of class B stock to production credit associations and participation certificates to other financing institutions. By June 30, 1957, class A stock in the amount of $4,501,130 had been retired. At June 30, 1957, the capital funds of the credit banks amounted to $150,687,290, composed of $82,903,870 of class A stock held by the Governor, $4,588,245 in class B stock owned by production credit associations, $21,690 in participation certificates issued to other financing institutions, and $63,173,485 in retained earnings. Pursuant to the Farm Credit Act of 1956, the Federal intermediate credit banks revolving fund of $40 million, which was established in 1934 (12 U. S. C. 1131i (e)) to provide additional capital to the Federal intermediate credit banks if needed, will be increased eventually to $70 million as the last $30 million of the Government's investment in class A stock of the banks is retired. 2. Borrowing.-The banks finance their lending activities principally through the issuance and sale to the investing public of consolidated collateral trust debentures and by direct borrowings from commercial banks and other available sources (12 U. S. C. 1041 et seq.). The banks are authorized also to rediscount eligible paper with the Federal Reserve banks; however, these facilities have not been used for a number of years. The aggregate amount of debentures and other similar obligations which may be outstanding on behalf of any bank may not exceed 10 times its surplus and paid-in capital (12 U. S. C. 1041). During the 12 months ended June 30, 1957, the peak ratio of such obligations to capital and surplus ranged among the banks from 4.7 to 1 to 9.9 to 1, and was 6.4 to 1 for the system as a whole. (a) Debentures.-Debentures are required to be secured by the assignment and deposit with farm loan registrars of cash, notes, and other obligations representing loans and discounts, and United States securities, at least equal in amount to the amount of debentures outstanding. The total amount of unmatured debentures outstanding at June 30, 1957, was $923,850,000. (b) Notes payable. The banks supplement their debenture financing from time to time by means of short-term loans from commercial banks and from other banks of the farm credit system which may have surplus funds available. banks had $29 million of such obligations outstanding at June 30, 1957. Lending operations The 1. Type of credit. The Federal intermediate credit banks operate as banks of discount and do not make loans directly to individuals. They discount agricultural and livestock paper for, and make loans to, financing institutions to finance the seasonal production and marketing needs of farmers and stockmen. Maturities of most loans and discounts cover 1 production and marketing season, usually 1 year or less, although some loans and discounts carry maturities up to 5 years, the maximum permitted under the law. 2. Eligible borrowers.-Eligible borrowing and rediscounting institutions include production credit associations, National and State banks, agricultural credit corporations, livestock loan companies, and cooperative associations engaged in the making of loans to farmers. The banks are authorized also to make loans to and discount paper for any other Federal intermediate credit bank, any Federal land bank, or any bank for cooperatives organized under the Farm Credit Act of 1933. 3. Volume of business. It is the function of the banks to finance eligible and acceptable paper in whatever volume may be offered by institutions qualified to receive credit from the banks. Their volume of business thus is governed primarily by the demand for credit which, in turn, is a reflection of general agricultural and economic conditions, volume of agricultural production, the level of production costs, crop and livestock yields, prices of agricultural commodities, and other factors over which the banks have no control. At June 30, 1957, outstanding loans and discounts totaled $999 million and consisted of $924,753,000 of credit to production credit associations, $71,747,000 to other agricultural credit corporations and commercial banks, and $2,500,000 to banks for cooperatives. Supervision of production credit associations The 497 production credit associations, serving farmers throughout the United States and Puerto Rico, obtain most of their lending funds by rediscounting farmers' notes with and by other borrowings from the Federal intermediate credit banks. Each of the 12 banks is responsible for the supervision of the associations in its district. This supervision covers all phases of association |