Item 1A. Risk Factors
Item 1A. Risk Factors
For a discussion of our risk factors see Part I, Item 1A "Risk Factors" of Farmer Mac's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("2019 Form 10-K"), as filed with the SEC on February 25, 2020, and as updated by Farmer Mac's Current Report on Form 8-K filed with the SEC on April 6, 2020, Farmer Mac's Quarterly Report on Form 10-Q filed with the SEC on May 11, 2020, and Farmer Mac's Quarterly Report on Form 10-Q filed with the SEC on August 10, 2020 ("2020 Second Quarter Form 10-Q"). The information included in the "Risk Factors" section of the 2020 Second Quarter Form 10-Q is incorporated by reference herein. The risk factors in this section update and supplement the risk factors described in "Risk Factors" in the 2019 Form 10-K and the 2020 Second Quarter Form 10-Q. The primary risks to our business and how we seek to manage those risks are also described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management," in the 2019 Form 10-K and in this report. The risks we face could materially affect our business, operations, operating results, financial condition, liquidity, capital levels, or future results and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make.
Farmer Mac’s efforts to manage and mitigate these risk factors may be unsuccessful, and the effectiveness of these efforts and the extent to which the COVID-19 pandemic affects Farmer Mac’s business, results of operations, and financial condition will depend on factors beyond its control, including: the duration, severity, and spread of the pandemic; third-party and government actions taken to contain COVID-19 or treat its impact and mitigate public health and economic effects; the nature and extent of the deferments approved for borrowers negatively affected by COVID-19; the conduct of agricultural producer borrowers in response to the COVID-19 pandemic and how quickly and to what extent affected borrowers can recover from the negative economic impact of the pandemic; and how quickly and to what extent normal economic and operating conditions can resume, including whether any future COVID-19 outbreaks interrupt economic recovery. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment and stimulus measures, continued outbreaks and increasing rates of infection, and the related impacts to economic and operating conditions. Even after the COVID-19 pandemic is over, Farmer Mac may continue to experience material adverse effects to its business as a result of the disruption in the global economy, the domestic agricultural economy, and any resulting recession. Because there have been no comparable recent global pandemics that resulted in similar global macroeconomic impact, Farmer Mac does not yet know the full extent of the effects on its business, operations, or the global economy as a whole, but they could materially and adversely affect Farmer Mac’s business, operations, operating results, financial condition, liquidity, or capital levels as discussed in more detail below.
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The trading price for Farmer Mac's Class C non-voting common stock may be volatile due to market influences, trading volume, the effects of equity awards for Farmer Mac's officers, directors, and employees, or sales of significant amounts of the stock by large holders.
The trading price of Farmer Mac's Class C non-voting common stock ("Class C stock") has at times experienced substantial price volatility and may continue to be volatile. For example, from January 2020 to October 2020, the closing price of the Class C stock ranged from $43.02 per share to $83.55 per share. The trading price may fluctuate in response to various factors, including short sales, hedging, the presence or absence of a share repurchase program, stock market influences in general that are unrelated to Farmer Mac's operating performance (including COVID-19), or sales of significant amounts of the stock by large holders. Farmer Mac typically grants equity awards each year that are based on the Class C stock, including grants that vest over time or upon the achievement of specified performance goals. Sales of stock acquired upon vesting or the exercise of equity awards by Farmer Mac's officers, directors, or employees, whether under an established trading plan or otherwise, could adversely affect the trading price of the Class C stock.
As to the potential effect of sales of significant amounts of the Class C stock by large holders, Farmer Mac is aware of a regulatory action that could result in significant sales by Zions Bancorporation, National Association (“Zions”), which held 600,000 shares of Class C stock (approximately 6.5% of the outstanding shares) as of November 6, 2020. In a letter granting conditional approval of a proposed merger involving Zions, the applicable federal regulator found that, although Zions had requested to maintain its ownership in Farmer Mac’s Class C stock after the merger, the continued ownership of Class C stock (held by Zions' holding company before the merger) would not be a permissible investment for the surviving national bank entity of the merger based on then-current precedent. Under the terms of the conditional approval letter, Zions was to divest its ownership of the Class C stock by September 30, 2020, however Zions has indicated in its Quarterly Report filed on Form 10-Q on May 6, 2020, that the regulator has granted approval for Zions to extend the original sale deadline from September 30, 2020 to a date which will enable an orderly sale of its Farmer Mac Class C stock. Even though the regulator has made the determination to allow Zions to sell the Class C stock over an extended period, Zions is still required to sell all or a significant amount of its remaining Class C stock, and those sales could adversely affect the trading price of the Class C stock. The merger condition related to Zions’ ownership of Class C stock does not apply to Zions’ ownership of 322,100 shares of Farmer Mac’s Class A voting common stock (approximately 31.25% of the outstanding shares of that stock as of September 30, 2020). Farmer Mac believes that Zions' sales of the Class C stock, and the expectation that its sales will continue until all shares are sold, have in the past and can be expected in the future to negatively impact the potential for increases in the price of the Class C stock.
All of these factors may be exacerbated during periods of low trading volume for Farmer Mac's Class C stock, which has averaged approximately 50,000 shares daily during 2020, and may have a prolonged negative effect on its trading price or increase price volatility.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.